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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SHRI SUNIL KUMAR YADAV & SHRI A. K. GARODIA
O R D E R
Per Sunil Kumar Yadav, JM :
This appeal is preferred by the assessee against the order of CIT(A), inter alia, on the following grounds: “Disallowance of depreciation: (i) The CIT(A) has failed to appreciate the fact that the Hon'ble Kerala High Court in the case of Lissie Medical Intuitions Vs. CIT (348 ITR 344) has held that depreciation cannot be allowed on assets, where cost of such assets has already been allowed as application of income in the year of acquisition/ purchase of asset.
(ii) Though the Finance Act, 2014 has amended the Income Tax Act, 1961 with regard to non-allowance of depreciation to charitable/ religious trust or institution on the value of assets which has already been allowed as application of income u/s 11(1) by inserting sub-section (6) of Sec. 11, w.e.f 01.04.2015, such amendment cannot be construed as effective prospectively inasmuch as in accordance with the ratio laid down by the Hon'ble Supreme Court in the case of Escorts Ltd. & another Vs. Union of India (Supra), the amendment only set out more clearly and categorically what the legislature had intended and conveyed u/s 11(1) even earlier to the said amendment. As such, the amendment shall be considered as clarificatorv in nature making it clear that the assessee is not entitled to claim double deduction in respect of same expenditure u/s 11(1) as application of income and also depreciation simultaneously.
(iii) The CIT(A) has failed to appreciate the fact that as the exemption u/s.l 1 and 12 were not allowed to the assessee, and the income has been computed under the normal provisions, the depreciation also has to be worked out as per the normal provisions of the Act.”
This appeal came up for hearing on 03.10.2017 but none appeared on behalf of the assessee. The assessee however filed the brief synopsis, paperbooks and case laws, in support of its claim that under section 11(1) of the Act, income has to be computed as per normal provisions and the amount of depreciation debited in the books is deductable while computing such income.
We have carefully examined the orders of the authorities below and the judgments referred to in the paperbooks and we find that the impugned issue is squarely covered by judgments of Hon’ble jurisdictional High Court. Therefore, we decided to proceed with the hearing. Accordingly, the Revenue was heard.
On careful perusal of the orders of the lower authorities, we find that AO has disallowed the depreciation claimed by the assessee on the ground that it amounts to be double deduction as the assessee has claimed the exemption under section 11 of the Act. The assessee preferred an appeal before the CIT(A) and the CIT(A) allowed the depreciation having relied upon the judgment of CIT Vs. Society of the Sisters of St. Anne (146 ITR 28). The relevant observation of the CIT(A)is extracted hereunder: “7.2 Considering the facts of the case and the ration laid down by the Hon’ble courts, as discussed above, granting of depreciation t the trusts on the same assets, the investment on which has been fully allowed as application of income under section 11 of the Act in the earlier years, in my view, would certainly amount to claim of double deduction.
7.3 However, based on the decision of the Jurisdictional High Court rendered in the case of CIT v/s Society of The Sisters of St. Anne, reported in (1984) 146 ITR 28 (KAR). In this case it was held that – “The revenue had assumed that expenditure should necessarily involve actual delivery of or parting with the money. However, it need not necessarily be so. Expenditure should be under stood as necessary outgoings Depreciation is nothing but decrease in the value of property through wear and tear, deterioration or obsolescence and allowance is made for this purpose in book-keeping, accountancy, etc. Further, there are only two recognized methods of accounting, cash basis and mercantile basis, and it is undisputed that if the mercantile system is followed, depreciation allowance in respect of the trust property would be allowed. Also notwithstanding the revenue’s contention t the contrary, there is nothing in section 11 which debars a charitable institution from maintaining accounts on mercantile basis. That apart, if depreciation is not allowed as a necessary deduction for computing the income of the charitable institutions, then there is no way to preserve the corpus of the trust for deriving the income. Accordingly, the amount of depreciation debited to the expenditure account should be deducted to arrive at the assessee’s income available for application for charitable and religious purposes”.
7.4 A similar view in the matter was also taken by the Hon’ble ITAT, Bangalore, in the case of Karnataka Reddy Janasangha in Karnataka State Muslim Federation in ITA No.37/Bang/2013. In the case of DDIT (Exemptions) vs. Cutchi Memon Union (supra), Jyothi Charitable Trust in 60 taxman. Com 165 Bangalore, ACIT Vs City Hospital Charitable Trust in 42 ITR (Trib) 583 Bangalore and other cases stated above. The jurisdictional Karnataka High Court order dated 22.02.2016 in ITA 62/2010 (67 taxman.com 160) had upheld this view that the assessee is entitled for deduction of depreciation even if in the year of purchase of the asset, the entire amount has been considered as application of income in the case of Al-Ameen charitable trust, Adi Chunchanagiri Trust, Karnataka Reddy Janasangha & Karnataka State Muslim Federation. Repsectfully following the Karnataka HC decision, the grounds of appeal with regard to issue of claim of depreciation, are accordingly allowed.”
5. Since the CIT(A) has decided the appeal following the judgment of jurisdictional High Court, we find no infirmity in his order. Accordingly, we confirm his order.
In the result, appeal of the Revenue is dismissed.
Pronounced in the open court on 10th October, 2017.