2022 (4) TMI 154 - AT - Income Tax

Exemption u/s 11 - Whether depreciation to be excluded from the gross receipts for computing accumulation of 15%? - HELD THAT - Considering the facts on record and the decision in the case of Rajasthan Gujarati Charitable Foundation Poona 2017 (12) TMI 1067 - SUPREME COURT we do not find any justification in the suo motto direction given by the Ld. CIT(A) to the Ld. AO to exclude the amount of depreciation from the gross receipts for computing accumulation of 15% when the claim of depreciation has already been held to be allowed by him. Accordingly appeal of the assessee is allowed.

Summary

Issues:
1. Disallowance of depreciation by the Assessing Officer.
2. Direction by the Ld. CIT(A) to exclude depreciation from gross receipts for computing accumulation of 15%.

Issue 1: Disallowance of Depreciation
The appeals by the assessees arose from separate orders of the Ld. Commissioner of Income Tax (Appeals) against assessment orders dated 25-03-2015 and 14.08.2014. The Ld. AO disallowed the claim of depreciation made by the assessee without providing any reason for the disallowance in the assessment order. The Ld. CIT(A) allowed the claim of depreciation by relying on the judgment of the Hon'ble Supreme Court in a specific case. The Ld. CIT(A) observed that the claim of depreciation, even if assets were purchased from the trust's surplus fund, should be allowed. The Ld. CIT(A) emphasized that depreciation is notional expenditure and should be excluded from gross receipts for computing accumulation of 15%.

Issue 2: Direction to Exclude Depreciation from Gross Receipts
The Ld. CIT(A) gave a direction to the Ld. AO to exclude the amount of depreciation from gross receipts for computing accumulation of 15%. The basis for this direction was not clearly understood during the proceedings. However, the judgment of the Hon'ble Supreme Court in a related case clarified that normal depreciation is a legitimate deduction for computing the real income of a charitable trust. The Supreme Court further stated that the income of a trust should be computed on commercial principles after providing for allowance for normal depreciation and deduction thereof from gross receipts. Considering this legal position, the Tribunal found no justification for the direction given by the Ld. CIT(A) to exclude depreciation from gross receipts when the claim of depreciation had already been allowed by him. Consequently, the appeal of the assessee was allowed in both cases.

In conclusion, the Tribunal allowed the appeals of both assessees, emphasizing the importance of considering normal depreciation as a legitimate deduction for computing the real income of a charitable trust. The direction by the Ld. CIT(A) to exclude depreciation from gross receipts for computing accumulation of 15% was deemed unjustified based on the legal principles established by the Hon'ble Supreme Court.