2012 (12) TMI 779 - AT - Income Tax

Depreciation on fixed assets utilized for the charitable purpose Society registered u/s 12A Held that - Following the decision of court in case of DIRECTOR OF INCOME TAX VERSUS VISHWA JAGRITI MISSION 2012 (4) TMI 289 - DELHI HIGH COURT 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 no infirmity in the order passed by CIT(A), affirm the order of CIT(A) and dismiss the appeal filed by the revenue - Appeal of Revenue dismissed.

Summary

Issues:
- Claim of depreciation as deduction for income earned from sale of religious and educational books and magazines.
- Dispute regarding the claim of enhanced amount of exemption under section 11(2) of the Income Tax Act.
- Allowance of depreciation to the appellant by the CIT(A).
- Entitlement of the assessee to claim deduction towards depreciation.
- Interpretation of statutory provisions regarding accumulation of higher income under section 11(2) of the Act.
- Admissibility of a claim of deduction belatedly under section 119(2)(b) of the Act.

Claim of Depreciation:
The appeal pertains to the revenue challenging the claim of depreciation by the assessee on income from selling religious and educational books and magazines. The Assessing Officer disallowed the depreciation claimed by the assessee without providing reasons for the decision. The CIT(A) directed the Assessing Officer to allow the depreciation to the appellant based on the decision of the Bombay High Court in a similar case. The revenue contended that depreciation cannot be treated as application of income and would result in double deduction, citing the principle laid down by the Supreme Court. However, the Tribunal upheld the CIT(A)'s decision, stating that the claim of depreciation did not amount to double deduction and affirmed the allowance of depreciation to the appellant.

Enhanced Exemption Claim under Section 11(2):
The assessee initially declared accumulated income under section 11(2) of the Act at Rs. 1,02,00,000, but later claimed an enhanced amount of Rs. 2,80,00,000 during assessment proceedings. The Assessing Officer restricted the claim to the original amount, citing a Supreme Court decision regarding subsequent claims for higher accumulation requiring a revised return. The CIT(A) allowed the enhanced claim based on the decision of the Bombay High Court, directing the Assessing Officer to accept the revised accumulation amount filed by the assessee. The Tribunal upheld the CIT(A)'s decision, emphasizing that the claim of higher accumulation stands on a different footing than a claim for deduction towards expenditure.

Entitlement to Claim Depreciation:
The revenue argued that the assessee was not entitled to claim depreciation as it would result in double deduction and was not an actual outgo but a charge to profits and gains. They contended that the legislative intention, as reflected in section 14A of the Act, does not allow for depreciation on exempt income. The assessee relied on various decisions and circulars to support their claim that depreciation should be allowed. The Tribunal sided with the assessee, stating that the claim of depreciation did not amount to double deduction in the circumstances of the case and upheld the allowance of depreciation.

Interpretation of Statutory Provisions:
The dispute also involved the interpretation of statutory provisions regarding the accumulation of higher income under section 11(2) of the Act. The revenue argued that the assessee could not claim a higher accumulation without filing a revised return, as per statutory requirements. The assessee contended that they complied with all conditions and filed a fresh notice in Form No. 10 before the completion of assessment. The Tribunal upheld the assessee's position, distinguishing the case from the decision cited by the revenue and affirming the validity of the enhanced accumulation claim.

Admissibility of Belated Claim:
The revenue further contended that a claim of deduction belatedly under section 119(2)(b) of the Act was impermissible, and the Tribunal should not interpret the rules liberally. They argued that the benefit provided under section 11(2) could not be availed by the assessee due to procedural non-compliance. The Tribunal rejected this argument, citing previous decisions and statutory provisions, and upheld the order passed by the CIT(A), dismissing the appeal filed by the revenue.