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Income Tax Appellate Tribunal, MUMBAI BENCHES “B”, MUMBAI
Before: S/Shri Saktijit Dey & Manoj Kumar Aggarwal
O R D E R Per Saktijit Dey, Judicial Member:
This is an appeal by the assessee against order, dated 05.03.2018, of learned CIT(A)-3, Mumbai, for the A.Y. 2012-13.
Ground nos. 1 to 3 are on the issue of claim of depreciation of Rs. 8,14,49,109/-.
Briefly, the facts are the assessee is a trust and registered as a Charitable Organization with the Director of Income Tax (Exemptions), Mumbai, u/s. 12A of the Act. It is also registered with Charity Commissioner, Mumbai. Basically, the assessee is maintaining and running a hospital for treatment of diseases to persons of all communities. For the assessment year under dispute, assessee filed its return of income on 28.09.2012 declaring ‘Nil’ income after claiming exemption u/s. 11 of the Act. During the assessment proceedings, the Assessing Officer, while verifying the return of income as well as financial statements of the assessee noticed that though the assessee had claimed exemption in respect of an amount of Rs. 8,14,49,109/- spent on acquiring capital assets by treating it as application of funds, still, it has debited an amount of Rs. 8,14,49,109/- to the income and expenditure account towards claim of depreciation on the very same assets. This, according to the Assessing Officer, would result in double benefit. He, therefore, called upon the assessee to justify the claim of depreciation. In response, assessee submitted that deprecation has to be taken into account in computing the income of the trust, although, the amount spent in acquiring the assets had been treated as application of income of trust in the year in which assets were acquired. The Assessing Officer, however, did not find merit in the submissions of the assessee.
Relying on the decision of the Hon’ble Supreme Court in the case of Escorts Ltd. vs. Union of India 199 ITR 43, he held that once the amount of Rs. 8,14,49,109/- was allowed as exempt u/s 11 of the Act on account of application of income in the year in which the assets were acquired, the assessee would not be eligible for depreciation on such assets. While doing so, he observed that the decision of Hon’ble Bombay High Court in the case of CIT vs. Institute of Banking Personnel Selection (2003) 264 ITR 110, would not be applicable as it has not taken note of the ratio laid down in the case of Escorts Ltd. (supra). Accordingly, he disallowed assessee’s claim of depreciation. Being aggrieved, assessee challenged the disallowance before learned CIT(A).
After taking note of the decision of Hon’ble Supreme Court in the case of CIT vs. Rajasthan & Gujarati Charitable Foundation Poona (2019) 89 taxmann.com 127, though, learned CIT(A) held that the assessee is entitled to claim depreciation however, he directed the Assessing Officer to allow the same as per the provisions of section 32 of the Act. Being aggrieved with the aforesaid direction of learned CIT(A) the assessee is in appeal before us.
Learned AR submitted, though, learned CIT(A) was correct in allowing assessee’s claim of depreciation however, the provisions of section 32 of the Act is not applicable to the assessee trust. Further, he submitted, while deciding assessee’s application u/s. 154 of the Act in this regard, learned CIT(A) has again made a mistake by directing the Assessing Officer to allow depreciation as per section 11 of the Act. The learned AR submitted in view of the decision of Hon’ble Supreme Court in the case of CIT vs. Rajasthan & Gujarati Charitable Foundation Poona (supra), the issue stands squarely settled in favour of the assessee and while computing income the assessee is eligible to claim depreciation. Thus, the assessee having clamed such depreciation in the Income and Expenditure Account, it is allowable.
The learned DR relied upon the observations of learned CIT(A).
We have considered rival submissions and perused the material on record. We have also applied our mind to the decisions relied upon. At the outset, we must observe, the fact that the assessee is entitled to claim depreciation is not in dispute as learned CIT(A) has accepted assessee’s claim and the Revenue has not contested the aforesaid decision of learned CIT(A).
Be that as it may, the short issue before us is, whether the assessee is entitled to claim depreciation on the assets, the expenditure incurred in respect of which has already been allowed as application of income u/s. 11 of the Act in the year of acquisition of assets. In the case of CIT vs. Institute of Banking Personnel Selection (supra), the Hon’ble Jurisdictional High Court held that though a charitable trust may not be carrying on any business and the assets in respect whereof depreciation is claimed may not be business assets, however, the income of the Trust has to be computed u/s. 11 on commercial principles after providing for allowance for normal depreciation and deduction thereof from gross income of the Trust. Further, in the case of Director of Income-tax (Exemption) vs. Framjee Cawasjee Institute (1993)
109 CTR 463, the Hon’ble Jurisdictional High Court approved the view of the Tribunal in holding that, though, expenditure incurred in acquiring the assets was allowed as application of income u/s. 11(1)(a) of the Act in the year of acquisition, however, depreciation in respect of those assets while computing income in subsequent years have to be allowed. The aforesaid decisions of the Hon’ble Jurisdictional High Court now stand approved by the Hon’ble Supreme Court in the case of CIT vs. Rajasthan and Gujarati Charitable Foundation Poona (supra). Thus, as per the ratio laid down in the decisions referred to above, normal depreciation can be considered as a legitimate deduction in computing the real income of the Trust on general principles or u/s. 11(1)(a) of the Act. While concluding so, the Hon’ble Court negated Revenue’s contention that section 32 is the only provision under which depreciation can be granted. We may hasten to add, the aforesaid legal position stands substantially altered after introduction of sub section (6) to section 11 of the Act by Finance (No.2) Act, 2014, w.e.f. 1.4.2015, wherein allowance of deduction on account of depreciation or otherwise has been specifically prohibited. However, this amendment being prospective would not be applicable to the impugned assessment year. In view of the aforesaid, assessee’s claim of depreciation stands allowed. Consequently, grounds are allowed.
In view of our decision in the aforesaid grounds, ground nos. 4 and 5 have become consequential requiring no further adjudication
In the result, the appeal is allowed as indicated above.
Order pronounced in the open court on this 11th day of October, 2019.