KOVAI MEDICAL CENTER RESEARCH AND EDUCATIONAL TRUST,COIMBATORE vs. ITO, COIMBATORE

Brief facts of the case are that the assessee trust filed it return of income for the assessment year 2011-12 on 29.09.2011 admitting “NIL” income and claiming exemption under section 12AA of the Income Tax Act, 1961 [“Act” in short]. Further, the assessee claimed depreciation to the extent of ₹.6,65,87,210/-/-. The Assessing Officer disallowed the claim of the assessee on the ground that the depreciation claimed by the assessee cannot be allowed since the cost of the asset was already claimed as application of income and concluded the assessment under section 143(3) of the Act.

On appeal, after considering the submissions of the assessee and by considering various decisions, the ld. CIT(A) confirmed the assessment.

On being aggrieved, the assessee is in appeal before the Tribunal. Against the notice served on the assessee through DR, by filing copy of the judgment of Hon’ble Supreme Court in the case of CIT v. Rajasthan and Gujarati Charitable Foundation Poona in Civil Appeal No.7186 of 2014 dated 13.12.2017 through its written submission dated 27.12.2017, the ld. AR of the assessee submitted that while computing the income of the trust under section 11 of the Act, the same has to be computed commercially and depreciation has to be allowed. In fact, the Hon’ble Supreme Court confirmed the judgment of the Hon’ble Bombay High Court in the case of DIT (Exemption) v. Framjee Cawasjee Institute (1993) 109 CTR 463. In view of the above judgment of the Hon’ble Supreme Court, the ld. Counsel for the assessee has submitted that the assessee is eligible for depreciation even though the cost of asset was claimed as application of income in the year of acquisition and moreover as has been held by the Hon’ble Supreme Court in the above case, the amendment to section 11(6) of the Act is prospective in nature, the said amendment is not applicable to the assessment 2011-12.

Per contra, the ld. DR submitted that, admittedly, the assessee claimed the cost of acquisition as application of income, therefore, the cost of asset becomes ‘nil’. The ld. DR further submitted that there is no mechanism for computing the depreciation. Moreover, the assessee is a charitable institution. Moreover, the provision of section 32 of the Act is applicable only for the asset which is used for business and in this case, according to the ld. DR, the asset was not used for business and, therefore, there is no question of granting depreciation under section 32 of the Act. The ld. DR strongly supported the order passed by the ld. CIT(A).

We have heard the ld. DR and considered the written submissions filed by the AR of the assessee and, perused other materials available on record and gone through the orders of authorities below. The Hon’ble Supreme Court in the case of CIT v. Rajasthan and Gujarati Charitable Foundation Poona (supra) found that even though the cost of asset was allowed as application of income in the year of acquisition of asset, the charitable institution is still entitled for depreciation. In view of this judgment of the Hon’ble Supreme Court, we are unable to uphold the contention of the ld. DR. By respectfully following the judgment of the Hon’ble Supreme Court in the case of CIT v. Rajasthan and Gujarati Charitable Foundation Poona (supra) and for the reasoning stated therein, the orders of both the authorities below are set aside and the Assessing Officer is directed to allow the depreciation as claimed by the assessee. We, further make it clear that the amendment to section 11(6) of the Act, which is effective from the assessment year 2015-16, is prospective in nature and accordingly, the said amendment is not applicable to the assessment year under consideration.

In the result, the appeal filed by the assessee is allowed. Order pronounced on the 18th January, 2018 at Chennai.