DCIT (EXEMPTION), GHAZIABAD vs. M/S. KANPUR EDUCATION SOCIETY, KANPUR

This appeal by the revenue has been directed against the order of Ld. CIT(A)-II, Kanpur, dated 09.12.2016 for assessment year 2013-14 on the following grounds.

The Ld. Commissioner of Income Tax (A) has erred in law and on first allowing the appeal of the assessee after deleting the addition of Rs. 45,40,842/- 3. Appellant craves leave to modify/ amend or add any one or more grounds of appeal.

During the appellate proceedings the A.R. of the assessee submitted that the income of the trust is required to be computed under section 11 on commercial principles after providing for allowance for normal depreciation and deduction thereof from the gross income of the trust. Thus depreciation must be understood as a necessary outgoing. While disallowing depreciation the Ld. DCIT has stated that the assessee has claimed depreciation of Rs. 45,40,842/- on account of application of income for charitable purpose which is not allowable as the capital expenditure on acquiring fixed assets has already been allowed in respective years. No other reason has been stated in the assessment order. While doing so the Ld. DCIT has not appreciated that depreciation has been treated as a normal expenses incurred for the attainment of the objects of the Trust. In order to arrive at the income available for application, the amount of depreciation should be deducted as held by various High Courts and Tribunal. If depreciation is not allowed as a necessary deduction in computing the income of a charitable/religious trust, then there would be no way to preserve the corpus of the trust. Therefore, a charitable/religious trust is entitled to depreciation in respect of the assets owned by it. We rely on the following judgments in the matter: a. In the case of CIT Vs Market Committee, Pipli [2011] 330 ITR 16 (P&H), it has been clearly held that deduction of depreciation in case of a charitable / religious trust does not amount to double deduction. b. In the case of CIT Vs Tiny Tots Education Society [2011] 330 ITR 21 (P&H), it has been held that the deduction of depreciation in case of a charitable / religious trust, does not amount to double benefit. Same is the view held by the Bombay High Court in the cases : (i) CIT Vs Institute of Banking [2003] 264 ITR 110 (Bom) (ii) DIT (E) Vs Framjee Cawasjee Institute [1993] 109 CTR 463 (Bom) 9. Thus the Ld. DCIT was liable to allow depreciation and repayment of loan as an application of income. c. In the decision of Hon'ble Madhya Pradesh high Court in CIT vs. Raipur Pallottine Society (1989) 180 ITR 579 (M.P.) wherein Hon'ble High Court held as under:

Ld. CIT(A) considering the various decisions of different Hon’ble High Courts allowed the appeal of the assessee. His findings are reproduced as under:

I have heard Ld. DR, who has relied upon the order of the AO. However, none has appeared on behalf of the assessee despite notifying the date of hearing through registered post. After considering the submission of the Ld. DR, I do not find any merit in the departmental appeal. The assessee has relied upon several decisions on the proposition that Charitable/Religious Trust is entitled to depreciation in respect of the assets owned by it, which are reproduced in the submission of the assessee. The law u/s 11(6) is inserted later on w.e.f 01.04.2015 to deny depreciation therefore, for assessment year under appeal i.e. 2013-14 assessee would be entitled for depreciations. Ld. CIT(A) on proper appreciation of facts and various decisions correctly allowed depreciation to the assessee. Ld. DR did not point out any infirmity in the order of Ld. CIT(A). In the case of DIT vs M/s Indraprasth Cancer Society, in dated 18.11.2014, Hon’ble Delhi High Court had taken the same view as is taken by Ld. CIT(A), in which departmental appeals have been dismissed. Departmental appeal fails and dismissed.