2017 (9) TMI 1601 - AT - Income Tax

Disallowance of depreciation to assessee rust - Held that - Respectfully following the judgment of the hon ble jurisdictional High Court in the case of Al-Ameen Charitable Fund Trust (2016 (3) TMI 462 - KARNATAKA HIGH COURT ), we do not find any error or illegality requiring our interference in the impugned order of the learned Commissioner of Income-tax (Appeals), in allowing the assessee s claim for depreciation. It cannot be held that double benefit is given in allowing claim for depreciation for computing income for purposes of section 11. The questions proposed have, thus, to be answered against the Revenue and in favour of the assessee.

Issues Involved:
1. Disallowance of depreciation on assets for which the cost has already been allowed as depreciation of income.
2. Applicability of the Supreme Court's decision in Escorts Ltd. v. Union of India to charitable trusts.
3. Prospective or retrospective application of Section 11(6) of the Income-tax Act, 1961.

Detailed Analysis:

1. Disallowance of Depreciation:
The primary issue in this case revolves around the disallowance of depreciation claimed by the assessee, a trust engaged in promoting cricket in Karnataka. The Assessing Officer (AO) disallowed the depreciation based on the Kerala High Court's decision in Lissie Medical Institutions v. CIT, which held that depreciation cannot be allowed on assets where the cost has already been allowed as depreciation of income in the year of acquisition. The Commissioner of Income-tax (Appeals) overturned this decision, relying on the Karnataka High Court's ruling in DIT (Exemptions) v. Al-Ameen Charitable Fund Trust, which allowed depreciation on the basis that it represents the wear and tear of capital assets and is necessary to preserve the corpus of the trust.

2. Applicability of Escorts Ltd. v. Union of India:
The Revenue argued that the Supreme Court's decision in Escorts Ltd. v. Union of India should apply, which prohibits double deductions for the same expenditure. The Supreme Court held that no legislature could have intended a double deduction for the same business outgoing unless it is clearly expressed in the statute. The Revenue contended that this principle should apply to charitable trusts under Sections 11, 12, and 13 of the Income-tax Act. However, the Tribunal found that the Karnataka High Court in Al-Ameen Charitable Fund Trust had distinguished the Escorts Ltd. case, stating that the latter dealt with scientific research expenses, not charitable trust income. The Karnataka High Court emphasized that depreciation is necessary to account for the wear and tear of assets, which is different from the initial exemption given for acquiring the asset.

3. Prospective or Retrospective Application of Section 11(6):
The Revenue also argued that the amendment introduced by the Finance (No. 2) Act, 2014, which inserted sub-section (6) in Section 11 to disallow depreciation on assets whose cost has already been claimed as an application of income, should be considered clarificatory and thus applicable retrospectively. The Tribunal, however, upheld the Karnataka High Court's interpretation that Section 11(6) is prospective, effective from April 1, 2015. This view was supported by the Notes on Clauses in the Finance Bill, the explanatory memorandum, and CBDT circulars, which all indicated that the amendment was intended to apply from the assessment year 2015-16 onwards.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the Commissioner of Income-tax (Appeals)'s decision to allow the assessee's claim for depreciation. The Tribunal relied on the Karnataka High Court's binding decision in Al-Ameen Charitable Fund Trust, which supports the allowance of depreciation for charitable trusts to account for wear and tear of assets, thereby preserving the trust's corpus. The Tribunal also clarified that Section 11(6) of the Income-tax Act is prospective and applies from the assessment year 2015-16.

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