2018 (12) TMI 595 - AT - Income Tax

Disallowance of depreciation to assessee trust - whether depreciation allowable on expenditure incurred for capital purpose where the expenditure was already treated as application of income for the objects of the assessee-trust in terms of section 11(1)(a)? - Held that - The assessee is a charitable institution registered under section 12A and assessed accordingly. It is the case of the Revenue that once the capital expenditure has been claimed as deduction u/s 11(1)(a) as application of income for the objects of the trust, depreciation claimed on the same assets amounts to double deduction which is not permissible in law having regard to the provisions of section 11(6) of the Act which prohibits such deduction. We find that the Hon ble Supreme Court in the case of Rajasthan and Gujarati Charitable foundation Poona 2017 (12) TMI 1067 - SUPREME COURT has held that even if the entire expenditure incurred for acquisition of capital assets is treated as application of income for charitable purpose under section 11(1)(a) of the Act, the assessee would continue enjoy also the benefit depreciation under section 32 of the Act. Hon ble Supreme Court observed that the argument that the grant of depreciation amounts to giving double benefit to the assessee is not acceptable. Hon ble Supreme Court further held that specific provisions of section 11(6) which bars claim of depreciation of expenditure incurred for charitable purposes is prospective and applies only from the assessment year 2015-16. The assessee is entitled to depreciation allowance notwithstanding fact that entire expenditure incurred for acquisition of capital assets were admitted as application of income for charitable purpose under section 11(1)(a). - Decided against revenue.

Summary

Issues:
Disallowance of depreciation claimed by the assessee.

Analysis:
The Revenue appealed against the order of the ld.CIT(A)-5, Baroda for the assessment year 2011-12. The sole issue raised was the deletion of disallowance of depreciation of &8377; 2,19,24,996/- made by the AO. The assessee, a public charitable trust engaged in educational activities, had claimed depreciation under section 11 of the Income Tax Act, in addition to capital expenditure for fixed assets. The AO disallowed the depreciation, considering it as double deduction since all capital expenditure had been treated as application of income. The ld.CIT(A) directed the AO to allow full depreciation, leading to the Revenue's appeal before the Tribunal.

The Tribunal analyzed whether depreciation on capital expenditure, treated as application of income, amounted to double deduction. Referring to the case of Rajasthan and Gujarati Charitable Foundation Poona, the Tribunal noted that the grant of depreciation did not constitute a double benefit. The Hon'ble Supreme Court held that even if capital expenditure was treated as application of income for charitable purposes, the assessee was entitled to claim depreciation under section 32 of the Act. The specific provision of section 11(6) prohibiting depreciation on charitable expenditure was prospective from the assessment year 2015-16. Therefore, the assessee was entitled to depreciation allowance despite the capital expenditure being considered as application of income. The Tribunal upheld the decision of the ld.CIT(A), dismissing the Revenue's appeal.

In conclusion, the Tribunal confirmed that the assessee was entitled to claim depreciation on capital expenditure, even if treated as application of income for charitable purposes. The decision was in line with the Supreme Court's ruling, allowing the depreciation allowance and rejecting the Revenue's appeal.