2018 (3) TMI 1577 - AT - Income Tax

Depreciation on capital assets already been allowed as application of income u/s 11 - Held that - Identical to the issue before the Hon ble Apex Court in CIT Vs. Rajasthan and Gujarati Charitable Foundation Poona (2017 (12) TMI 1067 - SUPREME COURT) and following the same parity of reasoning, we hold that the assessee is entitled to claim deduction on account of depreciation on the assets, cost of which has already been allowed as application of income under section 11 of the Act in preceding years. Upholding the order of CIT(A), we dismiss the grounds of appeal raised by the Revenue.

Summary

Issues:
- Claim of depreciation on capital assets previously allowed as application of income under section 11 of the Income-tax Act, 1961.

Analysis:
1. The appeals filed by the Revenue were against separate orders of CIT(A) relating to assessment years 2010-11 & 2011-12. Both appeals were heard together for convenience.

2. The main issue raised was the claim of depreciation on capital assets whose value had already been allowed as application of income under section 11 of the Act.

3. The Assessing Officer noted that the cost of assets had been allowed as application of income, resulting in nil WDV for depreciation claims. The AO relied on the Supreme Court's judgment in Escorts Ltd. Vs. Union of India.

4. The CIT(A) referred to the Supreme Court's decision in Escorts Ltd. Vs. Union of India and subsequent High Court judgments, allowing depreciation claims on assets even if the cost had been allowed as application of income in preceding years.

5. The issue was also addressed by the Hon'ble Apex Court in CIT Vs. Rajasthan and Gujarati Charitable Foundation Poona, where it was held that depreciation could be claimed on assets already allowed as application of income under section 11.

6. Following the Apex Court's decision, the ITAT Pune upheld the CIT(A)'s order, allowing the assessee's claim for depreciation. The ITAT dismissed the Revenue's appeals, stating that the facts and issues were identical in both cases.

7. The ITAT's decision aligned with the commercial principles of computing Trust income under section 11 of the Act, allowing for normal depreciation deductions. The judgment highlighted that the Finance Act No.2/2014 amendment was prospective, affirming the allowance of depreciation claims on such assets.

8. Ultimately, the ITAT Pune dismissed both appeals of the Revenue, applying the reasoning and decision from the Apex Court's judgment in a similar case.