DEPUTY COMMISSIONER OF INCOME TAX (E) CIRCLE-1, BANGALORE vs. M/S VIDYANIDHI EDUCATION TRUST, BANGALORE

The present appeal is filed by the Revenue against the order of the CIT (A)-14, LTU, Bengaluru, dt.06.03.2017, for the assessment year 2012-13, on the following grounds :

The assessee is a trust which filed its return of income for AY 2012-13 declaring total income at nil, after claiming exemption u/s.11 of the Act. During the course of assessment proceedings, it was noted by the AO that assessee had not specifically claimed depreciation as application of income while computing the total income. The AO had placed reliance on the judgment of the ITA.1484/Bang/2017 Page - 3 Hon’ble Supreme Court in the case of Escorts Ltd v. Union of India [(1993) 198 ITR 43 and the judgment of the Hon’ble Kerala High Court in the case of Lissie Medical Institutions v. CIT [(2012) 348 ITR 344]. The AO completed the assessment by disallowing the claim of depreciation. Aggrieved, assessee moved in appeal before the CIT (A).

The CIT (A) has discussed the issue at length in paras 3 to 3.12 of his order. He has followed the decision of the coordinate bench of the ITAT in Jyothi Charitable Trust v. DCIT (Ex) [(2015) 60 taxmann.com 165] and allowed that the entire claim of depreciation is admissible, thereby allowing the appeal of the assessee. Being aggrieved, Revenue is in appeal before us.

We have heard the rival contentions and perused the record. We find that the issue of allowance of depreciation is covered by the decision of the coordinate bench of the Tribunal in Jyothi Charitable Trust, in favour of the assessee. For the sake of convenience, the relevant part of the order is reproduced hereunder :

We have heard the submissions of the ld. DR, who relied on the order of AO. We have considered the order of the AO. Identical issue came up for of Dy. consideration before ITAT Bangalore Bench in the case DIT(E) v. Cutchi Memon Union [2013] 60 SOT 260/38 taxmann.com 276 , wherein similar issue has been dealt with by this Tribunal. In the aforesaid case, the assessee claimed depreciation and the AO denied depreciation on the ground that at the time of acquiring the relevant capital asset, cost of acquisition was considered as application of income in the year of its acquisition. The AO took the view that allowing depreciation would amount to allowing double deduction and placed reliance on the decision of Hon'ble Supreme Court in Escorts Ltd. (supra ). The CIT(A), however, allowed the claim of assessee. On further appeal by the Revenue, the Tribunal held as follows:— ITA.1484/Bang/2017 Page - 4 "20. We have considered the rival submissions. If depreciation is not allowed as a necessary deduction for computing income of charitable institutions, then there is no way to preserve the corpus of the trust for deriving the income as it is nothing but a decrease in the value of property through wear, deterioration, or obsolescence. Since income for the purposes of section 11(1) has to be computed in normal commercial manner, the amount of depreciation debited in the books is deductible while computing such income. It was so held by the Hon'ble Karnataka High Court in the case of CIT v. Society of Sisters of St. Anne 146 ITR 28 (Kar). It was held in CIT v. Tiny Tots Education Society (2011) 330 ITR 21 (P&H), following CIT v. Market Committee, Pipli (2011) 330 ITR 16 (P&H) : (2011) 238 CTR (P&H) 103 that depreciation can be claimed by a charitable institution in determining percentage of funds applied for the purpose of charitable objects. Claim for depreciation will not amount to double benefit. The decision of the Hon'ble Supreme Court in the case of Escorts Ltd. 199 ITR 43 (SC) have been referred to and distinguished by the Hon'ble Court in the aforesaid decisions.

The issue raised by the revenue in the ground of appeal

In the result, appeal of the Revenue is dismissed. Order pronounced in the open court on 28th day of February, 2018.