Trust entitled to depreciation on assets under Income-tax Act; Tribunal rules in favor of assessee

The Tribunal allowed the Trust's claim for depreciation on assets previously deducted under Section 11 of the Income-tax Act, emphasizing that depreciation is necessary for calculating income and is distinct from capital expenditure. It held that the decision in Escorts Ltd. regarding depreciation was not directly applicable to Trusts. The Tribunal highlighted that allowing depreciation does not lead to double deduction and cited High Court judgments supporting depreciation deductions for Trusts. Consequently, the Tribunal set aside the lower authorities' decisions and directed the Assessing Officer to permit the depreciation claim, ruling in favor of the assessee in all four appeals.

---

---

Issues:
Claim of depreciation on assets previously allowed as deduction under Section 11 of the Income-tax Act, 1961.

Analysis:
The appeal concerned the issue of whether a Trust, holding registration under Section 12A(a) of the Act, could claim depreciation on assets for which the cost of acquisition had been allowed as a deduction under Section 11 of the Act. The Assessing Officer (A.O.) disallowed the claim of depreciation, citing the decision in Escorts Ltd. v. Union of India, which was upheld by the CIT (Appeals). The Appellate Tribunal noted that for a Trust eligible for exemption under Section 11, income arising from property held under Trust constitutes the income of the Trust, which includes income in the commercial sense without reference to specific heads of income. The Tribunal referred to various legal precedents and circulars to establish that depreciation on Trust assets is deductible for calculating income. It highlighted that depreciation is a deduction to arrive at income, while capital expenditure is considered an application of such income. The Tribunal emphasized that the decision in Escorts Ltd. was not directly applicable to Trusts as the provisions for determining taxable income are distinct. Consequently, the Tribunal set aside the lower authorities' orders and directed the A.O. to allow the claim of depreciation.

The Tribunal rejected the argument that allowing the claim of depreciation would result in double deduction, emphasizing that depreciation is essential for arriving at income and is not a duplicate claim of the same amount as application. The Tribunal cited various High Court judgments supporting the deduction of depreciation for Trusts, even on assets whose cost had been exempted under Section 11 in previous years. It further clarified that the provision of computing income under Section 11 requires a commercial basis, which includes deducting depreciation as per normal accounting principles. The Tribunal concluded that the assessee was eligible for claiming depreciation for the relevant assessment years, and accordingly, allowed all four appeals filed by the assessee.

---