Double depreciation claim by charitable trust allowed as application of income up to 31-03-2014 as it has been barred u/s 11(6) from AY 2015-16-ITAT

Double depreciation claim by charitable trust allowed as application of income up to 31-03-2014 as it has been barred u/s 11(6) from AY 2015-16-ITAT

ABCAUS Casse Law Citation:
1022 (2016) (09) ITAT
AY 2005- 06 and AY 2010-11

Brief Facts of the Case:
The present appeal(s) was filed by the Revenue challenging the order of CIT(A) in allowing the claim of depreciation on assets acquired by the Trust from application of income, which was already exempted and consequently giving double benefit of deduction to the Trust.

Contentions of the Assessee:
The assessee relied on the judgment of the ITAT in a similar case.  The said judgment consisted of several relevant instances indicating the views of various High Courts as under:

Noticing the difference between the word ” income ” and the expression ” total income ” and the necessity for providing depreciation in order to maintain correct accounts, the Karnataka High Court held that the amount of depreciation debited to the accounts of the charitable institution has to be deducted to arrive at the income available for application to charitable and religious purposes.  Same view has been taken by the Madhya Pradesh High Court.

The Madras High Court was required to consider whether, for the purpose of computing accumulation in excess of 25 per cent as laid down in section 11(1)(a) of the Act, ” income ” has to be computed under the various heads enumerated in the Income-tax Act. It held that the income from the properties held under trust would have to be arrived at in the normal commercial manner without classification under the various heads set out in section 14. It held that the expression ” income has to be understood in the popular or general sense and not in the sense in which the income is arrived at for the purpose of assessment to tax by application of some artificial provisions either giving or denying deduction. It observed that the computation under the different categories or heads arises only for the purposes of ascertaining the total income for the purposes of charge. Those provisions cannot be introduced to find out what the income derived from the property held under trust to be excluded from the total income is, for the purpose of the exemptions under Chapter III. 

The Gujarat High Court had also expressed agreement with the view taken by the Karnataka, Madhya Pradesh and Madras High Courts. 

Also the Punjab and Haryana High Court held that depreciation was allowable on capital assets from the income of charitable trust for determining the quantum of fund which have to be applied for the purposes of the trust in terms of section 11.

The assessee also contended that this position has been accepted by legislature and with effect from 01.04.2015 by amendment u/s 11(6) by Finance Act, 2015, the double claim of depreciation has been barred with effect from 01.04.2015 (AY 2015-16). Thus, up to 31.03.2014, the assets of the trust, acquired by application of income, are eligible for claim of depreciation.

Held:
The ITAT following the judgment(s) of various High Court including jurisdictional High Court dismissed the appeal of the Revenue.