2016 (10) TMI 1287 - AT - Income Tax

Depreciation to assessee trust - assessee is not engaged in any business - HELD THAT - Depreciation on the asset in which the cost was already allowed as application of income under Section 11 of the Income Tax Act was considered by this Tribunal elaborately in the case of The Music Academy Madras 2016 (5) TMI 165 - ITAT CHENNAI . This Tribunal found that Section 32 of the Income Tax Act is applicable only in respect of business of the assessee. Since admittedly the assessee is not engaged in any business and claiming itself carrying on the charitable activity this Tribunal found that the assessee is not entitled for depreciation. Conflict between the commercial principle or customary practice in computing income and the provisions of Section 32 were not brought to the notice of the Courts / Tribunal. Appeals of the assessee stand dismissed.

Summary

Issues Involved: Depreciation claim on assets where the cost was already allowed as an application of income under Section 11 of the Income Tax Act.

Detailed Analysis:

1. Depreciation Claim on Assets:
The primary issue in both appeals was whether the assessees could claim depreciation on assets whose cost was already allowed as an application of income under Section 11 of the Income Tax Act. The counsel for the assessee acknowledged that this issue had been previously considered by the Tribunal in the case of The Music Academy Madras Vs. The Deputy Director of Income Tax, where it was held that depreciation could not be claimed again on the same asset.

2. Tribunal’s Consideration and Findings:
The Tribunal reiterated its previous stance, emphasizing that Section 32 of the Income Tax Act applies only to assets used for business or professional purposes. Since the assessees were not engaged in any business but were carrying out charitable activities, they were not entitled to claim depreciation. The Tribunal noted that depreciation under Section 32 is an allowance for wear and tear on business assets, and since the assessees were not conducting any business, they could not claim this benefit.

3. Legal Provisions and Interpretation:
The Tribunal explained that Section 32(1) specifies that depreciation is allowed on assets used for business or profession. The assessees, being charitable institutions, did not use the assets for business purposes, thus making them ineligible for depreciation under this section. The Tribunal also highlighted that the Income Tax Act does not provide for depreciation on assets used for purposes other than business or profession.

4. Commercial Principle vs. Statutory Provision:
The assessees argued that they were not claiming depreciation under Section 32 but based on commercial principles. However, the Tribunal clarified that commercial principles or customary practices cannot override the specific provisions of the Income Tax Act. The statutory provision under Section 32 prevails, and since it does not allow depreciation for non-business assets, the assessees’ claim was invalid.

5. Conflict Between Customary Practice and Statutory Provision:
The Tribunal addressed the potential conflict between customary practice and statutory provisions, asserting that statutory provisions take precedence. Thus, even if commercial principles suggest depreciation, Section 32’s specific requirements must be followed.

6. Judgments and Decisions Considered:
The Tribunal reviewed various judgments cited by the assessees but found them inapplicable as they did not address the conflict between commercial principles and Section 32. Consequently, the Tribunal dismissed the appeals, upholding the lower authorities' decisions.

Conclusion:
The Tribunal concluded that the assessees were not eligible for depreciation on the assets in question, as they were not used for business or professional purposes. The appeals were dismissed, confirming the lower authorities' orders. The judgment emphasized the precedence of statutory provisions over commercial principles or customary practices in computing income for tax purposes.

Order Pronounced:
The appeals were dismissed, and the order was pronounced on 28th October 2016 at Chennai.