9911796707
TMI Blog2012 (4) TMI 115X X X X Extracts X X X X X X X X Extracts X X X X ..... . In the course of running the hospital, the appellant acquires medical equipments such as x-ray units, scanning machines etc., which were purchased with the surplus funds available. The entire expenditure incurred for acquisition of capital assets is treated as application of income for charitable purposes under Section 11(1)(a) of the Act. When capital expenditure is treated as application of income for charitable purposes, the appellant virtually enjoys a 100% write off of the cost of assets. However, since medical service is a business activity held in Trust, the appellant claimed all the benefits under the Act including depreciation in the computation of net income. In the course of assessment for the year 2005-06, the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of such assets, then in order to reflect the true income to be available for application for charitable purposes, the assessee should write back in the accounts the depreciation amount to form part of the income to be accounted for application for charitable purposes. This is obviously not done by the assessee and so much so, the income which should be available for application for charitable purposes gets reduced by the depreciation amount, which is not permissible under Section 11(1)(a) of the Act. In fact the net effect is that after writing off full value of the capital expenditure on acquisition of assets as application of income for charitable purposes and when the assessee again claims the same amount in the form of depreciation, su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the SLPs filed by the Department against one of the above decisions was dismissed by the Supreme Court. No amendment is seen made to the statute requiring the Trust claiming depreciation to write back the depreciation as income of previous year, if payment for acquisition of assets is treated as application of income for charitable purposes. 5. It is settled position through several decisions of High Courts and Supreme Courts that when business is held in trust by charitable institutions income from business has to be computed by granting deductions provided u/s 30 to 43D as provided under S.29 of the Income Tax Act. 6. Senior counsel Sri.A.K.J.Nambiar appearing for the assessee submitted that the assessee has been fili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tral Board of Direct Taxes. Senior Standing counsel Sri.P.K.R.Menon, appearing for the Revenue produced clarification obtained from the Central Board wherein they have stated as follows: "The Central Board of Direct Taxes is of the considered view that where an assessee has acquired an asset through application of income and has also claimed this amount as expenditure in its income expenditure account, depreciation on such asset would not be allowable to the assessee. Such notional statutory deductions like depreciation, if claimed as deduction while computing the income of the 'the property held under trust' under the relevant head of income, is required to be added back while computing the income for the purpose of application in the inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the order of the Tribunal. However, as rightly pointed out by the counsel for the assessee the system of allowing depreciation was followed by the assessee for several years and it was consistent with the view taken by several High Courts in India in the decisions above cited. We find force in this contention because assessee cannot be taken by surprise by disallowing depreciation which was being allowed for several years and to demand tax for one year after making dis-allowance. We feel assessee should be allowed to write back the depreciation for this year and even for previous and then allow the same to be carried forward for application for subsequent years. It is for the assessee to write back depreciation and if done the assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X
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