2016 (6) TMI 1044 - HC - Income Tax

Depreciation claim allowablity to assessee trust - Held that - It is not disputed by the learned counsel for the appellant-revenue that amended questions of law are covered against the revenue by judgment of this Court in Commissioner of Income Tax vs. Market Committee, Pipli, (2010 (7) TMI 374 - Punjab and Haryana High Court ), wherein after considering the relevant case law on the point, it was held that there was no double deduction claimed by the assessee as canvassed by the revenue. As the income of the assessee being exempt, the assessee was claiming that depreciation should be reduced from the income for determining the percentage of funds which have to be applied for the purposes of the trust. Unexplained payment to Haryana State Agricultural Marketing Board (in short HSAMB) for capital works - Held that - The issue is covered by the judgment of this Court rendered in ITA No.151 of 2010, Commissioner of Income Tax, Hisar vs. Market Committee, Narwana 2010 (7) TMI 573 - PUNJAB AND HARYANA HIGH COURT Accrual of interest on advance made by the assessee to the Haryana State Electricity Board - Held that - The assessee was following cash system of accounting. Moreover, section 145 of the Act was amended w.e.f 1.4.1997 whereby only one out of the two systems could be followed i.e. either mercantile or cash. The finding recorded by the Assessing Officer and the Tribunal that as the assessee was following cash system of accounting, no income on this account had been received in the year in question and therefore, it was not liable to be assessed, has not been shown to be illegal or perverse in any manner by the learned counsel for the revenue.

Issues Involved:

1. Justification of allowing depreciation on capital assets when capital expenditure has already been allowed as "application of income".
2. Justification of allowing depreciation in light of the Apex Court decision in Escorts India Limited.
3. Deletion of addition made on account of unexplained payment to Haryana State Agricultural Marketing Board (HSAMB).
4. Deletion of addition made on account of interest accrued on advance made to Haryana State Electricity Board (HSEB).
5. Deletion of addition made on account of interest income accrued on advance made to HSEB, considering the communication from Haryana Government.
6. Deletion of addition made on account of interest accrued on deposits with Market Committee, Pundri.

Detailed Analysis:

Issue 1: Justification of Allowing Depreciation on Capital Assets

The appellant-revenue challenged the Tribunal's decision allowing depreciation on capital assets, arguing it amounted to double deduction since the capital expenditure was already allowed as "application of income" for exemption under Section 11 of the Income Tax Act, 1961. The Tribunal, following the Bombay High Court's decision in CIT vs. Institute of Banking Personnel Selection, held that normal depreciation could be considered a legitimate deduction in computing the real income of the assessee on general principles or under Section 11(i)(a) of the Act.

Issue 2: Justification of Allowing Depreciation in Light of Escorts India Limited Decision

The appellant-revenue contended that allowing depreciation contradicted the Supreme Court's decision in Escorts India Limited, which held that no double deduction is permissible without clear statutory indication. However, the High Court noted that the assessee was not claiming double deduction but was only reducing depreciation from income to determine the percentage of funds to be applied for charitable purposes. The Court referenced judgments from Madras, Karnataka, Madhya Pradesh, and Gujarat High Courts, which supported the view that depreciation should be deducted to arrive at the income available for application to charitable purposes. The Court concluded that the Escorts Ltd. decision was distinguishable and did not apply in this context.

Issue 3: Deletion of Addition Made on Account of Unexplained Payment to HSAMB

The Tribunal deleted the addition made by the Assessing Officer for unexplained payment to HSAMB, which the assessee claimed as application of income. The High Court noted that this issue was covered by its earlier judgment in Commissioner of Income Tax, Hisar vs. Market Committee, Narwana, where it was held that the assessee was required to pay a portion of its income to the Board, and the payment was a legitimate application of income.

Issue 4: Deletion of Addition Made on Account of Interest Accrued on Advance Made to HSEB

The Tribunal found that the assessee was following a cash system of accounting and had not received any interest income during the year. Therefore, the interest accrued on advances to HSEB was not liable to be assessed. The High Court upheld this finding, noting that no income had been received in the year in question, and thus, no addition was warranted.

Issue 5: Deletion of Addition Made on Account of Interest Income Accrued on Advance Made to HSEB

The Tribunal also addressed the appellant-revenue's contention based on a communication from the Haryana Government, which suggested that the interest on deposits would be considered after repayment of the principal. The Tribunal concluded that no interest had actually accrued to the assessee, as the payment of interest was not decided by the government. The High Court agreed with this conclusion, stating that no interest income had accrued to the assessee, and thus, no addition was warranted.

Issue 6: Deletion of Addition Made on Account of Interest Accrued on Deposits with Market Committee, Pundri

The Tribunal deleted the addition made by the Assessing Officer for interest accrued on deposits with Market Committee, Pundri, based on the assessee's cash system of accounting. The High Court upheld this decision, noting that the assessee had not received any interest income during the year, and therefore, it was not liable to be assessed.

Conclusion:

The High Court dismissed the appeals, answering all the amended substantial questions of law against the revenue. The Court upheld the Tribunal's findings that the assessee was not claiming double deduction and that no interest income had accrued during the year in question. The Court's decision was based on established legal principles and precedents from various High Courts, supporting the assessee's claims.

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