2012 (4) TMI 289 - HC - Income Tax

Allowability of Depreciation on fixed assets utilized for the charitable purpose Society registered u/s 12A Held that - Having regard to the consensus of judicial opinion on the precise question it is held that claim of depreciation on fixed assets utilized for the charitable purposes has to be allowed while arriving at the income available for application to charitable and religious purposes, since the income of the society should be computed on the basis of commercial principles. Order of tribunal upheld Appeal of Revenue dismissed.

Summary

Issues:
1. Rejection of registration under Section 12AA of the Income Tax Act, 1961.
2. Computation of taxable income for the assessee.
3. Allowance of depreciation on fixed assets utilized for charitable purposes.

Issue 1: Rejection of Registration under Section 12AA:
The respondent-assessee, a registered society, applied for registration under Section 12AA of the Income Tax Act, 1961, which was rejected by the Director of Income Tax. The Tribunal set aside the rejection and directed re-examination. However, the registration was again rejected. The rejection impacted the claim for exemption under Section 11 of the Act.

Issue 2: Computation of Taxable Income:
The Assessing Officer computed the taxable income based on gross receipts and claimed expenses. The assessee declared gross receipts from donations, land sale profit, and bank interest. As the assessee did not specify expenses, the Officer estimated monthly expenses and arrived at the net taxable income. The assessee appealed, claiming the allowed expenses were insufficient and depreciation on fixed assets should be considered.

Issue 3: Allowance of Depreciation on Fixed Assets:
The CIT(Appeals) accepted the claim for exemption under Section 11 and directed the Assessing Officer accordingly. The claim for depreciation on fixed assets was allowed based on precedents and commercial principles. The Tribunal upheld this decision despite the revenue's appeal, citing consistency with previous orders and legal authorities.

The judgment emphasized that income of charitable institutions should be computed on commercial principles, allowing depreciation on fixed assets. Various High Court judgments supported this view, highlighting the necessity of depreciation in computing income available for charitable purposes. The Supreme Court's decision on double deduction in business expenses was distinguished, affirming the allowance of depreciation for charitable trusts. The consensus of judicial opinion led to the dismissal of the revenue's appeal, as no contrary view was presented.