Tribunal Allows Depreciation for Charitable Trust Assets, Permits Deficit Carry Forward

The Tribunal upheld the deletion of disallowance of depreciation for a charitable trust's assets, allowing depreciation to preserve the trust's corpus based on relevant case law. Additionally, the Tribunal permitted the carrying forward of deficit in the application of funds for charitable purposes, following precedents allowing adjustment of excess expenditure against the succeeding year's income. The assessee's appeal was allowed, and the Revenue's appeals were dismissed.

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Issues involved: Appeals filed by the assessee and the Revenue against the order of ld. CIT(A) for the assessment years 2004-05, 2005-06, and 2006-07.

Issue 1 - Disallowance of claim for depreciation:
- The AO disallowed the assessee's claim for depreciation on fixed assets u/s 143(3).
- The ld. CIT(A) deleted the disallowance following the Tribunal's decision in the case of M.P. Madhyam & Others.
- The Revenue appealed against the deletion of disallowance.
- The Tribunal referred to the decision of the Jurisdictional High Court in the case of CIT vs. Raipur Pallotine Society regarding depreciation for charitable trusts.
- The Tribunal held that a charitable trust is entitled to depreciation for its assets to preserve the trust's corpus.
- The Tribunal upheld the deletion of disallowance of depreciation based on the High Court's decision and the Tribunal's precedent.

Issue 2 - Denial to carry forward deficit in the application of funds:
- The grievance of the assessee related to the AO's denial of carrying forward deficit in the application of funds.
- The assessee relied on the decision of the I.T.A.T. in the case of Sarvajanik Jankalyan Parmarthik Nyas vs. ACIT and the Hon'ble Rajasthan High Court's decision in the case of Maharaja of Mewar Charitable Foundation.
- The Tribunal held that excess expenditure for charitable purposes in one year can be adjusted against income of the succeeding year.
- It was established that if a charitable trust's expenditure exceeds its income in a year, adjusting the excess expenditure against the following year's income qualifies as application of income for charitable purposes.
- The Tribunal allowed the appeal of the assessee and dismissed the appeals of the Revenue regarding the denial of carrying forward deficit in the application of funds.

This judgment was pronounced on 31st January, 2011, by the Appellate Tribunal ITAT Indore, with Shri Joginder Singh, Judicial Member, and Shri R.C. Sharma, Accountant Member presiding.

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