2016 (3) TMI 143 - AT - Income Tax

Disallowance of depreciation to trust - whether while computing income under section 11(1) (a) of the Income tax Act, 1961, depreciation has to be allowed? - Held that - it is explicitly clear that Section 11 (1) (a) of the Act provides a condition for claiming exemption of income in the case of certain assessees from their total income for a particular assessment year under Chapter III of the Act viz. incomes which do not form part of total income , while as depreciation is a deduction allowable u/s 32 of the Act while computing income under the head income from business or profession as provided under Chapter V of the Act viz., computation of total income under various heads. Thus, both the sections 11(1) (a) of the Act and section 32 of the Act are applicable on different issues and under different circumstances. Accordingly, both these sections will be applicable independently when conditions stipulated therein are fulfilled - Decided in favour of assessee

Summary

Issues involved:
Challenge to correctness of order dated 17th January, 2013 passed by the ld. CIT(A) for assessment under section 143(3) of the Income Tax Act, 1961 for the assessment year 2007-08 regarding disallowance of depreciation, availability of depreciation for charitable trust, and correctness of the order of the Assessing Officer.

Analysis:

Issue 1: Disallowance of depreciation
The Assessing Officer challenged the correctness of the order passed by the ld. CIT(A) regarding the disallowance of depreciation amounting to Rs. 18,93,672. The Tribunal observed that the issue was already covered in favor of the assessee by a co-ordinate bench's decision in the assessee's own case for the assessment year 2009-10. The Tribunal referred to previous judgments by the Gujarat High Court and the Bombay High Court, emphasizing that income from property held under trust should be computed based on commercial principles, allowing for depreciation. The Tribunal held that granting of exemption under section 11 and depreciation under section 32 does not amount to double deduction. Therefore, the Tribunal upheld the order of the ld. CIT(A) regarding the disallowance of depreciation.

Issue 2: Availability of depreciation for charitable trust
The Assessing Officer raised a question on whether a charitable trust, whose income is not assessable under the head "Profit and Gains from business and profession," could claim deduction of depreciation under section 32 of the Income Tax Act, 1961. The Tribunal cited a decision by a co-ordinate bench in a previous case, where it was held that income from property held under trust should be computed on commercial principles, allowing for depreciation. The Tribunal further explained that sections 11(1)(a) and 32 of the Act apply independently under different circumstances. Therefore, the availability of depreciation for a charitable trust is determined based on fulfilling the conditions stipulated in the respective sections.

Issue 3: Correctness of the Assessing Officer's order
The Assessing Officer contended that the ld. CIT(A) erred in allowing the appeal of the assessee and should have upheld the order of the Assessing Officer. However, based on the decisions of the Tribunal and higher judiciary authorities, the Tribunal approved the order of the ld. CIT(A) and declined to interfere in the matter. The Tribunal dismissed the appeal, affirming the decision in favor of the assessee.

In conclusion, the Tribunal dismissed the appeal, upholding the order of the ld. CIT(A) regarding the disallowance of depreciation and the availability of depreciation for a charitable trust. The Tribunal's decision was based on previous judgments and the independent applicability of sections 11(1)(a) and 32 of the Income Tax Act, 1961.