2010 (1) TMI 1100 - AT - Income Tax

Summary

Issues involved: Appeal against order of learned CIT(A) regarding depreciation allowance u/s 11 of IT Act and applicability of sec.40(a)(ia) for computing income.

Depreciation Allowance u/s 11 of IT Act:
The assessee appealed against the learned CIT(A)'s decision regarding depreciation allowance under sec.11 of the IT Act. The AO contended that all expenditure, including capital expenditure, should be considered for ascertaining the expenditure applied for charitable purposes, thus disallowing depreciation. The Tribunal observed that the accumulation was not in excess of 15% during the year, dismissing the appeal. The assessee cited the decision of the Hon'ble Bombay High Court in a similar case, emphasizing that normal depreciation is a legitimate deduction for computing real income of a trust. The Hon'ble Bombay High Court's ruling supported the allowance of depreciation on assets fully allowed as application of income u/s 11 in past years. The Tribunal, following this precedent and the jurisdictional High Court's decision, held that depreciation must be deducted to determine income available for charitable and religious purposes.

Applicability of sec.40(a)(ia) for Computing Income:
The next grievance raised by the assessee was regarding the learned CIT(A)'s decision on the provision of sec.40(a)(ia) for computing income u/s 11 of the IT Act. The Board's Circular highlighted that income of a business undertaking held under a trust should be as shown in the accounts of the undertaking. The Hon'ble jurisdictional High Court clarified that income from trust should be understood in a commercial sense, and sec.40(a)(ia) cannot be invoked for ascertaining trust income. Various High Courts' decisions supported this commercial approach to calculating trust income. The Tribunal concluded that the learned CIT(A) erred in applying sec.40(a)(ia) to disallow expenses where tax was not deducted at source, emphasizing that all expenses cannot be disallowed solely based on this provision. The appeal filed by the assessee was allowed based on these considerations.