2011 (2) TMI 1408 - AT - Income Tax

Tribunal allows exemption & depreciation on assets under Income Tax Act

The Dy. Commissioner of Income Tax, Company Circle I (3) Versus M/s. Coimbatore Stock Exchange

The Tribunal upheld the CIT(A)'s decision, allowing the assessee's claim for exemption under section 11 of the Income Tax Act. It affirmed that ... Exemption u/s 11 - claim of depreciation in computing the income of trust - inclusion of cost of the assets as application of funds and allowing depreciation on the assessee - double taxation or not - HELD THAT:- Considering the material as well as case laws cited by the rival side, it is found that in the recent judgement of the Hon’ble High Court of Punjab & Haryana in the case of COMMISSIONER OF INCOME-TAX VERSUS. TINY TOTS EDUCATION SOCIETY [2010 (7) TMI 377 - PUNJAB AND HARYANA HIGH COURT] has concluded to decide the issue in favour of the assessee holding that it can not be held that double benefit is given in allowing claim for depreciation for computing income for purposes of Sec.11. Since the issue is squarely covered in favour of the assessee and Department has not brought any contrary material or any higher Courts order in its favour, therefore, there are no infirmity or flaw in the orders of the CIT(A) in this regard as such while concurring with the conclusion as drawn by the CIT(A), the orders are upheld and the appeals of the Revenue are dismissed being devoid of any merits. Appeal dismissed. Issues Involved:1. Entitlement to exemption under section 11 of the Income Tax Act.2. Allowance of depreciation on assets as an application of funds.3. Allegation of double deduction by the Revenue.Issue-wise Detailed Analysis:1. Entitlement to Exemption under Section 11:The core issue in these appeals pertains to the entitlement of the assessee to exemption under section 11 of the Income Tax Act. The assessee, a trust running educational institutions and registered under section 12A(a) of the Act, claimed exemption under section 11. The Assessing Officer rejected the claim for depreciation on the grounds that the cost of the assets had already been treated as an application of funds, which would result in double deduction if depreciation was also allowed. However, the CIT(A) set aside the Assessing Officer's decision, allowing the assessee's claim for exemption under section 11.2. Allowance of Depreciation on Assets as Application of Funds:The second issue revolves around whether depreciation on assets, the cost of which has already been treated as an application of funds, can be allowed. The CIT(A) allowed the claim for depreciation, relying on precedents such as the Bombay High Court's decision in CIT vs. Institute of Banking Personal Solution (264 ITR 110) and the Tribunal's decision in DDIT (Exemptions) v. M/s. St. John's Educational Trust. The CIT(A) concluded that depreciation should be allowed even if the cost of the assets had been treated as an application of income in the year of acquisition. This view was supported by the Tribunal's previous decisions and the High Court judgments, which held that depreciation could be taken into account for computing the income of the trust.3. Allegation of Double Deduction by the Revenue:The Revenue's primary contention was that allowing depreciation on assets, the cost of which had already been treated as an application of funds, would amount to double deduction. The Revenue relied on the Supreme Court's decision in Escorts Ltd. vs. Union of India (199 ITR 43) to argue against the allowance of depreciation. However, the Tribunal found this argument unconvincing, noting that the Supreme Court's decision in Escorts Ltd. was distinguishable. The Tribunal referred to the Punjab & Haryana High Court's decision in CIT vs. Tiny Tots Education Society, which clarified that depreciation should be allowed for determining the percentage of funds applied for charitable purposes, without resulting in double deduction.Conclusion:The Tribunal, after considering the material on record and the precedents cited, upheld the CIT(A)'s orders, concluding that the issue was squarely covered in favor of the assessee by the decisions of the Bombay High Court and the Punjab & Haryana High Court. The Tribunal dismissed the Revenue's appeals, affirming that the assessee was entitled to claim depreciation on assets, even if the cost of those assets had been treated as an application of funds in previous years. The Tribunal found no merit in the Revenue's contention of double deduction and upheld the CIT(A)'s decision to allow the claim for depreciation.Final Judgment:The appeals of the Revenue were dismissed, and the orders of the CIT(A) were upheld, affirming the assessee's entitlement to exemption under section 11 and the allowance of depreciation on assets as an application of funds. The Tribunal pronounced the order soon after the conclusion of the hearing on 08.02.2011.