2022 (10) TMI 38 - HC - Income Tax

Exemption u/s 11 - CIT(A) justification in allowing depreciation on an asset already treated as application of income - HELD THAT - The issue has been concluded by this Court in the Case of Institute Of Banking Personnel Selection (IBPS) 2003 (7) TMI 52 - BOMBAY HIGH COURT held that normal depreciation can be considered as a legitimate deduction in computing the real income of the assessee on general principles or under section 11(1)(a) of the Income Tax Act The Court rejected the argument on behalf of the revenue that section 32of the Income Tax Act was the only section granting benefit of deduction on account of depreciation. Income of a Charitable Trust derived form building, plant and machinery and furniture was liable to be computed in normal commercial manner although the Trust may not be carrying on any business and the assets in respect whereof depreciation is claimed may not be business assets. In all such cases, section 32 of the Income Tax Act providing for depreciation for computation of income derived from business or profession is not applicable. However, the income of the Trust is required to be computed under section 11 on commercial principles after providing for allowance for normal depreciation and deduction thereof from gross income of the Trust. This view was noticed with approval by the Hon ble Supreme Court in the case of Commissioner of Income Tax-III, Pune v. Rajasthan Gujarati Charitable Foundation Poona 2017 (12) TMI 1067 - SUPREME COURT Appeal dismissed.

Summary

Issues Involved:
1. Interpretation of provisions of section 13(1)(c) and 13(2)(c) of the Income Tax Act regarding payments to prohibited persons for advertisements.
2. Eligibility of the assessee to claim exemption under section 11 despite making payments to prohibited persons.
3. Applicability of separate provisions governing charitable or religious institutions under sections 11, 12, 12A, 12AA & 13 in Chapter III of the Income Tax Act.
4. Allowance of depreciation for charitable or religious institutions and the treatment of capital assets under section 32.
5. Consideration of depreciation and application of income separately for determining correct income.
6. Disallowance of depreciation based on the principle of double deduction for capital assets already treated as application of income.

Analysis:
1. The first issue revolves around the interpretation of sections 13(1)(c) and 13(2)(c) of the Income Tax Act concerning payments made to prohibited persons for advertisements. The appellant questioned the ITAT's decision not to apply these provisions despite payments to prohibited persons. The court analyzed the facts and laws to determine the correctness of the ITAT's decision.

2. The second issue involves the eligibility of the assessee to claim exemption under section 11 despite making payments to prohibited persons. The ITAT allowed the exemption, and the appellant raised concerns regarding the correctness of this decision. The court delved into the legal provisions and circumstances to assess the validity of the ITAT's ruling.

3. Issue three pertains to the applicability of separate provisions governing charitable or religious institutions under sections 11, 12, 12A, 12AA & 13 in Chapter III of the Income Tax Act. The court examined whether these provisions create an independent code for such institutions, impacting the claim of depreciation under section 32.

4. The fourth issue addresses the allowance of depreciation for charitable or religious institutions and the treatment of capital assets under section 32. The court scrutinized whether depreciation could be claimed for capital assets already treated as application of income, considering the specific nature of assets for such institutions.

5. The fifth issue concerns the consideration of depreciation and application of income separately for determining the correct income. The court evaluated whether treating these elements separately could lead to double deduction, analyzing the relevant provisions of the Income Tax Act.

6. Lastly, the sixth issue deals with the disallowance of depreciation based on the principle of double deduction for capital assets already treated as application of income. The court referenced previous judgments and legal principles to justify the dismissal of the appeal, aligning with established legal interpretations regarding depreciation for charitable or religious institutions.