2018 (11) TMI 1343 - HC - Income Tax

Depreciation of assets acquired by assessee trust - Charitable activity - Held that - As decided in RAJASTHAN AND GUJARATI CHARITABLE FOUNDATION POONA 2017 (12) TMI 1067 - SUPREME COURT the legislature, realizing that there was no specific provision in this behalf in the Income Tax Act, has made amendment in Section 11(6) of the Act vide Finance Act No. 2/2014 which became effective from the Assessment Year 2015-2016. The Delhi High Court has taken the view and rightly so, that the said amendment is prospective in nature - once assessee is allowed depreciation, he shall be entitled to carry forward the depreciation as well. Section 11(6) of the Act has only prospective effect from the assessment year 2015-16. The subject assessment years in the present appeals being prior to the assessment year 2015-16, we have to allow the appeals answering the questions of law in favour of the assessee and against the Revenue.

Summary

Issues:
1. Interpretation of the judgment in Lissy Medical Institution v. Commissioner of Income Tax
2. Impact of the subsequent judgment in Commissioner of Income Tax v. Rajasthan and Gujarati Charitable Foundation
3. Application of Section 11(6) of the Income Tax Act

Analysis:
1. The High Court initially rejected the appeals based on the judgment in Lissy Medical Institution v. Commissioner of Income Tax, where it was held that a charitable institution claiming expenditure for asset acquisition as application of income for charitable purposes cannot claim further depreciation on the same asset. However, the counsel for the assessee highlighted a later Supreme Court judgment in Commissioner of Income Tax v. Rajasthan and Gujarati Charitable Foundation, which led to the reconsideration of the judgment.

2. The subsequent Supreme Court judgment affirmed the decision of the Bombay High Court, stating that the view taken by most High Courts aligns with the principles of law. It was noted that the amendment in Section 11(6) of the Income Tax Act, effective from the assessment year 2015-2016, has a prospective nature. The Supreme Court's decision allowed the claim of the assessee, emphasizing that Section 11(6) applies prospectively. As the assessment years in the present appeals were prior to 2015-2016, the appeals were allowed in favor of the assessee.

3. The Supreme Court's detailed examination of the case in the subsequent judgment clarified that while the earlier judgment did not delve into the merits, the later judgment considered and allowed the assessee's claim. The retrospective effect of Section 11(6) from 2015-2016 onwards was emphasized, leading to the allowance of the appeals in favor of the assessee and against the Revenue. The judgment concluded by allowing the Income Tax Appeals with no costs imposed.