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2022 (5) TMI 192 - AT - Income TaxAssessment of trust - Allowability of depreciation on the value of assets, where the full acquisition cost such assets claimed as application u/s 11 - HELD THAT - As the allowability of depreciation on assets where the full value of assets was on the previous occasion claimed as application of income , we are mindful to elucidate that, even in the present case, the assessee had claimed the cost of asset as application of income u/s 11 of the Act in any of the previous year or years up to AY 2014-15 and is allowed in the light of judicial precedents, the claim of depreciation thereagainst for the year under consideration is not hit by the amended provision of section 11(6) of the Act, as the amended provision of section 11(6) de future prospective in nature and effective from AY 2015-2016 as held in the case of DIT V/s Al-Ameen Charitable Fund Trust 2016 (3) TMI 462 - KARNATAKA HIGH COURT . Ergo, in the light of judicial precedents stated herein above hold that, the appellant Society is eligible for depreciation up to the AY 2014-2015, consequently we direct the Ld. AO to delete the disallowance of depreciation. - Decided in favour of assessee.
Issues Involved:
1. Allowability of depreciation on assets where the full acquisition cost has been claimed as application u/s 11 of the Income-tax Act, 1961. 2. Disallowance of the claim to carry forward excess application of funds. Detailed Analysis: Issue 1: Allowability of Depreciation on Assets The primary issue in this appeal is whether the appellant, a charitable society, can claim depreciation on assets whose full acquisition cost was previously allowed as an application of income under Section 11 of the Income-tax Act, 1961. Facts and Proceedings: - The appellant society, registered under the Madhya Pradesh Government Registration Act, 1973, and recognized as a charitable institution under Section 12AA of the Act, filed its return of income for AY 2013-14 declaring NIL income after applying Section 11 provisions. - The Assessing Officer (AO) disallowed the depreciation claim, citing the decision of the Kerala High Court in "Lessie Medical Institution Vs CIT" (348 ITR 344), which held that allowing depreciation would amount to double deduction since the full acquisition cost had already been treated as an application of income. - The AO also referenced the newly inserted Section 11(6) by the Finance Act, 2014, arguing it was clarificatory and should apply retrospectively. - The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, emphasizing that depreciation is a charge against profits and should not be allowed in computing income under Sections 11 to 13 of the Act. Tribunal's Analysis: - The Tribunal noted that the issue is no longer res integra, as the Supreme Court in "CIT Vs Rajasthan & Gujarati Charitable Foundation" (402 ITR 441) had settled it in favor of the assessee. The Supreme Court held that depreciation should be allowed even if the full cost of the asset had been treated as an application of income. - The Tribunal distinguished the facts of the present case from the Supreme Court's decision in "Escorts Ltd. Vs UOI" (199 ITR 43), which dealt with dual claims under Section 35 and depreciation, noting that the current issue pertains to exemption claims for charitable purposes. - The Tribunal also referenced several High Court decisions supporting the allowance of depreciation, including "CIT Vs Munisuvrat Jain" (Bombay High Court), "CIT Vs Society of the Sisters of St. Anne" (Karnataka High Court), and others. - The Tribunal concluded that the amended Section 11(6) is prospective and applicable from AY 2015-16, not affecting the current assessment year. Decision: The Tribunal directed the AO to delete the disallowance of depreciation, allowing the appeal in favor of the assessee society. Issue 2: Disallowance of Carry Forward of Excess Application of Funds - The appellant also contested the disallowance of the claim to carry forward excess application of funds amounting to Rs. 4,91,59,159/-. - During the virtual hearing, the appellant's representative did not press this ground for adjudication, acknowledging it did not emanate from the impugned assessment order. Decision: Since the second ground was not pressed, the Tribunal did not adjudicate on this issue. Conclusion: The appeal was allowed in favor of the assessee society regarding the allowability of depreciation on assets, with the Tribunal directing the deletion of the disallowance. The second ground concerning the carry forward of excess application of funds was not adjudicated as it was not pressed by the appellant. Order Pronounced: The order was pronounced in the open court on April 29, 2022.
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