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TMI Blog2016 (12) TMI 687X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income Tax Act, 1961 [ Act in short] and running various educational institutions. The assessee filed its return of income for the assessment year 2012-13 declaring NIL income and the case was taken up for scrutiny. During the course of scrutiny proceedings, the Assessing Officer has observed that the assessee, in the computation of income, deducted depreciation on assets amounting to ₹.11,47.32.701/- from the gross receipts, claiming it as application of income for charitable purposes. The Assessing Officer was of the opinion that depreciation cannot be claimed as application of income in view of the decision of the Hon'ble High Court in the case of M/s. Lissie Medical Institutions v. CIT 348 ITR 344 and the clarification given by the CBDT before the High Court in this case. When confronted with this view, the assessee's representative submitted before the Assessing Officer that the depreciation on assets was earlier allowed in the assessment for the previous year and that assessment had reached finality. However, a revised working on depreciation on cost of assets claimed as expenditure during the assessment in year in question was submitted before the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Academy Madras, Chennai in ITA No.1098/Mds/2015 dated 22.04.2016 wherein held that: 6. We have considered the rival submissions on either side and perused the relevant material available on record. The issue arises for consideration is whether a charitable institution is eligible for depreciation in respect of its asset, which was used as a tool for carrying out its object. Depreciation is provided under Section 32 of the Act, which reads as follows:- DEPRECIATION 32 (1) In respect of depreciation of-- (i) buildings, machinery, plant or furniture being tangible assets ; (ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession the following deductions shall be allowed-- (i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed. (ii) in the case of any block of assets, su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be prescribed. Explanation For the purposes of this proviso,-- (a) the expression commercial vehicle means heavy goods vehicle , heavy passenger motor vehicle , light motor vehicle , medium goods vehicle and medium passenger motor vehicle but does not include maxi cab , motor-cab , tractor and road-roller ; (b) the expressions heavy goods vehicle , heavy passenger motor vehicle , light motor vehicle , medium goods vehicle , medium passenger motor vehicle , maxi-cab , motor-cab , tractor and roadroller shall have the meanings respectively as assigned to them in section 2 of the Motor Vehicles Act, 1988 (59 of 1988). Provided also that, in respect of the previous year relevant to the assessment year commencing on the 1st day of April, 1991, the deduction in relation to any block of assets under this clause shall, in the case of a company, be restricted to seventy-five per cent of the amount calculated at the percentage, on the written down value of such assets, prescribed under this Act immediately before the commencement of the Taxation Laws (Amendment) Act, 1991. Provided also that the aggregate deduction, in respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther sources of mineral deposits (including searching for discovery or testing of deposits for the winning of access thereto) ; Explanation 5. - For the removal of doubts, it is hereby declared that the provisions of this sub-section shall apply whether or not the assessee has claimed the deduction in respect of depreciation in computing his total income ; (iia) in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of March, 2005, by an assessee engaged in the business of manufacture or production of any article or thing, a further sum equal to twenty per cent. of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii) : Provided that where an assessee, sets up an undertaking or enterprise for manufacture or production of any article or thing, on or after the 1st day of April, 2015 in any backward area notified by the Central Government in this behalf, in the State of Andhra Pradesh or in the State of Bihar or in the State of Telangana or in the State of West Bengal, and acquires and installs any new machinery or plant (other than ships and aircr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount of scrap value, if any) the same proportion as the amount of twenty-five thousand rupees bears to the actual cost of the motor car to the assessee as it would have been computed before applying the said proviso (2) sold includes a transfer by way of exchange or a compulsory acquisition under any law for the time being in force but does not include a transfer, in a scheme of amalgamation, of any asset by the amalgamating company to the amalgamated company where the amalgamated company is 8an Indian company or in a scheme of amalgamation of a banking company, as referred to in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949), with a banking institution as referred to in sub-section (15) of section 45 of the said Act, sanctioned and brought into force by the Central Government under sub-section (7) of section 45 of that Act, of any asset by the banking company to the banking institution. (2) Where, in the assessment of the assessee, full effect cannot be given to any allowance under sub-section (1) in any previous year, owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation. The Income-tax Act does not provide for depreciation in respect of the asset other than the one which is used for business or profession. Therefore, it is for the assessee to establish that the assessee is carrying on any business or profession. In the case before us, the admitted case of the assessee is that the assessee is not carrying on any business or profession. Therefore, whatever be the nature of the asset, which was used as a tool for carrying out the object of the charitable institution, cannot be construed as an asset which is used for the business or profession of the assessee. Therefore, the assessee is not eligible for depreciation under Section 32 of the Income-tax Act. 8. The Ld. Counsel for the assessee has also clarified that the assessee is not claiming depreciation under Section 32 of the Act. According to the Ld. counsel, the assessee is claiming depreciation on the commercial principle. On a query from the Bench what is meant by commercial principle ?, he clarified that computation of income of the Trust in a customary method of accountancy. On a query from the Bench, the Ld. Counsel has also clarified that there is no conflict between th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es for consideration is when there is a conflict between customary practice, commercial principle and provisions of Section 32, which one will prevail? The obvious answer to this question is the statutory provision, namely, Section 32 of the Act will prevail over the customary practice and commercial principle. Therefore, even on customary practice or commercial principle whereby the assessee claims depreciation while computing the income, Section 32 of the Act is a specific provision under Income-tax Act, which is contrary to commercial principle or customary practice. Therefore, this Tribunal is of the considered opinion that Section 32 will prevail over the customary practice or commercial principle. Hence, the assessee is not eligible for depreciation in respect of building, plant, machinery, etc. which are not used for the purpose of business or profession. 11. Even assuming for argument sake that the assessee was doing business, then the assessee is not eligible for exemption under Section 11 of the Act and as rightly submitted by the Ld. Departmental Representative, the registration under Section 12AA of the Act has to be cancelled under Section 12AA(3) of the Act. Mor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT v. Institute of Banking Personnel Selection (2003) 264 ITR 110 (Bom) 9. DIT(E) v. FramjeeCawasjee Institute (1993) 109 CTR (Bom) 463 10. DDIT v. Lakshmi Saraswathi Educational Trust ITA No.452/Mds/2014 Chennai ITAT 11. Apollo Hospitals Educational Trust v. DCIT ITA No.2090/Mds/2012 Chennai ITAT 12. Services Association of Seventh Day Adventists Pvt. Ltd. v. ITO ITA No.1853/Mds/2011 Chennai ITAT 13. Services Association of Seventh Day Adventists Pvt. Ltd. v. ITO ITA No.427/Mds/2012 Chennai ITAT 14. ACIT v. Mamallan Educational Trust ITA No.1808/Mds/2012 Chennai ITAT 15. DCIT v. Mamallan Educational Trust ITA No.91/Mds/2013 Chennai ITAT 16. ITO v. Sri Ranganathar Trust ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X
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