2018 (9) TMI 1554 - AT - Income Tax

Exemption u/s 11 - Depreciation claim of assessee trust - Held that - As decided in COMMISSIONER OF INCOME TAX -III, PUNE VERSUS RAJASTHAN AND GUJARATI CHARITABLE FOUNDATION POONA 2017 (12) TMI 1067 - SUPREME COURT income of a Charitable Trust derived form building, plant and machinery and furniture was liable to be computed in normal commercial manner although the Trust may not be carrying on any business and the assets in respect whereof depreciation is claimed may not be business assets. In all such cases, section 32 of the Income Tax Act providing for depreciation for computation of income derived from business or profession is not applicable. However, the income of the Trust is required to be computed under section 11 on commercial principles after providing for allowance for normal depreciation and deduction thereof from gross income of the Trust. - Decided in favour of assessee Claim of set off of carry forward of losses - Held that - Income derived from the trust property has also got to be computed on commercial principles and if commercial principles are applied then adjustment of expenses incurred by the trust for charitable and religious purposes in the earlier years against the income earned by the trust in the subsequent year will have to be regarded as application of income of the trust for charitable and religious purposes in the subsequent year in which adjustment has been made having regard to the benevolent provisions contained in the section 11 of the Act and that such adjustment will have to be excluded from the income of the trust under section 11(1)(a) of the Act. Our view is also supported by the judgment of the Gujarat High Court in the case of CIT v. Shri Plot Swetamber Murti Pujak Jain Mandal 1993 (11) TMI 17 - GUJARAT HIGH COURT . - Decided against revenue

Summary

Issues:
1. Allowance of claim of depreciation to the assessee.
2. Allowance of claim of carry forward of losses.

Analysis:

Issue 1: Allowance of claim of depreciation to the assessee
The dispute revolved around the disallowance of depreciation claimed by the assessee on the grounds of double deduction. The Assessing Officer contended that the entire capital expenditure on the purchase of assets was treated as application of income under section 11(1) of the Income-tax Act, thus disallowing the depreciation claim. However, the first appellate authority allowed the depreciation claim, citing a relevant decision by the Hon'ble High Court. The Tribunal, after considering the arguments and precedents, relied on the decision of the Hon'ble Supreme Court in a similar case. The Supreme Court's judgment clarified that normal depreciation is a legitimate deduction in computing the real income of the assessee, even if the assets are not business assets. The Tribunal, following the Supreme Court's decision, dismissed the Revenue's appeal regarding the allowance of depreciation to the assessee.

Issue 2: Allowance of claim of carry forward of losses
The second issue pertained to the claim of set off and carry forward of losses by the assessee. The Revenue contested this claim, relying on a decision by a co-ordinate bench. However, the Tribunal referred to a judgment by the Hon'ble jurisdictional High Court of Delhi, which addressed similar questions of law. The High Court's findings emphasized that adjusting expenses incurred in earlier years against income earned in subsequent years amounts to applying income for charitable purposes. This interpretation was consistent with provisions of the Income-tax Act and was supported by multiple High Court judgments. The Tribunal, in line with the High Court's decision, dismissed the Revenue's appeal regarding the carry forward of losses by the assessee.

In conclusion, the Tribunal upheld the allowance of depreciation to the assessee and the claim of carry forward of losses, based on relevant legal provisions, judicial precedents, and the decisions of higher courts. The appeal by the Revenue was dismissed, and the Tribunal pronounced its order on 20.09.2018.