2013 (12) TMI 485 - HC - Income Tax

Depreciation on assets - Held that - The Tribunal should have made an open remand for considering the depreciation on assets that the assessee used in the business - The direction of the Tribunal is contrary to law - Without being influenced by the observation made, the Assessing Officer shall consider the claim of the appellant/assessee as regards the depreciation on the fixed assets, for the purposes of finding out the compliance of Section 11 of the Act - Decided in favour of assessee.

Summary

Issues:
Challenge to order of Income Tax Appellate Tribunal regarding application of income and depreciation for a Public Educational Trust under Section 11 of the Income Tax Act, 1961.

Analysis:

1. Application of Income:
The assessee, a Public Educational Trust, challenged the order of the Income Tax Appellate Tribunal regarding the shortfall in income for the assessment year 2009-2010. The Assessing Officer calculated a shortfall in income, which the Commissioner of Income Tax (Appeals) upheld. The Commissioner noted a deficit in the application of income compared to the total income of the trust for the respective years. The claim of the assessee regarding depreciation on fixed assets was also considered during this assessment.

2. Depreciation and Application of Income:
The Commissioner rejected the plea of the assessee regarding the claim of depreciation in computing the application of income. It was emphasized that under Section 11 of the Act, only actual expenditure incurred was considered as application of income, not notional expenditure or allowances. The Commissioner referred to previous decisions and highlighted that allowing further allowance under any other section for capital expenditure already deducted would amount to double deduction, which is impermissible. Consequently, the appeal filed by the assessee was dismissed.

3. Tribunal's Decision and Remand:
The assessee appealed before the Income Tax Appellate Tribunal, which observed discrepancies in the Commissioner's order regarding the application of income and corpus donations. The Tribunal directed a fresh assessment by the Assessing Officer, specifically mentioning a detailed adjudication on the issue of depreciation. The Tribunal's order stated that if the assessee is carrying on any business, depreciation on assets used in the business would be permissible. The assessee raised a grievance against this observation, claiming it hindered the Assessing Officer's independent decision-making.

4. High Court's Decision:
The High Court addressed the limited prayer made by the assessee and held that the Tribunal's observation on depreciation should be disregarded. The Court directed the Assessing Officer to consider the claim of the appellant regarding depreciation on fixed assets without being influenced by the Tribunal's observation. The assessee was given the opportunity to present materials and decisions supporting their claim to the Assessing Officer for a fresh assessment in compliance with the law.

In conclusion, the High Court disposed of the tax case appeal, emphasizing that the Assessing Officer should independently evaluate the claim of the appellant regarding depreciation on fixed assets without being swayed by any previous observations, allowing the assessee to present relevant materials for consideration.