M/S.ADI SANKARA TRUST, vs. THE DY.DIRECTOR OF INDOME TAX,
What did the High Court hold?
The Tribunal held that the assessee is entitled to claim depreciation on fixed assets, even if their cost was claimed as application of income for charitable purposes, for assessment years prior to Assessment Year 2015-16. The reasoning was based on the Supreme Court's decision in Commissioner of Income Tax v. Rajasthan and Gujarati Charitable Foundation, which examined the merits of the issue and allowed the claim. The Tribunal noted that Section 11(6) of the Income Tax Act, which was amended to clarify this aspect, has only prospective effect from Assessment Year 2015-16. Therefore, following the binding precedent of the Supreme Court on merits, the questions of law were answered in favour of the assessee and against the Revenue. The appeal was allowed, and no order as to costs was made.
What were the facts?
The assessee, M/s. Adi Sankara Trust, a charitable institution established for educational purposes, claimed expenditure for the acquisition of assets as an application of income for charitable purposes, which was allowed full exemption. The assessee then claimed depreciation on these fixed assets. The Income Tax Appellate Tribunal (ITAT) disallowed this claim, following the Kerala High Court's decision in Lissy Medical Institution v. Commissioner of Income Tax. The assessee's appeal challenged this disallowance. The Supreme Court had previously affirmed the Kerala High Court's view in a related matter, but without going into the merits. Subsequently, the Supreme Court, in Commissioner of Income Tax v. Rajasthan and Gujarati Charitable Foundation, considered the issue on merits and allowed the claim, noting that Section 11(6) of the Income Tax Act, which addresses this issue, has prospective effect from Assessment Year 2015-16. The present appeal pertains to an assessment year prior to 2015-16.
What were the issues?
1. Whether an assessee, a charitable institution, is entitled to claim depreciation on fixed assets where the cost of acquisition was allowed full exemption as application of income for charitable purposes, for assessment years prior to Assessment Year 2015-16? (Question of law) Assessee's contention: The assessee argued that depreciation should be allowed. They relied on the Supreme Court's decision in Commissioner of Income Tax v. Rajasthan and Gujarati Charitable Foundation, which allowed the claim on merits and noted that the amendment to Section 11(6) is prospective. Revenue's contention: The Revenue contended that depreciation should not be allowed, relying on the earlier decision of the Kerala High Court in Lissy Medical Institution v. Commissioner of Income Tax, which was affirmed by the Supreme Court (though without going into merits in that specific instance). The Tribunal had followed this precedent.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Cause title — parties, addresses and appearances
JUDGMENT Vinod Chandran, J. The issue arising herein is as to whether an assessee, a charitable institution, having claimed expenditure for acquisition of assets as application of income of the charitable trust for charitable purpose, is further entitled to claim depreciation on the same. In Lissy Medical Institution v. Commissioner of Income Tax, (2012) 348 ITR 344 (Ker), a Division Bench of this Court answered the question against the assessee. In the present case, a charitable institution established for educational purposes claimed depreciation on fixed assets, the cost of acquisition of which was allowed full exemption as application of income for charitable purposes. The claim of depreciation was disallowed by the Tribunal following the decision of the jurisdictional High Court. The decision challenged before the Hon'ble Supreme Court in Civil Appeal No. 1591/2013 was affirmed.
On the very next day, the very same Bench considered a similar issue arising from a judgment of the High Court of Bombay and many other High Courts. The decision of the Bombay High Court as also the decision of the Hon'ble Supreme Court is reported as Commissioner of Income Tax v. Rajasthan and Gujarati Charitable Foundation, [2018] 402 ITR 441 (SC). We herein extract the following paragraphs:- “After hearing the learned counsel for the parties, we are of the opinion that the aforesaid view taken by the Bombay High Court correctly states the principles of law and there is no need to interfere with the same. It may be mentioned that most of the High Courts have taken the aforesaid view with only exception thereto by the High Court of Kerala which has taken a contrary view in Lissie Medical Institutions v. CIT. It may also be mentioned at this stage that the Legislature, realising that there was no specific provision in this behalf in the Incometax Act, has made amendment in section 11(6) of the Act vide Finance (No.2) Act of 2014 which became effective from the assessment year 2015- 2016. The Delhi High Court has taken the view and rightly so, that the said amendment is prospective in nature.”
The aforesaid decision of the Hon'ble Supreme Court is dated 13.12.2017. It is to be noticed that in the Civil Appeal of Lissy Medical Institution the learned Judges of the Hon'ble Supreme Court specifically observed that they are not going into the merits of the case. In the later judgment, however, the merits were looked into and the claim of the assessee was allowed. It is also specifically noticed that Section 11(6) of the Act has only prospective effect from the assessment year 2015-16. The subject assessment year in the present appeal is prior to the assessment year 2015-16. Following the binding precedent, we have to allow the appeal answering the questions of law in favour of the assessee and against the Revenue. The I.T.Appeal is allowed. No order as to costs. K.VINOD CHANDRAN JUDGE ASHOK MENON dkr JUDGE
Appendix — schedule of exhibits
More judgments on Section 11(6)
- M/S. Brothers of the Sacred Heart of Jesus… vs ACIT, Exemptions, CoimbatoreITA 1584/CHNY/2026[2018-19]Status: Disposed29 Sept 2026AY 2018-19
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- DCIT(Exemptions)-1(1), Mumbai vs Indian Institute of Banking and Finance…ITA 3393/MUM/2026[2017-18]Status: Disposed19 Aug 2026AY 2017-18
- Saqlainia Shikchhan Prasar Samiti, Jhansi vs ITO Ward Exemption Agra Rcc, AgraITA 321/AGR/2026[2019-20]Status: Disposed18 Aug 2026AY 2019-20
- Rotary Eye Institute, NaITA 375/AHD/2026[2016-17]Status: Disposed11 Aug 2026AY 2016-17
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