2023 (2) TMI 1059 - AT - Income Tax

Exemption u/s 11 - depreciation from the assets while computing its income - Scope of Section 11(6) inserted by Finance (No.2) Act, 2014 denying depreciation while computing income of charitable trust - HELD THAT - It is not the case of the assessee before us that the assets acquired by the assessee without claiming the application of income in respect of such asset for which the assessee is claiming the depreciation. In our view, once the assessee has claimed the application of income in acquiring the assets either in the current year or in the previous year, then the assessee is not entitled to claim depreciation on such assets. Hence, we do not find any merits in the contentions raised by the assessee and the order passed by the ld.CIT(A) giving the reasons, is in accordance with the bare provision of the Act and hence, the present appeal is devoid of any merits and accordingly, the appeal of the assessee is dismissed. So far as the judgments relied upon by the assessee are concerned, all those decisions are prior to the amendment by virtue of section 11(6) of the Act was inserted in the Act. Various Hon ble High Courts including decision of Sri Sri Adichunchunagiri Shikshana Trust 2016 (7) TMI 1046 - KARNATAKA HIGH COURT , Medical Trust of the Seventh Day Adventists 2017 (8) TMI 931 - MADRAS HIGH COURT and Seth Anandram Jaipuria Edu. Society Cantonment 2017 (3) TMI 896 - ALLAHABAD HIGH COURT have held that, Section 11(6) inserted by Finance (No.2) Act, 2014 denying depreciation while computing income of charitable trust, is prospective in nature and operates with effect from 1-4-2015. The assessment for the year under consideration is 2017-18 and therefore, section 11(6) is squarely applicable to the facts of the case and the Revenue is justified in denying the depreciation to the assessee on the assets purchased prior to the previous year relevant to the assessment year under consideration. Appeal of the assessee is dismissed.

Issues Involved:

1. Applicability of Section 11(6) of the Income Tax Act, 1961.
2. Retrospective vs. Prospective application of Section 11(6).
3. Allowance of depreciation on assets acquired prior to the amendment.
4. Interpretation of "application of income" and "depreciation" under Section 11.

Detailed Analysis:

1. Applicability of Section 11(6) of the Income Tax Act, 1961:

The primary issue revolves around whether the assessee trust can claim depreciation on assets acquired before the amendment brought by Finance Act No. 2/2014, effective from 01-04-2015. The assessee argued that Section 11(6) is prospective and should not affect assets acquired before the amendment. The Revenue, however, contended that depreciation cannot be claimed if the cost of acquisition was already treated as an application of income.

2. Retrospective vs. Prospective Application of Section 11(6):

The assessee cited the Supreme Court's decision in Civil Appeal No. 7186 Of 2014 - CIT -III, PUNE Vs. Rajasthan And Gujarati Charitable Foundation Poona, arguing that the amendment is prospective. The Revenue agreed that the amendment is prospective but maintained that from AY 2015-16 onwards, depreciation cannot be claimed on assets if their cost was previously claimed as an application of income.

3. Allowance of Depreciation on Assets Acquired Prior to the Amendment:

The assessee argued that there was no dispute on the allowance of depreciation up to AY 2016-17 for assets acquired before AY 2015-16. They contended that the amendment should not apply retrospectively to these assets. The Revenue countered that the intent of Section 11(6) was to prevent double benefits and ensure that income applied for charitable purposes is not claimed again as depreciation.

4. Interpretation of "Application of Income" and "Depreciation" under Section 11:

The assessee emphasized that Section 11(6) provides two mutually exclusive options: claiming the cost of acquisition as an application of income or claiming depreciation. They argued that the section should not be interpreted to disallow depreciation on assets acquired before AY 2015-16. The Revenue pointed out that the amendment aimed to rationalize the provisions to prevent double benefits and that the language of Section 11(6) clearly prohibits depreciation if the cost was previously claimed as an application of income.

Judgment:

The Tribunal concluded that the plain language of Section 11(6) is clear and unambiguous, prohibiting the allowance of depreciation on assets if their cost was previously claimed as an application of income. The Tribunal upheld the Revenue's view that the amendment is prospective and applies from AY 2015-16 onwards, but it also affects assets acquired before the amendment if their cost was claimed as an application of income. The appeal of the assessee was dismissed, affirming the order of the CIT(A) and the disallowance of depreciation amounting to Rs. 7,95,37,619.

Conclusion:

The Tribunal held that Section 11(6) of the Income Tax Act, 1961, which disallows the deduction of depreciation on assets whose cost has been claimed as an application of income, is applicable prospectively from AY 2015-16. However, it also affects assets acquired before this date if their cost was claimed as an application of income. The appeal of the assessee was dismissed, and the disallowance of depreciation was upheld.

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