ASSISTANT COMMISSIONER OF INCOME TAX (EXEMPTION) CIRCLE-1, MANGALORE vs. M/S SHRI SIDDARAMESHWAR EDUCATION TRUST, BANGALORE

The assessee is a charitable trust with objects to provide education by running several educational institutions. In the course of assessment u/s. 143(3) of the Act for AY 2010-2011 the AO noticed from the details of depreciation claimed, that the depreciation was claimed by the Assessee on assets, the cost of acquisition of which in the year of their acquisition had been claimed by the assessee as application of funds towards the objects of the Assessee was allowed as such. According to the AO, once at the time of acquisition of the assets, the capital expenditure is considered as application of income for charitable purpose u/s.11(1) of the Act, on the very same assets, allowing depreciation would amount to allowing double deduction. The AO was of the view that the decision of the Hon’ble Supreme Court in the case of Escorts Limited & another Vs. Union of India 199 ITR 43 was squarely applicable. In the aforesaid case, the facts were that capital expenditure on acquisition of assets was allowed as deduction u/s 35(2)(iv) of the Act. On the very same assets depreciation was claimed by the Assessee in the subsequent years. The claim for deduction on account of depreciation was disallowed by the Revenue authorities on the ground that since the cost of the asset which was capital expenditure on scientific research was allowed as deduction allowing depreciation on the very same asset would amount to conferring double deduction and hence no depreciation is allowable u/s 32 on the same asset. This view was confirmed by the Hon’ble Supreme Court in the case of Escorts Ltd. (supra). The AO was of the view that following the ratio laid down in the case of Escorts Ltd. (supra), the claim for deduction on account of depreciation should be disallowed.

The AO held that allowance of depreciation when the cost has already been recovered by way of exemption as application of income amounts to double deduction and double benefit on the same asset. The AO referred to the decision of the of Hon'ble High Court of Kerala in the case of DDIT(E) v.

Lissie Medical Institutions, 348 ITR 344 (Ker) wherein it was held that allowing depreciation of a depreciable asset when the cost of acquisition of depreciable asset was allowed as application of income for charitable purpose amounts to double depreciation and therefore depreciation cannot be allowed. The AO also distinguished the cases cited by the Assessee.

On appeal by the Assessee, the CIT(A) directed the AO to allow the claim of the Assessee for deduction on account of depreciation by concluding that 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. The CIT(A) also relied on the decisions in CIT vs. Tiny Tots Education Society (2011) 330 ITR 21 (P&H) , following CIT vs. Market Committee, Pipli (2011) 330 ITR 16 (P&H) : (2011) 238 CTR (P&H) 103 wherein it was held 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.

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 consideration before ITAT Bangalore Bench in the case of DDIT(E) v. Cutchi Memon Union (2013) 60 SOT 260 Bangalore ITAT, 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:-

As already stated, the aforesaid amendment is prospective and will apply only from A.Y. 2015-16. In view of the above legal position, we are of the view that the order of the CIT(A) has to be reversed. Consequently there is no merit in the appeal by the revenue and the same is dismissed.

In the result, the appeal by the Revenue is dismissed.