THE MARTHOMA CHURCH EDUCATIONAL SOCIETY vs. THE COMMISSIONER OF INCOME TAX
What did the High Court hold?
The Tribunal held that the assessee is entitled to claim depreciation on fixed assets, even if their acquisition cost was treated as application of income for charitable purposes, for assessment years prior to Assessment Year 2015-16. The reasoning is based on the Supreme Court's decision in Commissioner of Income Tax v. Rajasthan and Gujarati Charitable Foundation (2018) 402 ITR 441 (SC). The Supreme Court, in this judgment, affirmed the view of the Bombay High Court and other High Courts that depreciation is allowable. The Court noted that while the Kerala High Court had taken a contrary view in Lissy Medical Institution, the Supreme Court's later decision addressed the merits and allowed the claim. The amendment to Section 11(6) of the Act by the Finance (No.2) Act of 2014, effective from Assessment Year 2015-16, was held to be prospective. Therefore, for assessment years prior to 2015-16, the claim for depreciation is allowed. The appeal is allowed, answering the question of law in favour of the assessee.
What were the facts?
The assessee, The Marthoma Church Educational Society, a charitable institution, claimed expenditure for the acquisition of fixed assets as application of income for charitable purposes. Consequently, the cost of these assets was allowed full exemption. The assessee then claimed depreciation on these same fixed assets. The Income Tax Appellate Tribunal (ITAT) disallowed this claim for depreciation, following the jurisdictional High Court's decision. This appeal challenges the ITAT's order dated April 27, 2012, for assessment years prior to Assessment Year 2015-16. The High Court of Kerala, in a previous case (Lissy Medical Institution), had ruled against the assessee on this issue. However, the Supreme Court, in a later judgment (Commissioner of Income Tax v. Rajasthan and Gujarati Charitable Foundation), affirmed the view of the Bombay High Court and other High Courts, allowing depreciation claims for assessment years 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 of such assets was allowed full exemption as application of income for charitable purposes, for assessment years prior to Assessment Year 2015-16? (Question of law, turning on Section 11 of the Income Tax Act, 1961). Assessee's Contention: The assessee argued that depreciation is a charge on the income and should be allowed. They relied on the Supreme Court's decision in Commissioner of Income Tax v. Rajasthan and Gujarati Charitable Foundation, which allowed depreciation claims for assessment years prior to 2015-16. Revenue's Contention: The Revenue contended that depreciation cannot be claimed on assets whose cost was already treated as application of income and allowed exemption. They relied on the earlier decision of the Kerala High Court in Lissy Medical Institution v. Commissioner of Income Tax.
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 years in the present appeals are 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 JUDGE
Appendix — schedule of exhibits
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