2018 (6) TMI 1040 - AT - Income Tax

Claim of depreciation to assessee trust - assets cost of which were treated as application of income - assessee is a trust registered u/s.12A(a) - Held that - We are of the opinion that ld. Commissioner of Income Tax (Appeals) was justified in holding that assessee was eligible to claim depreciation on assets, cost which was claimed as application of income. We do not find any reason to interfere with the order of the ld. Commissioner of Income Tax (Appeals). See CIT vs. Rajasthan and Gujarati Charitable Foundation Poona 2017 (12) TMI 1067 - SUPREME COURT - Decided in favour of assessee.

Summary

Issues:
Allowance of depreciation on assets treated as application of income by a trust registered under section 12A(a) of the Income Tax Act, 1961.

Analysis:
The Appellate Tribunal, ITAT Chennai, dealt with an appeal against the order of the Commissioner of Income Tax (Appeals) concerning the allowance of depreciation on assets by a trust. The Assessing Officer had denied the depreciation claim, citing potential double deduction as the cost of assets was treated as application of income. The Tribunal referred to the judgment of the Hon'ble Apex Court in the case of CIT vs. Rajasthan and Gujarati Charitable Foundation Poona, emphasizing that depreciation could be allowed even if the capital expenditure was treated as application of income for charitable purposes. The Tribunal highlighted the Bombay High Court's decision in various cases, affirming that depreciation could be considered a legitimate deduction under general principles or under section 11(1)(a) of the Income Tax Act. The Tribunal rejected the argument that depreciation could only be allowed under section 32 of the Act, stating that it could be claimed under general principles as well.

Analysis (contd.):
The Tribunal further discussed a case where the Tribunal's view on depreciation was confirmed by the Bombay High Court, emphasizing that treating expenditure as application of income did not preclude claiming depreciation on assets in subsequent years. The Tribunal noted that most High Courts had supported this view, except for the High Court of Kerala in a specific case. The Tribunal also mentioned an amendment in Section 11(6) of the Act, clarifying that it was prospective. The Tribunal concluded that once depreciation was allowed, the assessee could carry it forward. Ultimately, the Tribunal upheld the decision of the Commissioner of Income Tax (Appeals) to allow the depreciation claim on assets whose cost was treated as application of income by the trust. As a result, the appeal of the Revenue was dismissed.

This detailed analysis of the judgment by the Appellate Tribunal, ITAT Chennai, provides a comprehensive understanding of the issues involved and the legal principles applied in allowing depreciation on assets treated as application of income by a trust registered under the Income Tax Act.