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2016 (5) TMI 165 - ITAT CHENNAI

2016 (5) TMI 165 - ITAT CHENNAI - TMI - Disallowance of depreciation to assessee trust - Held that:- In view of Section 11(4) & (4A) of the Act, if the property held under trust is a business undertaking, then the income of the business undertaking, which was so held as property held under trust, has to be computed by applying the provisions of Income-tax Act under Chapter IV. While computing income of the business undertaking, all expenditure, including depreciation, has to be allowed and the i .....

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able institution, such activity cannot be construed as a business or profession of the assessee. Therefore, Section 32 of the Act is not applicable in this case. - Decided against assessee. - ITA No. 1098/Mds/2015 - Dated:- 22-4-2016 - Shri N. R. S. Ganesan, Judicial Member And Shri A. Mohan Alankamony, Accountant Member For the Appellant : Sh. R. Vijayaraghavan, Advocate For the Respondent : Sh. P. Radhakrishnan, JCIT ORDER Per N. R. S. Ganesan, Judicial Member This appeal of the assessee is di .....

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eciation of ₹ 63,14,533/- on the capital asset. However, the Assessing Officer disallowed the claim of the assessee on the ground that allowing the claim of depreciation would amount to double deduction which is not permissible under the provisions of Income-tax Act. According to the Ld. counsel, depreciation is allowable while computing income under the head business or profession . Referring to Section 11 of the Act, the Ld.counsel submitted that Section 11 provides for exemption of inco .....

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CMS Educational & Charitable Trust in I.T.A. No.2261/Mds/2012 dated 17.04.2013, directed the Assessing Officer to allow depreciation. The Ld.counsel has also filed a list of various judgments and submitted that in all these cases, the claim of depreciation was allowed even though the income of the trust was allowed as exempted on its application. Therefore, at no stretch of imagination, the claim of depreciation can be said that it would amount to double deduction. 4. On a query from the Be .....

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Act, the assessee is eligible for depreciation. The Ld.counsel further submitted that there is no conflict between computation of income on commercial principle and the provisions of Section 32 which allows depreciation only on the commercial asset, which is used for business. 5. On the contrary, Sh. P. Radhakrishnan, the Ld. Departmental Representative, submitted that Section 32 of the Act provides for allowing depreciation in respect of the asset which used for business or profession. In this .....

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n 32 is not at all applicable to the charitable institution. The Ld. D.R. further pointed out that Section 32 falls in Chapter IV of the Act which provides for computation of business income. The claim of the assessee under Section 11 falls in Chapter III of the Act which says that certain kind of income do not form part of total income. The Ld. D.R. further pointed out that it is not the case of the assessee that any business was held as property under the trust. The matter would stand in a dif .....

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. D.R. placed his reliance on the decision of this Bench of the Tribunal in The Anjuman-E-Himayath-E-Islam v. ADIT(Exemption) in I.T.A. No. 2271/Mds/2014 dated 02.06.2015 and also the judgment of Kerala High Court in Lissie Medical Institution v. CIT (2012) 348 ITR 344. 6. We have considered the rival submissions on either side and perused the relevant material available on record. The issue arises for consideration is whether a charitable institution is eligible for depreciation in respect of i .....

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assessee and used for the purposes of the business or profession the following deductions shall be allowed- (i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed. (ii) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed: Provided that no deduction shall be allowed under this clause in respect of-(a) any motor c .....

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at where any asset referred to in clause (i) or clause (ii) or clause (iia) or the first proviso to clause (iia), as the case may be, is acquired by the assessee during the previous year and is put to use for the purposes of business or profession for a period of less than one hundred and eighty days in that previous year, the deduction under this sub-section in respect of such asset shall be restricted to fifty per cent. of the amount calculated at the percentage prescribed for an asset under c .....

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e prescribed for an asset under clause (iia) for that previous year, then, the deduction for the balance fifty per cent. of the amount calculated at the percentage prescribed for such asset under clause (iia) shall be allowed under this sub-section in the immediately succeeding previous year in respect of such asset : Provided also that where an asset being commercial vehicle is acquired by the assessee on or after the 1st day of October, 1998, but before the 1st day of April, 1999, and is put t .....

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e" but does not include "maxi cab", "motor-cab", "tractor" and "road-roller" ; (b) the expressions "heavy goods vehicle", "heavy passenger motor vehicle", "light motor vehicle", "medium goods vehicle", "medium passenger motor vehicle", "maxi-cab", "motor-cab", "tractor" and "roadroller" shall have the meanings respectively as assigned to them in section 2 of the .....

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vided also that the aggregate deduction, in respect of depreciation of buildings, machinery, plant or furniture, being tangible assets or knowhow, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets allowable to the predecessor and the successor in the case of succession referred to in clause (xiii), clause (xiiib) and clause (xiv) of section 47 or section 170 or to the amalgamating company and the amalgamate .....

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ting company, as the case may be, in the ratio of the number of days for which the assets were used by them. Explanation 1.- Where the business or profession of the assessee is carried on in a building not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purposes of the business or profession on the construction of any structure or doing of any work, in or in relation to, and by way of reno .....

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, machinery, plant or furniture ; (b) intangible assets, being know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature. Explanation 4.- For the purposes of this sub-section, the expression "know-how" means any industrial information or technique likely to assist in the manufacture or processing of goods or in the working of a mine, oilwell or other sources of mineral deposits (including searching for discovery or tes .....

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ction of any article or thing, a further sum equal to twenty per cent. of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii) : Provided thatwhere an assessee, sets up an undertaking or enterprise for manufacture or production of any article or thing, on or after the 1st day of April, 2015 in any backward area notified by the Central Government in this behalf, in the State of Andhra Pradesh or in the State of Bihar or in the State of Telangana or in the Sta .....

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(A) any machinery or plant which, before its installation by the assessee, was used either within or outside India by any other person ; or (B) any machinery or plant installed in any office premises or any residential accommodation, including accommodation in the nature of a guest-house ; or (C) any office appliances or road transport vehicles ; or (D) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in comput .....

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ture, together with the amount of scrap value, if any, fall short of the written down value thereof : Provided that such deficiency is actually written off in the books of the assessee. Explanation For the purposes of this clause,- (1) "moneys payable" in respect of any building, machinery, plant or furniture includes- (a) any insurance, salvage or compensation moneys payable in respect thereof ; (b) where the building, machinery, plant or furniture is sold, the price for which it is s .....

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ive thousand rupees bears to the actual cost of the motor car to the assessee as it would have been computed before applying the said proviso (2) "sold" includes a transfer by way of exchange or a compulsory acquisition under any law for the time being in force but does not include a transfer, in a scheme of amalgamation, of any asset by the amalgamating company to the amalgamated company where the amalgamated company is 8an Indian company or in a scheme of amalgamation of a banking co .....

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owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of sub-section (2) of section 72 and sub-section (3) of section 73, the allowance or the part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is .....

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business assets, the Parliament thought it fit in their wisdom to allow depreciation for wear and tear of the building, machinery, plant, etc. Depreciation in certain cases is treated as expenditure laid out over the years during the life time of the machinery. In other words, the value of the asset, machinery, etc. reduced pro tanto. This Tribunal is of the considered opinion that the depreciation is spread over during the effective life time of the machinery or asset, etc. used for business by .....

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t as an incentive/allowance to the asset which was used for the business or profession. This can be construed as reduction in value in the balance sheet while computing the income from business or profession. 7. Section 32(1) of the Act clearly says that the asset owned wholly or partly by the assessee and used for the purpose of business or profession . In view of the language employed by the Parliament, the asset used for the purpose of business or profession alone eligible for depreciation. T .....

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, cannot be construed as an asset which is used for the business or profession of the assessee. Therefore, the assessee is not eligible for depreciation under Section 32 of the Income-tax Act. 8. The Ld.counsel for the assessee has also clarified that the assessee is not claiming depreciation under Section 32 of the Act. According to the Ld. counsel, the assessee is claiming depreciation on the commercial principle. On a query from the Bench what is meant by commercial principle ?, he clarified .....

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f computing income may also provide for depreciation only in respect of computing business or professional income. 9. Income-tax Act provides for procedure and method for computing income under different heads. Depreciation is provided under Section 32 of the Act when computing income under the head Income from business or profession . In respect of other heads, no depreciation is provided under the scheme of the Act. The income of the trust is exempted on application and accumulation as provide .....

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om the property held under trust do not form part of total income under Section 11 of the Act provided the same is applied for charitable object. Section 11 of the Act also provides for accumulation of 15% of income for future application for the object of the trust. Therefore, the business and charitable institution are two different categories in the scheme of Income-tax Act. This Tribunal is of the considered opinion that the customary way of computing income or the commercial principle of co .....

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ely, Section 32 of the Act. 10. The next question arises for consideration is when there is a conflict between customary practice, commercial principle and provisions of Section 32, which one will prevail? The obvious answer to this question is the statutory provision, namely, Section 32 of the Act will prevail over the customary practice and commercial principle. Therefore, even on customary practice or commercial principle whereby the assessee claims depreciation while computing the income, Se .....

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s, then the assessee is not eligible for exemption under Section 11 of the Act and as rightly submitted by the Ld. Departmental Representative, the registration under Section 12AA of the Act has to be cancelled under Section 12AA(3) of the Act. Moreover, the assessee will not be eligible for exemption under Section 11 of the Act if it is carrying on any business activity. Therefore, this Tribunal is of the considered opinion that the assessee is not eligible for depreciation. 12. As rightly subm .....

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nder Trust has to be allowed as exemption under Section 11 on application and accumulation. In this case, as rightly submitted by the Ld. D.R., no business undertaking was held under trust as provided under Section 11(4) & (4A) of the Act. The assessee is claiming depreciation in respect of asset which was used as tool for carrying out charitable object of the institution. When the asset was used as tool for carrying out the object of the charitable institution, such activity cannot be const .....

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