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Kamineni Educational Society, Versus. Dy. Director of Incometax

2015 (10) TMI 2472 - ITAT HYDERABAD

Disallowance for depreciation in respect of assets, the cost of which is claimed as application - Computation of income u/s 11(1)(a) - Held that:- Similar to the case of AP Olympic Association (2014 (2) TMI 988 - ITAT HYDERABAD ), we respectfully follow the decision rendered by the coordinate bench of this Tribunal in the said case, and direct the Assessing Officer to allow the claim of the assessee for depreciation in respect of the assets, the cost of which is claimed by the assessee as applic .....

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depreciation made by the Assessing Officer and confirmed by the learned CIT(A) in respect of assets, the cost of which is claimed as application. 2. We have heard the arguments of both the sides and also perused the relevant material on record. Learned representatives of both the sides have agreed that the issue involved in this appeal of the assessee is squarely covered in favour of the assessee by the decision of the coordinate bench of this Tribunal in the case of AP Olympic Association, Hyde .....

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regard to the fact that the assessee is registered under section 12AA of the I.T. Act. There is also no dispute that assessee has shown all the receipts in income-expenditure account and claimed various expenses in its computation of income, while declaring excess of income over expenditure. It is also not in dispute that income of the assessee trust has to be computed with reference to the provisions of section 11 and 13. Therefore, the principles governing computation of income under the head .....

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onsider the issue wherein the depreciation was also claimed on an asset which was claimed as a deduction while using for research, as capital expenditure on scientific research . On those facts, the Hon ble Supreme Court held that depreciation was inadmissible since the entire cost of the asset used for research was claimed as deduction. However, the same principle may not apply to the computation of income under section 11 of the Trust. 8. The Hon ble Kerala High Court in the case of Lissie Med .....

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se of Sri Venkata Sai Educational Society (supra), however, did not decide the issue but restored the matter to the file of the A.O. to examine; whether assets have been claimed as exemption in earlier years on which depreciation was claimed. However, in a later order by the Coordinate Bench of ITAT, Hyderabad in the case of ADIT (Exemption)-I vs. Royal Educational Society in ITA.No. 1378/Hyd/2011 dated 28.06.2012 however, allowed the claim of depreciation and dismissed the Revenue s appeal. The .....

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t spent on construction of School Building at Panchkula is a capital expenditure but for the purpose of section 11 it is an outgoing expenditure which is application of income of the appellant trust for charitable purpose. The appellant shall also be entitled to claim depreciation on the school building . 11. This decision was followed in the case of CIT vs. Tiny Tots Education Society (2011) 330 ITR 21 by the Hon ble Punjab & Haryana High Court. 12. This issue has elaborately been discussed .....

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rder dated 11th September, 2009 and, therefore, it was entitled to exemption of its income under Section 11. The only question is whether the income of the assessee should be computed on commercial principles and in doing so whether depreciation on fixed assets utilised for the charitable purposes should be allowed. On this issue, there seems to be a consensus of judicial thinking as is seen from the authorities relied upon by the CIT(Appeals) as well as the Tribunal. In CIT vs. The Society of t .....

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of the Act and that the word "income" is a wider term than the expression "profits and gains of business or profession". Reference was made to the nature of depreciation and it was pointed out that depreciation was nothing but decrease in the value of property through wear, deterioration or obsolescence. It was observed that depreciation, if not allowed as a necessary deduction for computing the income of charitable institutions, then there is no way to preserve the corpus o .....

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ations or applications thereof towards the purpose of the trust or otherwise, and also after adding back any debits made for capital expenditure incurred for the purposes of the trust or otherwise. It should be noted, in this connection, that the amounts so added back will become chargeable to tax u/s. 11(3) to the extent that they represent outgoings for purposes other than those of the trust. The amounts spent or applied for the purposes of the trust from out of the income computed in the afor .....

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ociety (supra) has held, following the judgment of the Karnataka High court cited above, that in computing the income of a charitable institution/trust, depreciation of assets owned by the trust/institution is a necessary deduction on commercial principles. The Gujarat High Court, after referring to the judgments of the Karnataka, Maharashtra and Madhya Pradesh High Courts cited above, also came to the same conclusion and held that the amount of depreciation debited to the accounts of the charit .....

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d be computed on commercial principles in order to determine the amount of income available for application to charitable purposes. It was a case where the assessee was carrying on business and the statutory computation provisions of Chapter IV-D of the Act were applicable. In the present case, we are not concerned with the applicability of these provisions. We are concerned only with the concept of commercial income as understood from the accounting point of view. Even under normal commercial a .....

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deduction on account of depreciation in respect of the same asset. The Supreme Court ruled that, under general principles of taxation, double deduction in regard to the same business outgoing is not intended unless clearly expressed. The present case is not one of this type, as rightly distinguished by the CIT(Appeals). 14. Having regard to the consensus of judicial opinion on the precise question that has arisen in the present appeal, we are not inclined to admit the appeal and frame any subst .....

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as held that Charitable or Religious trust registered under section 12A can claim benefit under section 11 in the form of application of funds as well as depreciation under section 32 in respect of property held under the trust. The same opinion was followed by the ITAT, Bangalore Tribunal in the case of DDIT(E), Bangalore vs. Cutchi Memon Union (2013) 38 Taxman.com 276 (Bangalore-Trib.) wherein also similar opinion was expressed. 14. Thus, on this issue, there are decisions of Hon ble Gujarat H .....

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