TMI Blog2016 (12) TMI 345X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 23.02.2016 pertaining to assessment year 2011-12. 2. In this appeal, the main grievance of the assessee is that the Ld.CIT(A) erred in appreciating that depreciation on assets is governed by the provisions of the section 32 of the Act and the said section is applicable to all assessees including Charitable trusts. Further, by virtue of Explanation 5 to Sec.32, depreciation is a mandatory allowance and the same cannot be denied to the assessee company. 3. The facts of the issue are that assessee trust claimed depreciation u/s.11 of the Act. The AO completed the assessment u/s.143(3) of the Act vide order dated 24..12.2013 determining the total income of ₹ 5,43,970/-. While doing so, the AO had disallowed the depreciation of ₹ 5,44,481/- claimed by the assessee by stating that purchase of the asset has been treated as application of income, hence the claim of depreciation would amount to double deduction while granting exemption u/s.11 of the Act. Against this, the assessee carried the appeal before the Ld.CIT(A). 4. On appeal Ld.CIT(A) observed that once the investment in fixed asset is claimed as application of income, correspondingly the depreciation ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... day of February, 1975 5but before the 1st day of April, 2001, unless it is used--(i) in a business of running it on hire for tourists; or(ii) outside India in his business or profession in another country ; and(b) any machinery or plant if the actual cost thereof is allowed as a deduction in one or more years under an agreement entered into by the Central Government under section 42: Provided further that 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 clause (i) 6or clause (ii) or clause (iia), as the case may be: Provided also that where an asset referred to in 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 busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 amalgamated company in the case of amalgamation, or to the demerged company and the resulting company in the case of demerger, as the case may be, shall not exceed in any previous year the deduction calculated at the prescribed rates as if the succession or the amalgamation or the demerger, as the case may be, had not taken place, and such deduction shall be apportioned between the predecessor and the successor, or the amalgamating company and the amalgamated company, or the demerged company and the resulting 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 renovation or extension of, or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per cent. had been substituted : Provided further no deduction shall be allowed in respect of- (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 computing the income chargeable under the head Profits and gains of business or profession of any one previous year ; (iii) in the case of any building, machinery, plant or furniture in respect of which depreciation is claimed and allowed under clause (i) and which is sold, discarded, demolished or destroyed in the previous year (other than the previous year in which it is first brought into use), the amount by which the moneys payable in respect of such building, machinery, plant or furniture, together with the amount of scrap value, if any, fall short of the writte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years. A bare reading of Section 32 of the Act clearly says that depreciation has to be allowed while computing the taxable income on building, machinery, plant, etc. which is owned wholly or partly by the assessee and used for the purpose of business. Depreciation is nothing but an inherent decline in the value of the asset from wear and tear. In respect of the 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 allowing the same as deduction on notional basis. The amount of depreciation allowed in a particular year is intended to represent the life of the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 provided under the Act. If any violation, the income of the trust is liable for taxation, in such a case, if the income is assessed as income from business or profession, the assessee may be eligible for depreciation. The assessee is certainly not entitled for depreciation, when the income was exempted on application or accumulation as provided under the scheme of the Act. The charitable institution under the scheme of Income-tax Act is on a different footing. The entire income of the assessee-trust from 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 ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der 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 income of such business undertaking which was held under 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 construed as a business or profession of the assessee. Therefore, Section 32 of the Act is not applicable in this case. 13. We have carefully gone through all the judgments and decisions cited by the Ld.counsel for the assessee, which are as under:- 1. DIT v. VishwaJagriti Mission ..... X X X X Extracts X X X X X X X X Extracts X X X X
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