Commissioner of Income Tax vs Desh Bhagat Memorial Education Trust

This order will dispose of I.T.A. Nos. 346 of 2008, I.T.A. No. 318 of 2009 and I.T.A. No. 155 of 2010, as common question of law is involved.

I.T.A. No. 346 has been preferred by the revenue u/s 260-A of the Income Tax Act, 1961 (for short, "the Act") against the order dated 28-9-2007 in I.T.A. No. 140/CHD/2007 passed by the Income Tax Appellate Tribunal, Chandigarh, proposing to raise following substantial question of law:

Whether on the facts and the circumstances of the case and in law, the depreciation on the capital assets is also to be considered as application of income for charitable purpose when it does not represent any cash expenditure on charity and when entire cost of capital assets have already been considered and is being considered as application of income?

The Assessee is a society registered u/s 12-AA of the Act. The Assessee claimed depreciation on the capital assets which was not allowed by the assessing officer on the ground that income of the Assessee being exempt, allowing the claim of depreciation will amount to giving of double benefit. Reliance was placed on judgment of the Honble Supreme Court in Escorts Limited and Others Vs. Union of India and others, . The appeal of the Assessee was allowed by the Commissioner (Appeals), which order has been affirmed by the Tribunal. The Tribunal held that even if income of the Assessee was exempt, claim for depreciation had to be allowed on business principles for determination of extent of application of income of the Assessee to comply with the statutory requirements. It was observed:

... Depreciation allowance is a concession granted by the state in the computation of income based on many factors relevant to a wholesome fiscal administration. Depreciation is allowance as a deduction both according to accountancy principal and according to the Indian Income Tax Act, because otherwise, one would not have a true picture of the real income. For this proposition, reliance can be placed upon decision of the Honble Apex court in the case of Commissioner of Income Tax, Punjab, Jammu and Kashmir and Himachal Pradesh Vs. Alps Theatre, , Parthas Trust Vs. Commissioner of Income Tax, . The Honble Madhya Pradesh High Court in the case of Raipur Pallottine Society (8) CTR (MP) 127 clearly held that a charitable trust is entitled to depreciation in respect of assets held by it. In view of these facts, the Assessee is having a strong case in its favour; consequently the Assessee is entitled to depreciation and TDS deduction.

Learned Counsel for the revenue submitted that the Tribunal erred in upholding the claim for depreciation, ignoring the mandate of judgment of the Honble Supreme Court in Escort Ltds case .

Learned Counsel for the Assessee supported the view taken by the Tribunal.

We are of the view that the Tribunal was justified in allowing depreciation and judgment of the Honble Supreme Court in Escorts Ltds case is distinguishable. The matter was considered in recent judgment of this Court dated 5-7-2010 in I.T.A. No. 535 of 2009 The CIT, Karnal v. Market Committee, Pipli (2010) 36 (I) ITCL 537 (P and H-HC), wherein after considering the case law on the point, the judgment in Escort was distinguished. It was observed:

In the present case, the Assessee is not claiming double deduction on account of depreciation as has been suggested by learned Counsel for the revenue. The income of the Assessee being exempt, the Assessee is only claiming that depreciation should be reduced from the income for determining the percentage of funds which have to be applied for the purposes of the trust. There is no double deduction claimed by the Assessee as canvassed by the revenue. Judgment of the Honble Supreme Court in Escorts Ltd. and Anr. (supra) is distinguishable for the above reasons. It cannot be held that double benefit is given in allowing claim for depreciation for computing income for purposes of Section 11. The questions proposed have, thus, to be answered against the revenue and in favour of the Assessee.

In view of above, the question proposed on behalf of the revenue is answered against the revenue and in favour of the Assessee.

The appeals are dismissed.

A photocopy of this order be placed on the files of each connected case.