2017 (9) TMI 245 - AT - Income Tax

Depreciation is allowable expenditure to assessee trust - double deduction - Held that - A charitable institution, which has purchased capital assets and treated amount spent on purchase of capital asset as application of income, is entitled to claim depreciation on same capital asset utilized for business. See Indraprastha Cancer Society case 2014 (11) TMI 733 - DELHI HIGH COURT - Decided in favour of assessee.

Summary

Issues:
- Disallowance of depreciation
- Interpretation of relevant tax laws
- Application of judicial precedents

Disallowance of Depreciation:
The appellant challenged the disallowance of depreciation amounting to ?17,69,550 by the lower authorities. The appellant argued that the disallowance was unsustainable as it was against the facts and circumstances of the case. The appellant contended that the Commissioner of Income Tax (Appeals) erred in confirming the disallowance without properly appreciating the law, especially the principle that the view favorable to the assessee should apply in case of multiple interpretations. Additionally, the appellant argued that the disallowance should have been restricted to ?11,46,592 based on the facts presented. The Assessing Officer (AO) disallowed the depreciation claimed by the appellant, stating that the society had utilized funds exceeding 85% of its total available funds for charitable activities. The AO added back the disallowed amount to the total income of the assessee. The Commissioner of Income Tax (Appeals) dismissed the appeal of the assessee. However, the Tribunal, after considering the arguments and judicial precedents, deleted the addition in dispute and allowed the ground raised by the assessee. The Tribunal relied on the decision of the Hon'ble High Court of Delhi and a previous decision of the ITAT, 'G' Bench, New Delhi, to support its conclusion that the appellant was entitled to claim depreciation on the capital assets utilized for business activities.

Interpretation of Relevant Tax Laws:
The case involved the interpretation of relevant provisions of the Income Tax Act, 1961 concerning the allowance of depreciation for a charitable institution. The appellant's eligibility to claim depreciation on capital assets utilized for business activities was a key point of contention. The Tribunal analyzed the provisions of section 11 and section 32 of the IT Act in light of the appellant's case. The Tribunal referred to the amendment introduced in section 11(6) of the Act, effective from April 1, 2015, which restricted the allowance of depreciation in certain cases. However, the Tribunal noted that this amendment was not applicable to the assessment year in question (2010-11). By considering the legislative intent and judicial precedents, the Tribunal interpreted the relevant tax laws to allow the appellant's claim for depreciation.

Application of Judicial Precedents:
The Tribunal relied on judicial precedents, specifically the decision of the Hon'ble High Court of Delhi and a previous ITAT decision, to support its judgment. The Tribunal cited the case of Indraprastha Cancer Society, where a similar issue regarding the claim of depreciation by a charitable institution was addressed. The Tribunal also referenced the ITAT decision in the case of Kesar Charitable Trust, which upheld the claim of the assessee for depreciation on capital assets utilized for business purposes. By aligning its decision with these judicial precedents, the Tribunal concluded that the appellant was entitled to claim depreciation on the capital assets in question, leading to the deletion of the disallowed amount and allowing the appeal of the assessee.