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of <h1>Ruling upholds requirement that ITO account for depreciation despite initial full capital expenditure allowance; trust business income follows accounts</h1> HC upheld the Tribunal's direction that the ITO must account for depreciation when computing income from depreciable assets, despite earlier full capital ... Depreciation allowance for a trust - whether, the Tribunal was right in law in directing the ITO to take depreciation into account in computing the income from depreciable assets when in fact the full capital expenditure had been allowed in the year of acquisition of these assets? - HELD THAT:- The respondents have drawn our attention to a Circular dt. 26th Nov., 1968 issued by the CBDT under which it has clarified that in the case of a business undertaking held under trust its income will be income as shown in the accounts of the undertaking and that where the trust derives income from house property, interest on securities, capital gains or other sources, the income should be understood in its commercial sense. We are also informed that in the earlier years when a similar question arose in respect of an assessee known as Laxmi Charitable Trust, an application under s. 256(2) was rejected by this High Court. In our view, therefore, the answer to the question is obvious. We may also point out that the question as framed is somewhat misleading and is based on misconception, in so far as it reproduces the language used by the ITO which we have explained earlier. Issues involved: Interpretation of depreciation allowance for a trust under the Income Tax Act.Summary:The High Court of Bombay addressed an application under section 256(2) of the Income Tax Act concerning the treatment of depreciation on depreciable assets for a trust. The main question was whether the Tribunal was correct in allowing depreciation when full capital expenditure had already been accounted for in the year of asset acquisition. The assessee, a trust, included depreciation in its income calculation, but the Income Tax Officer (ITO) disallowed it, stating that full expenditure had been accounted for initially. The Appellate Authority Commission (AAC) upheld the ITO's decision, but the Tribunal overturned it, explaining that the expenditure on asset acquisition had been considered as income application in the acquisition year, not precluding depreciation in subsequent years.The respondents referred to a Circular issued by the Central Board of Direct Taxes (CBDT) clarifying that for a trust holding a business undertaking, income should align with the undertaking's accounts, and income from various sources should be understood commercially. The Court noted a previous case involving Laxmi Charitable Trust where a similar issue was rejected, indicating a clear answer to the current question. The Court also highlighted that the question's wording was misleading, reflecting the ITO's language, which had already been clarified.In conclusion, the Court discharged the rule, affirming the Tribunal's decision to allow depreciation on depreciable assets for the trust, despite full capital expenditure being considered in the acquisition year.
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