1982 (9) TMI 94 - AT - Income Tax

Summary

Issues:
1. Whether the Tribunal was justified in allowing depreciation on assets owned by a trust for the purpose of computing income under section 11(2) of the IT Act, 1961?
2. Whether the Tribunal was justified in allowing depreciation contrary to its decision in previous assessment years for the same assessee?

Detailed Analysis:

Issue 1:
The case involved a trust seeking depreciation of Rs. 21,107 on its assets for the assessment year 1975-76. The Income Tax Officer (ITO) disallowed this claim, considering it as part of the income available for the trust's objects. The trust appealed to the Appellate Assistant Commissioner (AAC), who allowed the depreciation deduction based on established principles. The AAC relied on a previous Tribunal decision and directed the deduction of depreciation for arriving at the amount available for the trust's objectives. The Tribunal upheld the AAC's decision, emphasizing the need for adequate depreciation to determine the real income of the trust. The Tribunal's decision aligned with commercial principles and trustees' duties to provide for asset replacement due to wear and tear.

Issue 2:
The Department challenged the Tribunal's decision, arguing against allowing notional depreciation deductions from the trust's actual funds. However, the Tribunal, in line with its previous ruling and prudent business considerations, maintained that depreciation should be factored in to determine the trust's real income. The Tribunal highlighted the settled law established in a previous case involving L.C. Charitable Trust, where depreciation was deemed essential for calculating income available for the trust's purposes. The Tribunal's decision was further supported by the rejection of appeals and applications related to the L.C. Trust case, solidifying its status as settled law on the subject. Despite the Department's efforts to refer a similar question from another case, the Tribunal declined to entertain the proposed questions, as the law on depreciation for trust income had been conclusively established.

In conclusion, the Tribunal rejected the application seeking reference of questions of law, maintaining its decision to allow depreciation for calculating the income available for a trust's objectives. The judgment emphasized the necessity of providing for depreciation in line with commercial practices and trustees' responsibilities, as established in previous rulings and upheld through subsequent legal proceedings.