2021 (3) TMI 1003 - AT - Income Tax

Assessment of trust - claim of depreciation - Exemption u/s 11 - assessee herein is a trust duly registered under the Bombay Public Trust Act, 1950 as formed for the purpose of pursuing the educational objects. It was also duly registered u/s 12A - AO disallowed depreciation as application of income of the trust - HELD THAT - The issue in the present appeal is no more res integra as the issue is already settled in favour of the assessee trust in the case of CIT vs. Rajasthan And Gujarat Charitable Foundation, 2017 (12) TMI 1067 - SUPREME COURT wherein had followed the judgement of the Hon ble Jurisdictional High Court in the case of CIT vs. Institute of Banking Personnel Selection 2003 (7) TMI 52 - BOMBAY HIGH COURT wherein rejected the argument on behalf of the revenue that section 32 of the Income-tax Act was the only section granting benefit of deduction on account of depreciation. It was held that income of a Charitable Trust derived from 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. Further, it is settled position of law that the amendment brought by the Finance Act by insertion of sub-section (6) of section 11 of the I.T. Act providing that no double deduction shall be allowed in respect of the fixed assets is held to be prospective. Further, in the case of Director of Income-tax, Exemptions vs. Al- Ameen Charitable Fund Trust 2016 (3) TMI 462 - KARNATAKA HIGH COURT and in the case of Commissioner of Income-tax (Exemptions), Bangalore vs. Karnataka Reddy Janasangha 2016 (6) TMI 1181 - KARNATAKA HIGH COURT took the similar view. - Decided in favour of assessee.

Summary

Issues:
- Whether depreciation can be claimed by a charitable trust on capital assets used for business purposes?
- Whether claiming depreciation on capital assets is considered a double deduction for a charitable trust under the Income Tax Act?

Analysis:

Issue 1:
The appeals were filed by the Revenue against the orders of the Commissioner of Income Tax (Appeals) for the assessment years 2010-11 and 2008-09. The respondent-assessee, a trust registered under the Bombay Public Trust Act, filed its return of income for the assessment year 2010-11, claiming exemption under section 11 of the Income Tax Act, 1961. The Assessing Officer completed the assessment without allowing depreciation as application of income of the trust. The Commissioner of Income Tax (Appeals) allowed the depreciation as application of income based on various judicial precedents supporting the allowance of depreciation for charitable trusts.

Issue 2:
The Revenue contended that claiming depreciation on capital assets for a charitable trust, where the expenditure for the purchase of assets is treated as application of income, results in a double deduction and is not in accordance with the law. The Senior Departmental Representative argued against allowing depreciation as a form of double deduction. However, the assessee did not appear during the proceedings. The Tribunal referred to the decision of the Hon'ble Supreme Court in the case of CIT vs. Rajasthan And Gujarat Charitable Foundation, which established that depreciation can be considered a legitimate deduction for computing the real income of the assessee, even if the trust is not engaged in business activities.

The Tribunal also noted that the amendment introduced by the Finance Act, 2014, regarding the disallowance of double deductions for fixed assets, was held to be prospective. The Tribunal relied on various High Court judgments and the Supreme Court's decision to support the allowance of depreciation as application of income for charitable trusts. Consequently, the Tribunal upheld the Commissioner of Income Tax (Appeals)'s order, dismissing the Revenue's appeals for both assessment years 2010-11 and 2008-09.

In conclusion, the Tribunal affirmed the decision of the Commissioner of Income Tax (Appeals) to allow depreciation as application of income for the charitable trust, in line with established legal principles and judicial precedents.