2012 (8) TMI 355 - AT - Income Tax

Disallowance claim for depreciation - the assessee is a charitable trust engaged in education - Held that - The assessee had already been allowed assets as expenditure/application of fund. When full value of assets had been adjusted as an expenditure or application of fund, no assets remained to be depreciated - following the decision in CIT v/s. Sheth Manilal Ranchhoddas Vishram Bhavan Trust 1992 (2) TMI 51 - GUJARAT HIGH COURT in which depreciation has been allowed even capital assets allowed fully as an expenditure - decided in favour of assessee.

Summary

Issues:
1. Disallowance of depreciation by CIT (A) at Rs. 2,44,99,739.
2. Whether depreciation can be claimed by a charitable trust on assets already allowed as expenditure/application of fund.

Analysis:
1. The appellant challenged the order of CIT (A) for disallowing depreciation of Rs. 2,44,99,739. The appellant argued that the disallowance was contrary to judgments of the High Court and ITAT, Ahmedabad Bench. The AO disallowed the depreciation as double deduction after finding the appellant's explanation unconvincing. The CIT (A) upheld the disallowance, considering it as a double deduction, which was inconsistent with the law. The appellant relied on various judgments to support their claim.

2. The appellant presented judgments such as CIT v/s. Sheth Manilal Ranchhoddas Vishram Bhavan Trust, CIT v/s. Rao Bahadur Calavala Cunnan Chetty Charities, and others to support their case. The ITAT considered these judgments and the essence of depreciation being the exhaustion of a fixed asset's effective life due to use or obsolescence. The ITAT referred to decisions of other High Courts emphasizing the need for depreciation to preserve the trust's corpus. The ITAT concluded that depreciation on assets used by the trust in their activities should be allowed, rejecting the Revenue's grounds and dismissing their appeal.

3. The ITAT, after reviewing the lower authorities' orders and case laws cited, found that when assets had already been allowed as expenditure/application of fund, no assets remained to be depreciated. Following the decisions of the Gujarat High Court and the 'C' Bench, which allowed depreciation even on fully allowed capital assets, the ITAT allowed the appeal in favor of the assessee. The ITAT upheld the principle that depreciation for assets used in trust activities should be permitted, even if the assets were fully accounted for as expenditure.

Conclusion:
The ITAT allowed the assessee's appeal, emphasizing the importance of allowing depreciation on assets used by a charitable trust in their activities, even if those assets had been fully accounted for as expenditure or application of fund. The ITAT decision was based on legal precedents and the principle of preserving the trust's corpus through depreciation provisions.