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Income Tax Appellate Tribunal, “SMC-B” BENCH : BANGALORE
Before: SHRI GEORGE GEORGE K
This appeal at the instance of assessee is directed against the order of CIT(A) dated 14.7.2016. The relevant AY is 2012-13.
Though several grounds are raised, all the grounds relates to the solitary issue whether the CIT(A) is justified in confirming the AO’s action in disallowing the depreciation on the assets, the cost of which was claimed as application.
Briefly stated, the facts of the case are as follows:
The assessee is a religious trust registered under section 12AA of the Income Tax Act. For the AY 2012-13, the return of income was filed on 5.9.2012 declaring a total income at “Nil” after claiming exemption under section 11 of the Income Tax Act. In the statement of accounts, the assessee had claimed depreciation on the assets acquired by it during the relevant previous year as well as in the immediately previous year amounting to Rs.34,31,683/-. The assessment was taken up for scrutiny by issuance of notice under section 143(3) of the Act and scrutiny assessment under section 143(3) of the Act was completed vide order dated 20.2.2015. In the assessment completed under section 143(3), the AO disallowed the claim for depreciation. The AO held the depreciation claimed by the assessee was on the assets, the cost of which was allowed as application of income and therefore granting of depreciation would tantamount to double deduction. The AO relied on the judgement of the Hon’ble Kerala High Court in the case of Lissie Medical Institutions Vs. CIT reported in 348 ITR 344 (2012).
Aggrieved by the disallowance of depreciation, the assessee filed an appeal to the first appellate authority. The CIT(A) had sustained action of the AO.
Aggrieved, the assessee has filed the present appeal before the tribunal. The learned counsel for the assessee submitted the issue in question is squarely covered in favour of assessee by the order of the tribunal in the case of Accion Technical Advisors India Vs. The Asst. Director of Income- Tax (Exemptions), Bangalore in (order dated 30.9.2015.)
I have heard the rival submission and perused the material on record. Tribunal in the case of Accion Technical Advisors India Vs. The Asst. Director of Income-Tax (Exemptions), Bangalore (supra), held that the assessee was entitled to the benefit of depreciation irrespective whether the cost of the said asset on which the depreciation is claimed has been allowed as an application of income in the previous years. The tribunal had taken note of the amendment effected by the Finance (No. 2) Act, 2014 w.e.f 1.4.2015 and held the amendment is prospective and does not have application for the years prior to AY 2015-16. The tribunal had also considered the judgment of the Hon’ble High Court of Kerala in the case of Lissie Medical Institutions Vs. CIT reported in 348 ITR 344 (2012). The relevant findings of the tribunal in the case of Accion Technical Advisors India Vs. The Asst. Director of Income-Tax (Exemptions), Bangalore (supra), reads as follows:
“10. 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:
“20. We have considered the rival submissions. 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. It was so held by the Hon’ble Karnataka High Court in the case of CIT Vs. Society of Sisters of St. Anne 146 ITR 28 (Kar). It was held 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 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.
The issue raised by the revenue in the ground of appeal
is thus no longer res integra and has been decided by the Hon’ble Punjab & Haryana High Court in the case of CIT v. Market Committee, Pipli, 330 ITR
16. (P&H). The Hon’ble Punjab & Haryana High Court after considering several decisions on that issue and also the decision of the Hon’ble Supreme Court in the case of Escorts Ltd. (supra), came to the conclusion that depreciation is allowable on capital assets on the income of the charitable trust for determining the quantum of funds which have to be applied for the purpose of trusts in terms of section 11 of the Act. The Hon’ble Punjab & Haryana High Court made a reference to the decision of the Hon’ble Supreme Court in the case of Escorts Ltd. (supra) and observed that the Hon’ble Supreme Court was dealing with a case of two deductions under different provisions of the Act, one u/s. 32 for depreciation and the other on account of expenditure of a capital nature incurred on scientific research u/s. 35(1)(iv) of the Act. The Hon’ble Court thereafter held that a trust claiming depreciation cannot be equated with a claim for double deduction. The Hon’ble Punjab & Haryana High Court has also made a reference to the decision of the Hon'ble Karnataka High Court in the case of CIT v. Society of Sisters of Anne, 146 ITR 28 (Kar), wherein it was held that u/s. 11(1) of the Act, income has to be computed in normal commercial manner and the amount of depreciation debited in the books is deductible while computing such income. In view of the aforesaid decision on the issue, we are of the view that the order of the CIT(A) on the above issue does not call for any interference.
22. Consequently, ground No.5 raised by the revenue is dismissed.”
We may also add that the legal position has since been amended by a prospective amendment by the Finance (No.2) Act, 2014 w.e.f. 1.4.2015 by insertion of sub-section (6) to section 11 of the Act, which reads as under:-
“(6) In this section where any income is required to be applied or accumulated or set apart for application, then, for such purposes the income shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of any asset, acquisition of which has been claimed as an application of income under this section in the same or any other previous year.”
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) in so far as it relates to allowing depreciation on opening WDV has to be confirmed but has to be reversed in so far as it relates to not allowing depreciation on the closing WDV of the block of assets. In other words, the Assessee should be entitled to depreciation as claimed by it. Consequently ground No.1 raised by the Revenue is dismissed while ground no.2 raised by the Assessee is allowed.”
Since the facts considered by the coordinate bench of the tribunal in the case of Accion Technical Advisors India Vs. The Asst. Director of Income-Tax (Exemptions), Bangalore (supra) is identical to the facts of the instant case, following the coordinate bench’s order, I direct the AO to grant depreciation claimed. It is ordered accordingly.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 02.12.2016.