2019 (4) TMI 1043 - HC - Income Tax

Exemption u/s 11 - Disallowing depreciation on fixed assets on assessee trust - HELD THAT - Issue squarely covered against the Revenue by the Judgment of Supreme Court in the case of Commissioner of Income Tax III, Pune Vs. Rajasthan Gujarati Charitable Foundation Poona. 2017 (12) TMI 1067 - SUPREME COURT . Carry forward of deficit and allowing set off against the income of the subsequent years - allowing the deficit will tantamount to double deduction on account of expenditure out of exempt income - HELD THAT - Excess expenditure incurred by the trust/charitable institution in earlier assessment year could be allowed to be set off against income of subsequent years by invoking Section 11.

Summary

Issues:
1. Disallowance of depreciation on fixed assets
2. Carry forward of deficit and set off against subsequent years' income

Analysis:
1. The first issue pertains to the disallowance of depreciation on fixed assets. The Revenue appealed against the Judgment of the Income Tax Appellate Tribunal, questioning the allowance of depreciation on fixed assets amounting to a specific sum. The Revenue argued that such allowance would result in double deduction, citing the decision in Escorts Ltd. Vs. UOI. However, the High Court noted that the issue was already settled against the Revenue by the Supreme Court in the case of Commissioner of Income Tax-III, Pune Vs. Rajasthan & Gujarati Charitable Foundation Poona. The High Court upheld the decision in favor of the assessee based on the precedent set by the Supreme Court.

2. The second issue revolves around the carry forward of deficit and its set off against subsequent years' income. The Revenue contested the allowance of carrying forward a deficit and setting it off against future income, claiming it would lead to double deduction on expenditure out of exempt income. The High Court referenced a Supreme Court order dated 16th April, 2018, where the Revenue's appeal against a similar issue was dismissed. The Supreme Court clarified that excess expenditure incurred by a trust or charitable institution in an earlier assessment year could indeed be set off against income of subsequent years under Section 11 of the Income Tax Act, 1961. Therefore, the High Court concluded that the issue was settled in favor of allowing the carry forward of deficit and set off against subsequent years' income. As a result, the High Court dismissed the Revenue's appeal on this matter as well.

In summary, the High Court dismissed the Revenue's appeal on both issues, citing relevant precedents and Supreme Court judgments that favored the assessee's position in allowing depreciation on fixed assets and the carry forward of deficit for set off against subsequent years' income.