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2016 (12) TMI 345 - ITAT CHENNAI

2016 (12) TMI 345 - ITAT CHENNAI - TMI - Depreciation on assets of assessee trust - Held that:- In this case, as 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 .....

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nst the order of the Commissioner of Income-tax (Appeals), Puducherry 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 .....

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ion 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 cannot be allowed. For this purpose he relied on the various judgemnets of the Tribunal. Against this, the assessee is in appeal before us. 5. Before us, the ld.A.R placed reliance on the judgement of Karnataka High Court in the case of Pr.CI .....

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s. 7. We have heard both the parties and perused the material on record. In our opinion, this issue is squarely covered by the latest decision of Co-ordinate Bench in the case of The Music Academy Madras, Chennai in ITA No.1098/Mds./2015 dated 22.04.2016 wherein held that: 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 o .....

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he 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 moto .....

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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 .....

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age 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 .....

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cle" 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 "road-roller" shall have the meanings respectively as assigned to them in section 2 of t .....

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rovided also that the aggregate deduction, in respect of depreciation of buildings, machinery, plant or furniture, being tangible assets or know-how, 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 amalgam .....

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sulting 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 r .....

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ngs, 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, oil-well or other sources of mineral deposits (including searching for discovery or .....

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roduction 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) : Providedthatwhere 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 .....

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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 com .....

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rniture, 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 i .....

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y-five 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 .....

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r, 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 subsection (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 .....

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e 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 .....

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Act 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. .....

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n, 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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of 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 provid .....

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rom 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 Incometax 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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ly, 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, Sec .....

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, 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 submi .....

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der 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 constr .....

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