2006 (3) TMI 191 - AT - Income Tax

Deduction of 1/5th of income from house property u/s 24(1)(i) - Charitable Trust - Disallowance of depreciation - Medical Expenses - HELD THAT - It was found that despite the fact that no claim was made before AO, there was also no material on record to support such claim. But the position in the case of assessee is different. As pointed out earlier that depreciation claim has been claimed in the income and expenditure account. Therefore, the claim of assessee could not be denied on the ground that the said claim was not made before AO. Learned Departmental Representative had raised an issue that where the entire cost has been allowed as expenditure, no depreciation is eligible. However, it is not the case of AO or the CIT(A) that entire cost of the said building was allowed as an expenditure in the case of assessee. On the other hand, in the balance sheet the value of the building stands. Therefore, there being no supportive material with regard to this contention of learned Departmental Representative, we find no merit in such contention. No dispute to the fact that the object of assessee-trust includes merely establishment of hospital. Establishment of hospital in itself embedded the provisions for medical help to be extended to the public. Establishment of hospital is one of the modes to provide such medical help. Taking a liberal view we hold that providing medical help is also covered in the objects of the trust, particularly when genuineness of such payments incurred by assessee in respect of medical help have not been doubted. Therefore, we direct AO to delete the disallowance. To sum up, our findings are as under (a) The assessee is not entitled to deduction u/s 24(1)(i). (b) The assessee is entitled to get depreciation as claimed by it in the income and expenditure account we find that the claim of depreciation before CIT(A) in the grounds of appeal was Rs. 4,41,530 whereas in the grounds filed before us is Rs. 6,49,856 . According to decision in the case of CIT vs. Sheth Manilal Ranchhoddas Vishram Bhavan Trust 1992 (2) TMI 51 - GUJARAT HIGH COURT the amount of depreciation debited to the accounts of the charitable institution has to be deducted to arrive at the income available for application to charitable and religious purposes. Therefore, we hold that the assessee is entitled for depreciation only to the extent of Rs. 4,41,530 in place of Rs. 6,49,856 mentioned in the grounds of appeal before us. (c) The disallowance of Medical Expenses is deleted. In the result, appeal filed by the assessee is partly allowed.

Summary

Issues Involved:
1. Deduction of 1/5th of income from house property under Section 24(1)(i) of the IT Act.
2. Depreciation.
3. Medical expenses.

Detailed Analysis:

I. Deduction of 1/5th of Income from House Property under Section 24(1)(i):

The assessee-trust claimed a deduction of Rs. 2,96,702, being 1/5th of the rental income on account of repairs, under Section 24(1)(i) of the IT Act. The AO disallowed this claim, relying on the decision of the Madras High Court in CIT vs. Rao Bahadur Calavala Cunnan Chetty Charities, which held that the income for charitable purposes should be computed in a normal commercial manner without reference to the provisions of the IT Act. The CIT(A) upheld this disallowance, and the Tribunal agreed, stating that the income under Section 11 should be computed without the artificial provisions of the IT Act, thus denying the deduction under Section 24(1)(i).

II. Depreciation:

The assessee claimed depreciation of Rs. 6,49,856, citing the Gujarat High Court decision in CIT vs. Sheth Manilal Ranchhoddas Vishram Bhavan Trust, which allows depreciation in computing the income of a charitable trust. The CIT(A) rejected this claim, stating it was not raised before the AO and relying on the Supreme Court decision in Addl. CIT vs. Gurjargravures (P) Ltd. However, the Tribunal found that the claim was included in the income and expenditure account and should not be denied merely because it was not raised before the AO. The Tribunal directed the AO to allow depreciation of Rs. 4,41,530, as per the jurisdictional High Court's decision.

III. Medical Expenses:

The assessee incurred medical expenses of Rs. 79,346, which were disallowed by the AO, arguing that the trust deed only mentioned the establishment of a hospital, not direct medical help. The CIT(A) upheld this disallowance. However, the Tribunal took a liberal view, stating that the establishment of a hospital inherently includes providing medical help, and directed the AO to delete the disallowance, as the genuineness of the payments was not in question.

Conclusion:

The Tribunal concluded:
- The assessee is not entitled to a deduction under Section 24(1)(i).
- The assessee is entitled to depreciation of Rs. 4,41,530.
- The disallowance of Rs. 79,346 for medical expenses is deleted.

The appeal was partly allowed.