2022 (6) TMI 127 - AT - Income Tax

Exemption u/s 11 - disallowance of claim of depreciation - HELD THAT - As through the decision of the Hon ble Apex Court in the case of Rajasthan and Gujarati Charitable Foundation Poona 2017 (12) TMI 1067 - SUPREME COURT we are in agreement with the assessee that the issue of disallowance of depreciation in the backdrop of the fact that the assessee has already been allowed the cost of investment in fixed assets as application of income as per the provisions of Section 11 of the Act has already been settled by the Hon ble Apex Court in favour of the assessee categorically holding that the assessee is entitled to the same. We have noted that the Hon ble Apex Court has taken note of the amendment to the Act in this regard in Section 11 (6) vide Finance Act 2/2014, denying claim of depreciation in such circumstances and has held the same to be prospective in nature with effect from assessment year 2015-16. Thus with the assessee being a charitable trust registered as such u/s. 12AA of the Act and having claimed depreciation on assets investments in which had been allowed as application of income in preceding years as per the provisions of Section 11 of the Act and the impugned assessment year being assessment year 2014-15 the issue we find is squarely covered by the decision of the Hon ble Apex Court in its favour. In view of the same we hold that the assessee is entitled to deduction of depreciation and the A.O. is directed accordingly to allow the same for the purposes of computing its income. Ground of appeal raised by the assessee is accordingly allowed.

Summary

Issues:
Disallowance of claim of depreciation for a charitable trust under Section 12AA of the Income Tax Act, 1961.

Analysis:
The appeal was filed against the order disallowing depreciation of Rs. 32,70,994 for Assessment Year 2014-15. The dispute arose as the assessee, a charitable trust, had claimed the investment in fixed assets as application of income under Section 11 of the Act, leading to the denial of depreciation by the Revenue on grounds of potential double deduction. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) (CIT(A)) both upheld the disallowance, citing inconsistency with accounting principles and law.

The CIT(A) affirmed the AO's decision, stating that once an asset is claimed as application of income, further deduction of depreciation is not allowable. The contention that it did not amount to double deduction was rejected, as the assets were already claimed as application. The assessee challenged this decision, arguing for the allowance of depreciation.

During the hearing, the assessee relied on a Supreme Court judgment in a similar case, where depreciation was allowed despite the Revenue's claim of double deduction. The Departmental Representative (D.R.) supported the CIT(A)'s order but failed to distinguish the case from the Supreme Court precedent.

The Tribunal noted the settled issue in favor of the assessee by the Supreme Court, emphasizing that when assets were treated as application of income under Section 11, depreciation could not be denied. The Supreme Court's decision highlighted that the denial of depreciation would result in double benefit to the assessee, which was not the intent of the law. The Tribunal agreed with the assessee's counsel, citing the prospective nature of the amendment to Section 11(6) of the Act, effective from Assessment Year 2015-16.

Given the identical circumstances to the Supreme Court case, the Tribunal allowed the appeal, directing the AO to permit the depreciation claimed by the assessee. The Tribunal upheld the principle that once depreciation is allowed, it can be carried forward. The decision was based on the established legal position and the interpretation of Section 11 and Section 32 of the Income Tax Act.

In conclusion, the Tribunal allowed the appeal, ruling in favor of the assessee and directing the AO to allow the depreciation claim of Rs. 32,70,994. The judgment reaffirmed the legal position established by the Supreme Court regarding the treatment of depreciation for charitable trusts under the Income Tax Act.