2021 (1) TMI 913 - AT - Income Tax

Assessment of trust - eligibility for any type of depreciation as the entire expenditure for the purchase of capital assets - HELD THAT - This issue is covered in favour of the assessee by the judgment of Hon ble Delhi High Court in the appeal for the Assessment Year 2008-09, wherein in the appeal preferred by the assessee in 2013 (9) TMI 451 - DELHI HIGH COURT has allowed both the expenditure, i.e., capital expenditure and depreciation as application of income. This order of the Hon ble High Court has been followed by the ITAT in assessee s own case in the Assessment Yea₹ 2009-10, 2010- 11 and 2011-12. Addition of space rent income on the basis of disclosure in Notes to Accounts of the assessee - Rental income has not accounted in the books - assessee is following mercantile system of accounting - HELD THAT - Long standing dispute between the Government Departments who are in possession of the Space in Pragati Maidan and assessee made endeavours for recovery of space rent - One of the organization viz. National Science Centre (NSC) had paid space rent to the ' assessee company @ ₹ 200/- per sq. mtr. p.a. in an earlier year. Subsequently, the rate of space rent was enhanced by the assessee company on year to year basis which was contested by the NSC. Accordingly, the assessee company has accounted for income @ ₹ 200/- per sq. mtr. per year in the Income Expenditure Account as NSC had paid @ ₹ 200/- per sq. mtr. p.a., but contested the increase in rates. The element of enhanced space rent over ₹ 200/- per sq. mtr. p.a. (disputed amount) was kept out of books as Contested dues not accounted for and disclosed in the Notes to the Accounts. The assessee is essentially relying on the Accounting Standard 9 issued by the Institute of Chartered Accountants of India relating to Recognition of Income in accordance with para 10 which states that if at the time of raising any claim, it is unreasonable to expect ultimate collection, revenue recognition should be postponed. As regards the other department viz. Crafts Museum, they have not paid any space rent to the assessee company and are maintaining that they were in possession of the space even prior to the formation of the assessee company. On the same analogy of NSC and following AS 9, the assessee company has not raised any invoice for the space rent on Craft Museum any disclosed the disputed amount of space rent relating to the Assessment Year under reference, in the Notes to Accounts. Assessee has not recognised the licence fee pertaining to these departments as income in the books in accordance with para 10 of the Accounting Standard 9 As decided in earlier years when income on account of space rent has not been accrued, as in the instant case due to dispute, there cannot be any rent even though entry in the books of account have been made on account of notional income. So, when the income would be received its taxability can be examined by the Revenue. Ld. DR for the Revenue has not brought on record any document if the dispute between the parties qua the space rent has been resolved. So, in these circumstances, we are of the considered view that there is no illegality or perversity in the findings returned by the ld. CIT (A) in deleting the addition - Decided in favour of assessee.

Summary

Issues Involved:
1. Allowance of depreciation for charitable institutions.
2. Recognition of income related to disputed space rent.

Issue 1: Allowance of Depreciation for Charitable Institutions

The appeal was filed against an order passed by the Commissioner of Income Tax for the assessment year 2012-13. The Revenue contended that depreciation should not be allowed for charitable institutions as it would lead to double deduction since the entire expenditure for capital assets is already allowed as a deduction. However, the Tribunal cited a judgment of the Hon'ble Delhi High Court for the assessment year 2008-09, where both capital expenditure and depreciation were allowed as application of income for charitable institutions. This decision was followed in subsequent assessment years 2009-10, 2010-11, and 2011-12. The Tribunal upheld the allowance of depreciation for the assessee, dismissing the Revenue's appeal on this issue.

Issue 2: Recognition of Income Related to Disputed Space Rent

The second issue revolved around the recognition of income concerning disputed space rent. The assessee, an organization promoting Indian trade, was in a dispute with government departments over space rent. The National Science Centre had paid rent at a certain rate, which was later contested by them. The assessee accounted for income based on the initial rate paid, while the disputed amount was kept out of the books. Similarly, another department, Crafts Museum, did not pay any rent, claiming possession prior to the assessee's formation. The Tribunal considered the matter, noting that since the dispute remained unresolved, the addition of income was not sustainable. The Tribunal ruled in favor of the assessee, stating that until the dispute is resolved, the taxability of income cannot be determined. Therefore, the Tribunal dismissed the Revenue's appeal on this issue as well.

In conclusion, the Tribunal upheld the allowance of depreciation for charitable institutions based on previous judgments and ruled in favor of the assessee regarding the recognition of income related to disputed space rent, emphasizing the importance of resolving disputes before determining taxability.