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2017 (5) TMI 977 - AT - Income TaxDisallowance of claim of depreciation of the assessee-trust - when the capital expenditure itself was allowed as application of income then the allowance of depreciation would amount to double deduction - Held that - CIT (Appeals) has correctly allowed the claim of the assessee by following the decision in the case of CIT Vs. Society of Sisters of St. Anne 1983 (8) TMI 44 - KARNATAKA High Court . Also see DCIT Vs. Manipal Academy of Higher Education 2015 (12) TMI 1365 - ITAT BANGALORE wherein held if the mercantile system is followed, the depreciation allowance in respect of the trust property should be allowed - Decided in favour of assessee Carry forward of excess application of income under Section 11(1)(a) - Held that - CIT (Appeals) has decided this issue correctly by following the decisions of this Tribunal including the decision in the case of CIT Vs. Manipal Academy of Higher Education 2015 (12) TMI 1365 - ITAT BANGALORE as held The expenditure, if incurred in an earlier year is adjusted against the income of a later year, it has to be held that the trust had incurred expenditure on religious and charitable purposes from the income of the subsequent year, even though the actual expenditure was in the earlier years, if in the books of account of the trust such earlier expenditure had been set off against the income of the subsequent year. The expenditure that can be so adjusted can only be expenditure on religious and charitable purposes and no other. Also see Deputy Director of Income-tax (E) , Circle -17 (1) , Bangalore Versus Karnataka Food and Civil Supplies Ltd 2016 (1) TMI 396 - ITAT BANGALORE - Decided against revenue
Issues Involved:
1. Disallowance of depreciation. 2. Carry forward of excess application of income. Detailed Analysis: 1. Disallowance of Depreciation: The primary issue raised by the revenue concerns the disallowance of depreciation, which was allowed by the CIT (Appeals). The revenue argued that allowing depreciation on assets, whose cost was already treated as application of income, would result in double deduction. They referenced the Hon'ble Kerala High Court's decision in Lissie Medical Institutions Vs. CIT and the Hon'ble Supreme Court's decision in Escorts Ltd. & another Vs. Union of India, which held that double deduction is not permissible unless explicitly stated in the statute. The Tribunal, however, upheld the CIT (Appeals)'s decision, referencing the jurisdictional High Court's ruling in CIT Vs. Society of Sisters of St. Anne, which allows depreciation on assets acquired by a charitable trust from its income. The Tribunal also cited consistent views from other cases, including DCIT Vs. Manipal Academy of Higher Education and DIT(Exemption), Mumbai Vs Ville Parle Kelavani Mandal, Mumbai, which clarified that depreciation does not constitute double deduction but is a permissible deduction considering the use of the assets. The Tribunal noted that the Finance Act, 2014, introduced a prospective amendment effective from 01.04.2015, which prohibits the allowance of depreciation on assets whose acquisition cost was claimed as application of income. However, this amendment applies only from A.Y. 2015-16 onwards. Thus, for the relevant assessment year, the Tribunal found no error in the CIT (Appeals)'s order allowing depreciation. 2. Carry Forward of Excess Application of Income: The second issue raised by the revenue pertains to the carry forward of excess application of income under Section 11(1)(a) of the Income Tax Act, 1961. The revenue contended that there is no provision in the Income Tax Act for carrying forward excess expenditure over income for charitable trusts. The Tribunal upheld the CIT (Appeals)'s decision, which allowed the carry forward of the deficit, referencing its earlier decisions, including the case of Dr. T.M.A Pai Foundation and City Hospital Charitable Trust. The Tribunal reiterated that Section 11(1)(a) does not limit the application of income to the year in which it arises. Expenses incurred in earlier years can be adjusted against the income of subsequent years, and such adjustment is considered as application of income for charitable purposes. The Tribunal also referenced the decisions of various High Courts, including the Hon’ble Rajasthan High Court in CIT Vs. Maharana of Mewar Charitable Foundation and the Hon’ble Bombay High Court in CIT Vs. Institute of Banking Personnel Selection, which support the view that excess expenditure in earlier years can be adjusted against the income of subsequent years. The Tribunal found no merit in the revenue's appeal and upheld the CIT (Appeals)'s order allowing the carry forward of the deficit. Conclusion: The appeal of the revenue was dismissed, and the cross-objection by the assessee became infructuous. The Tribunal upheld the CIT (Appeals)'s decisions on both issues, allowing depreciation on assets and the carry forward of excess application of income. The order was pronounced in the open court on the 19th day of May, 2017.
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