Depreciation must be deducted when computing income available under section 11(1)(a); income is commercial after depreciation.

HC held that for computing income available for application under section 11(1)(a) of the Act, depreciation charged in the trust's accounts must be deducted, i.e., income is to be computed in accordance with normal accounting rules rather than strictly under sections 22-27 classifications. The court agreed with earlier High Courts' reasoning and answered the referred questions affirmatively and against the Revenue, confirming that "income" for this exemption is the commercially ascertained income after allowing depreciation.

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Issues involved: Interpretation of provisions of Income-tax Act, 1961 regarding computation of income for a trust and whether depreciation should be allowed while calculating income under section 11(1)(a).

Summary:
The High Court of Gujarat addressed the questions referred by the Tribunal under section 256(1) of the Income-tax Act, 1961. The case involved a trust registered under the Public Trusts Act, deriving income mainly from immovable property. The dispute arose when the Income-tax Officer rejected the claim of depreciation made by the assessee, contending that income from house property should be calculated according to specific provisions of sections 22 to 27 of the Act. The Appellate Assistant Commissioner disagreed, leading to an appeal to the Tribunal, which ultimately dismissed the appeal. The Revenue then sought clarification on two key questions related to the computation of income under section 11(1)(a) of the Act.

The main argument put forth by the Revenue was that the Tribunal erred in not following the specific provisions of sections 22 to 27 for computing income, instead of relying on normal accounting rules that allow for depreciation. The Court referenced precedents from other High Courts, such as the Karnataka High Court and the Madhya Pradesh High Court, which emphasized the importance of allowing depreciation to determine the true income available for charitable purposes. Similarly, the Madras High Court highlighted that income should be understood in a general sense, not limited by artificial provisions for tax assessment purposes.

In alignment with the interpretations of the Karnataka, Madhya Pradesh, and Madras High Courts, the High Court of Gujarat ruled in favor of allowing depreciation while computing income for charitable institutions under section 11(1)(a) of the Income-tax Act, 1961. Both questions referred by the Tribunal were answered in the affirmative, against the Revenue. No costs were awarded in this judgment.

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