Depreciation counts as income utilization for tax exemption under Section 11

The Tribunal upheld the CIT(Appeals) decision allowing the assessee to claim depreciation as an application of income for exemption under Section 11 of the Income-tax Act, 1961. The Tribunal emphasized that depreciation could be considered as part of income utilization for computing eligible exemption under Sections 11 and 12, contrary to the Revenue's argument citing a different case. The Tribunal rejected the Revenue's contentions, affirming the allowance of depreciation for charitable trusts to calculate income for charitable purposes. The Revenue's appeal was dismissed, and the decision in favor of the assessee was upheld.

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Issues:
Claiming depreciation as an application of income for exemption under Section 11 of the Income-tax Act, 1961.

Analysis:
The Revenue filed an appeal against the CIT(Appeals) decision allowing the assessee to claim depreciation as an application of income for exemption under Section 11 of the Act. The Assessing Officer initially disallowed the claim, citing a previous decision of the Hon'ble Apex Court in the case of Escorts Ltd. v. Union of India. The assessee's successful appeal before CIT(Appeals) was based on the Tribunal's decision in the case of Coimbatore Stock Exchange Ltd., where a similar claim was allowed for assessment years 2005-06 and 2006-07. The Revenue contested this citing that the Department had not accepted the Tribunal's decision for earlier years and had appealed before the jurisdictional High Court.

The Tribunal examined whether depreciation could be considered as an application of income for exemption under Sections 11 and 12 of the Act. Referring to previous decisions, the Tribunal noted that depreciation could indeed be claimed as an application of income for computing eligible exemption under Sections 11 and 12. The Tribunal cited various High Court decisions supporting the allowance of depreciation for charitable trusts, emphasizing that depreciation on trust assets should be deducted to calculate income for charitable purposes. The Tribunal rejected the Revenue's reliance on the Escorts Ltd. case, stating that it dealt with deductions under 'business income,' whereas depreciation for charitable trusts is a deduction to arrive at income, and capital expenditure is an application of such income.

The Tribunal concluded that the CIT(Appeals) was justified in allowing the assessee's claim for depreciation as part of income utilization, and no interference was necessary. The appeal of the Revenue was dismissed, affirming the decision in favor of the assessee. The order was pronounced on June 6, 2013, in Chennai.

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