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Income Tax Appellate Tribunal, DELHI BENCH: ‘E’, NEW DELHI
Before: SH. BHAVNESH SAINI & SH. O.P. KANT
PER O.P. KANT, A.M.: This appeal by the Revenue is directed against order dated 29/05/2012 passed by the Ld. Commissioner of Income-tax (Appeals)-XXI, New Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2009-10, raising following grounds:
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing depreciation to the assessee in respect of capital asset as application of income, the cost of which, as capital expenditure, has already been allowed by way of application of income in earlier years. 2. The appellant craves leave to add, to alter or amend any ground of appeal
raised above at the time of hearing.
2. At the outset, we may like to mention that despite notifying the date of hearing, none attended on behalf of the assessee nor filed any request for adjournment. In the circumstances, it is evident that the assessee is not interested in prosecuting the appeal; accordingly, we have heard the appeal ex parte qua the assessee, after hearing the arguments of the Ld. Departmental Representative (DR).
3. Briefly stated facts of the case are that the assessee is a society registered under Societies Registration Act, 1860. The society is also registered under section 12A of the Income-tax Act, 1961 (in short the ‘Act’). The main objects of the assessee society include creating world-class automotive testing, validation etc. In the assessment completed under section 143(3) of the Act on 02/12/2011, while considering application of the receipt applied for charitable purpose to the extent prescribed limit (i.e. 85%), the Assessing Officer denied depreciation of Rs.1,82,24,566/-. On further appeal, the Ld. CIT(A) directed the Assessing Officer to allow this claim in view of the decision of Hon’ble Punjab and Haryana High Court’s in the case of Tiny Tots education Society 330 ITR
21. The Revenue has challenged this direction of the Ld. CIT(A) before the Tribunal in the grounds reproduced above.
4. Before us, the Ld. DR submitted that issue of allowing depreciation while considering application of 85% receipts against charitable purposes, has been decided against the assessee by the Hon’ble Delhi High Court in the case of Director of Income Tax Vs. Charanjiv Charitable Trust (ITA No. 321 to 323 of 2013) in decision dated 18/03/2014.
We have heard the submission of the Ld. DR and perused the relevant material on record. The issue in dispute before us is whether depreciation can be allowed by way of application of income, in respect of the assets cost of which has already been allowed as application of income in earlier years. The Ld. CIT(A) directed the Assessing Officer to allow the application of depreciation, following the decision of the Hon’ble Punjab and Haryana High Court in the case of Tiny Tots Education Society (supra). The Ld. DR has cited before us the decision of the Hon’ble Delhi High Court in the case of Charanjiv Charitable Trust (supra) wherein the Hon’ble High Court declined to grant application of the depreciation. The relevant finding the Hon’ble High Court is reproduced as under:
“30. So far as the claim of depreciation is concerned the decision of the Tribunal cannot be countenanced. The Tribunal has overlooked that the cost of the assets has already been allowed as a deduction as application of income, as held by the CIT (Appeals) as well as the assessing officer. It was their view that allowing depreciation in respect of assets, the cost of which was earlier allowed as deduction as application of income of the trust, would actually amount to double deduction on the basis of the ruling of the Supreme Court in Escorts Ltd. vs. UOI (supra). In respect of the additions to the fixed assets made during the previous year relevant to the assessment year 2006-07, the CIT (Appeals) held that since the cost of the assets was not allowed as a deduction by way of application of income, depreciation should be allow. The CIT (Appeals) has thus made a distinction between assets the cost of which was allowed as deduction as application of income and assets, the cost of which was not so allowed. The Tribunal has not kept this distinction in view, but has proceeded to rely upon a judgment of this Court in DIT vs. Vishwa Jagrati Mission (supra). In the judgment of this Court the question was whether the income of the assessee, which was a charitable trust, should be computed on commercial principles and if so, whether depreciation on fixed assets used for charitable purposes should be allowed as a deduction. This Court noticed that there was a consensus of judicial opinion on this aspect and held, after referring to those authorities as well as a circular of the CBDT issued on 19.07.1968, that while computing the income of the trust available for application for charitable purposes, depreciation on assets used for charitable purposes should be allowed. The point to be noticed is that in this judgment, this Court referred to and distinguished the judgment of the Supreme Court in Escorts Ltd. (supra) on the ground that in Escorts (supra), the Supreme Court was concerned with a case where the deduction of the cost of the asset was allowed under Section 35(1) as capital expenditure incurred on scientific research and, therefore, no deduction for depreciation on the very same assets was held allowable under general principles of taxation, as it would amount to double deduction. The judgment of this Court in DIT vs. Vishwajagrati Mission reinforces the principle that if the cost of the asset has been allowed as deduction by way of application of income then depreciation on the same asset cannot be allowed in the computation of the income of the trust. The distinction has not been kept in view by the Tribunal which seems to have erroneously relied on the judgment of this Court to direct allowance of depreciation even in respect of assets, the cost of which has already been allowed as application of income. We accordingly hold that the Tribunal was not justified in directing the allowance of depreciation in respect of such assets.”
However, we find that the Hon’ble Supreme Court in a recent decision dated 13/12/2017 in the case of Commissioner of Income Tax versus Rajasthan and Gujarati Charitable Foundation, Poona reported in (2018) 300 CTR 001(SC), has decided the issue and allowed application of the depreciation. The Hon’ble Supreme Court following the decision of the Hon’ble Bombay High Court in the case of Commissioner of Income Tax versus Institute of Banking Personals (IBPS) (2003) 131 Taxman 386 (Bombay), upheld the view of the Hon’ble Bombay High Court in the case. The Hon’ble Supreme Court held that though the amount spent on acquisition of the asset had been treated as application of the income of the trust in the year in which income was spent in acquiring those assets, however, in subsequent years depreciation in respect of those assets can also be taken into account for application of the income. The Hon’ble Supreme Court also noted that legislature realising that there was no specific provision in this behalf in the Act, and thus made amendment in Section 11(6) of the Act, which became effective from the assessment year 2015-16. The Hon’ble Supreme Court further observed that the Delhi High Court has taken the view that said amendment is prospective in nature. 6. In view of the above judgement of the Hon’ble Supreme Court, we uphold the finding of the Ld. CIT(A) on the issue in dispute and dismiss the ground No. 1 of the appeal of the Revenue.
The ground No. 2 of the appeal, being general in nature, which is not required to adjudicate upon and accordingly, we dismiss it as infructuous.
In the result, appeal of the Revenue is dismissed. The decision is pronounced in the open court on 8th May, 2018.