2021 (5) TMI 358 - AT - Income Tax

Assessment of trust - disallowance of claim of depreciation - HELD THAT - We find that the Ld. CIT(A) following the decision of DIT (Exemption) Vs Indraprastha Cancer Society 2014 (11) TMI 733 - DELHI HIGH COURT has allowed the claim of the assessee of the depreciation, despite claiming by assessee of capital expenditure corresponding to the depreciation as application of funds for charitable purposes while calculating excess of income over expenditure in terms of section 11 of the Act. We may also like to mention that Hon ble Supreme Court in the case of Rajasthan and Gujarati Charitable Foundation Poona 2017 (12) TMI 1067 - SUPREME COURT has allowed benefit of the depreciation while claiming exemption under section 11. Claim of carry forward of losses - HELD THAT - Income is to be computed in accordance with commercial principles and as such adjustment of brought forward loss/deficit and carry forward loss/deficit is to be allowed. See case of DIT Vs Raghuvanshi Charitable Trust 2010 (7) TMI 158 - DELHI HIGH COURT which is a binding precedent. In our opinion, there is no error in the order of Ld. CIT(A) on the issue in dispute, and accordingly, we uphold the same. The ground of the appeal of the Revenue is accordingly dismissed.

Summary

Issues Involved:

1. Allowability of depreciation on fixed assets for a charitable trust.
2. Carry forward of deficit for a charitable trust.

Issue-wise Detailed Analysis:

1. Allowability of Depreciation on Fixed Assets for a Charitable Trust:

The Revenue's first ground of appeal challenged the decision of the Learned CIT(A) allowing the claim of depreciation amounting to ?2,59,19,069/-. The CIT(A) referenced the provisions of the Income Tax Act and judicial precedents to support the decision. Depreciation is an allowance for the reduction in the value of assets due to wear and tear. The CIT(A) noted that under sections 11, 12, 12A, 12AA, and 13, charitable trusts are governed by a complete code for exemption of income, including conditions for eligibility. The CIT(A) highlighted that, historically, charitable institutions were not eligible for depreciation since the income used to acquire capital assets was already exempt.

However, the CIT(A) acknowledged conflicting judgments from various High Courts, including the Delhi High Court, which had differing views on this matter. The CIT(A) relied on the latest decision of the Delhi High Court in the case of DIT (Exemption) vs. Indraprastha Cancer Society, which allowed depreciation for charitable institutions. The Tribunal upheld this view, referencing the Supreme Court's decision in Rajasthan and Gujarati Charitable Foundation Poona, which supported the allowance of depreciation while claiming exemption under section 11. The Supreme Court emphasized that depreciation should be allowed to compute real income, rejecting the Revenue's argument of double benefit.

2. Carry Forward of Deficit for a Charitable Trust:

The second ground of appeal by the Revenue contested the CIT(A)'s decision to allow the carry forward of the deficit amounting to ?22,14,49,902/-. The CIT(A) noted that while the Assessing Officer denied the carry forward of the deficit, no reasons were cited for this decision. The CIT(A) referenced sections 11, 12, 12A, 12AA, and 13, which govern charitable trusts and provide a complete code for exemption of income. Although these sections do not explicitly provide for the adjustment or carry forward of losses, various High Courts have allowed such adjustments based on commercial principles.

The CIT(A) cited multiple High Court decisions, including CIT vs. Maharana of Mewar Charitable Foundation and CIT vs. Shri Plot Swetamaber Murti Pujak Jain Mandal, which supported the view that income should be computed in accordance with commercial principles, allowing for the adjustment and carry forward of deficits. The Tribunal upheld the CIT(A)'s decision, referencing the binding precedent of the Delhi High Court in DIT vs. Raghuvanshi Charitable Trust, which supported the carry forward of deficits for charitable institutions.

Conclusion:

In conclusion, the Tribunal dismissed the appeal filed by the Revenue, upholding the CIT(A)'s decisions on both issues. The Tribunal affirmed the allowability of depreciation on fixed assets for charitable trusts and the carry forward of deficits, aligning with judicial precedents and commercial principles. The order was pronounced in the open court on 11th May 2021.