2015 (10) TMI 176 - AT - Income Tax

Entitlement to claim of depreciation - cost of acquisition of asset was treated as application of income for the purpose of claiming exemption under section 11 of the Act - CIT(A) allowed the claim - Held that - In view of the conflicting decisions of the High Courts on the issue, the decision in favour of the assessee is to be followed is the ratio of the decision of the hon ble Supreme Court in the case of CIT v. Vegetable Products Ltd. 1973 (1) TMI 1 - SUPREME Court . Therefore, respectfully following the decisions of the hon ble Bombay High Court and the hon ble Karnataka High Court in the cases of CIT v. Institute of Banking 2003 (7) TMI 52 - BOMBAY High Court and CIT v. Society of the Sisters of St. Anne 1983 (8) TMI 44 - KARNATAKA High Court respectively and also this Tribunal in the assessee s own case, we sustain the order of the Commissioner of Income- tax (Appeals) on this issue to held that Depreciation should be allowed even on assets, the cost of which had been allowed as exempt under section 11 in the preceding years - Decided against revenue.

Summary

Issues Involved:
- Appeal filed by Revenue against Commissioner of Income-tax (Appeals) order for AY 2009-10.
- Allowance of depreciation when cost of acquisition treated as application of income under section 11.

Analysis:
1. Issue of Depreciation Claim:
The primary issue in this case revolves around the claim of depreciation by the assessee in the context of treating the cost of acquisition of assets as an application of income for exemption under section 11 of the Income Tax Act. The Revenue contended that allowing depreciation on assets already considered as an application of income would result in double deduction. However, the Tribunal, after considering various precedents, emphasized that for determining the income of a trust eligible for exemption under section 11, income from property held under trust constitutes the income of the trust. The Tribunal highlighted that depreciation on trust assets is a necessary deduction for calculating the income of a trust, as the concept of commercial income includes such deductions. The Tribunal also cited decisions from different High Courts supporting the allowance of depreciation on assets, even if the cost had been exempted under section 11 in preceding years.

2. Judicial Precedents Considered:
The Tribunal extensively analyzed previous decisions, including those of the Bombay High Court, Karnataka High Court, Madhya Pradesh High Court, and Gujarat High Court, which upheld the allowance of depreciation on trust assets. The Tribunal noted that the Delhi High Court, in a separate case, took a contrary view without considering these decisions. In light of conflicting judgments, the Tribunal followed the principle established by the Supreme Court in CIT v. Vegetable Products Ltd., emphasizing that when High Courts have conflicting decisions, the one in favor of the assessee should be followed. Consequently, the Tribunal upheld the Commissioner of Income-tax (Appeals) order and dismissed the Revenue's appeal.

3. Conclusion:
Ultimately, the Tribunal dismissed the Revenue's appeal, affirming the order of the Commissioner of Income-tax (Appeals) regarding the allowance of depreciation on assets considered as an application of income under section 11. By relying on established legal principles and precedents from various High Courts, the Tribunal concluded that depreciation should be deductible to arrive at the income of a trust, and the claim of double deduction was unfounded in this context. The decision highlighted the importance of following favorable judgments for the assessee in cases of conflicting High Court decisions.