2018 (9) TMI 879 - HC - Income Tax

Mismatch in the accounts of the assessee concerning its interest income - Undisclosed interest income as per 26AS data which was not included in total interest offered by the assessee for taxation - Held that - Commissioner of Income Tax (Appeals) however, noted that the assessee had offered larger interest income which would subsume the error component of interest income. The Tribunal confirmed this view. No question of law arises. Depreciation on asset on which the assessee had purchased out of exempted income u/s.35AC - Held that - Logic adopted in case of Rajasthan and Gujarati Charitable Foundation (2017 (12) TMI 1067 - SUPREME COURT) would substantially apply. In terms of section 35AC of the Act, the assessee who incurs expenditure by way of payment directly on eligible project or a scheme, would enjoy exemption of such expenditure during the relevant year. This exemption however would not cast any shadow on the assessee claiming any depreciation under section 32 which is allowable in respect of any building, machinery, plant or furniture being tangible assets owned wholly or partly by the assessee and for the purpose of business or profession at the specified rates. The requirements thus, are of the assessee owning wholly or partly any building, machinery, plant or furniture being tangible assets and having used them for the purpose of business or profession. Indisputably, these conditions are satisfied in the present case.

Summary

Issues:
1. Undisclosed interest income not included in total interest offered for taxation.
2. Claim of depreciation on assets purchased out of exempted income under section 35AC of the Income Tax Act.

Analysis:

Issue 1: Undisclosed Interest Income
The appeal filed by the Revenue challenged the judgment of the Income Tax Appellate Tribunal regarding the undisclosed interest income of ?23,08,970, which was not included in the total interest offered for taxation by the assessee. The Commissioner of Income Tax (Appeals) noted that the assessee had already offered a larger interest income that covered the error component. The Tribunal upheld this view, stating that no question of law arose in this matter.

Issue 2: Claim of Depreciation on Assets
The second issue revolved around the assessee's claim of depreciation under section 35AC of the Income Tax Act for assets purchased for its cardiac center using grants received, which were exempted under section 35AC. The Assessing Officer contended that since the donees would claim exemption under section 35AC for the grants, the assessee could not claim depreciation on the same assets to avoid double deduction.

However, both the Commissioner of Income Tax (Appeals) and the Tribunal disagreed with this stance. They relied on a decision involving a charitable trust, where it was established that even if assets purchased by the trust were allowed as a deduction, depreciation had to be permitted on the value of such assets while calculating taxable income. The courts referred to a Supreme Court decision confirming the grant of depreciation to a Trust eligible for exemption under section 11 of the Act. The court emphasized that the conditions for claiming depreciation under section 32 were met in the present case, as the assets were tangible and used for business purposes.

In conclusion, the court dismissed the Tax Appeal, affirming the assessee's right to claim depreciation on assets acquired with funds exempted under section 35AC, following the precedent set by previous decisions regarding charitable trusts and depreciation allowances.