MEPCO SCHLENK ENGINEERING COLLEGE COMMITTEE,SIVAKASI vs. DCIT, COIMBATORE

Brief facts of the case are that the assessee trust filed it return of income for the assessment year 2013-14 on 30.09.2013 admitting “NIL” income. The assessee claimed depreciation to the extent of ₹.1,49,60,003/-. 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 of hearing issued on the assessee through RPAD, by filing copy of relevant provisions of section 11 of the Act, the Correspondent of the assessee has submitted that the said amendment to section 11(6) of the Act is not applicable to the assessment year 2013-14 as per the decision of the Hon’ble Madras High Court in the case of Medical Trust of the Seventh Day Adventists reported in 398 ITR 721. With regard to allowance of depreciation, it was also submitted that against the orders of the Hon’ble Bombay High Court in the case of CIT v. Jawaharlal Nehru Port Trust 383 ITR 339 as well as in the case of CIT v. Institute of Banking Personnel Selection 131 Taxman 386, the Hon’ble Supreme Court has granted special leave and in turn it was prayed for following the decision in the case of DIT(E) v. Gem and Jewellery Export Promotion Council 384 ITR 412 (Bom).

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 Correspondent 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 in Civil Appeal No.7186 of 2014 dated 13.12.2017 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. The Hon’ble Supreme Court made it clear in its above judgement 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.