ACIT(E) 2(1), MUMBAI vs. PADMSHREE DR D.Y. PATIL UNIVERSITY, NAVI MUMBAI

The Revenue has raised the following grounds : “1. Whether on the facts of the case and in law the id. CIT(A) erred in allowing the appeal of the assessee on account of disallowing depreciation on fixed assets of Rs. 10,75,86,879/- in contravention of the decision of Escorts Ltd Vs. UOI 199 ITR 43 wherein it was held that since section 11 of the Income Tax Act provides for deduction capital expenditure incurred on assets acquired for M/s Padamshree Dr.D.Y.Patil University the objects of the trust as application and does not specifically & expressly provide for double deduction on account of depreciation on the same very assets acquired from such capital expenditure, no deduction shall be allowed u/s. 32 for the same or any other previous year in respect of that asset as it amounts to claiming a double deduction.

2. Whether, on the facts and in the circumstances of the case and in law the 1dCIT(A) erred in allowing the appeal, when the Delhi High Court in the case of Charanjiv Charitable Trust and Kerala High Court in the case of Lissie Medical institutions vs CIT 76 DTR (Ker) 372 has decided the issue in the favour of the department after considering the decision of Hon'ble Supreme Court in the case of Escorts Ltd (199 ITR 43).

The Ld. Counsel for the Assessee at the outset submits that there are two issues in the Revenue’s appeal i.e. rejecting the claim for depreciation on fixed assets on the ground that the amount spent for purchase of fixed assets have been considered as application of income and therefore on allowing depreciation it amounted to double deduction and the second issue is whether

The Ld. DR placed reliance on the orders of the Assessing Officer.

We have heard the rival submissions, perused the orders of the authorities below and the decision of the Jurisdictional High Court in the case of CIT Vs. Institute of Banking Personnel Selection (supra). The questions raised before the Hon’ble Jurisdictional High Court (supra) are as under : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in directing the Assessing Officer to allow depredation on the assets the cost of which has been fully allowed as application of income under section 11 in the past years? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in allowing the assessee to carry forward the deficit of earlier year and set it off against the surplus of subsequent years when the M/s Padamshree Dr.D.Y.Patil University same was not allowable in the case of the assessee-trust in whose case income exempted under section 11 of the Income-tax Act, 1961?" The Hon’ble High Court regarding question no. 1 held as under : “As stated above, the first question which requires consideration by this court is whether depreciation was allowable on the assets, the cost of which has been fully allowed as application of income under section 11 in the past years ? In the case of CIT v. Munisuvrat fain [1994] Tax LR 1084 (Bom), the facts were as follows : The assessee was a charitable trust. It was registered as a public charitable trust. It was also registered with the Commissioner of Income-tax, Pune. The assessee derived income from temple property which was a trust property. During the course of assessment proceedings for the assessment years 1977-78, 1978-79 and 1979-80, the assessee claimed depreciation on the value of the building at 21/2 per cent. and they also claimed depreciation on furniture at 5 per cent. The question which arose before the court for determination was whether depreciation could be denied to the assessee, as expenditure on acquisition of the assets had been treated as application of income in the year of acquisition? It was held by the Bombay High Court that section 11 of the Income-tax Act makes a provision in respect of computation of income of the trust from property held for charitable or religious purposes and it also provides for application and accumulation of income. On the other hand, section 28 of the Income-tax Act deals with chargeability of income from profits and gains of business and section 29 provides that income from profits and gains of business shall be computed in accordance with section 30 to section 43C. That, section 32(1) of the Act provides for depreciation in respect of building, plant and machinery owned by the assessee and used for business purposes. It further provides for deduction subject to section 34. In that matter also, a similar argument, as in the present case, was advanced on behalf of the Revenue, namely, that depreciation can be allowed as deduction only under section 32 of the Income- tax Act and not under general principles. The court rejected this argument. It was held that normal depreciation can be considered as a legitimate deduction in computing the real income of the assessee on general principles or under section 11(1)(a) of the Income-tax Act. The court rejected the argument on behalf of the Revenue that section 32 of the Income-tax Act was the only section granting benefit of deduction on account of depreciation. It was held that income of a charitable trust derived from building, plant and machinery and furniture was liable to be computed in a normal commercial manner although the trust may not be carrying on any business and the assets in respect whereof depreciation is claimed may not be business assets. In all such cases, section 32 of the Income-tax Act providing for depreciation for computation of income .derived from business or profession is not applicable.

In respect of allowability of depreciation on assets while arriving at application of income, the Hon’ble Bombay High Court recently in the case of DCIT(E) Vs. Shri Vile Parle Kelavani Mandal 2015 [378 ITR 593] reiterated its view in the case of Institute of Banking Personnel and Training (supra).

Respectfully following the above said decisions of the Jurisdictional High Court, we affirm the order of the Ld. CIT (Appeals) on both the issues.

In the result, appeal of the Revenue is dismissed.