Tribunal Grants Depreciation Deduction & Allows Excess Application Carry-Forward

The Tribunal allowed the appeals of the assessee on both issues. Regarding the denial of deduction for depreciation, the Tribunal held that depreciation should be allowed as it is a charge against profit due to diminution in asset value, consistent with accounting practices. The Tribunal directed the Assessing Officer to allow the claim of depreciation. On the issue of non-quantification and carry forward of excess application of income, the Tribunal directed the Assessing Officer to quantify the excess application and allow it to be carried forward for set-off against future income, following commercial principles.

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Issues Involved:
1. Denial of deduction in respect of depreciation while computing the income of the assessee in terms of section 11 of the Income-tax Act, 1961.
2. Non-quantification and carry forward of excess application of income from earlier years for set-off in subsequent years.

Issue-wise Detailed Analysis:

1. Denial of Deduction in Respect of Depreciation:

The primary issue in these appeals is the denial of deduction in respect of depreciation while computing the income of the assessee under section 11 of the Income-tax Act, 1961. The A.R. of the assessee argued that this issue has been previously decided in favor of the assessee by the Tribunal in the case of Services Association of Seventh Day Adventists P. Ltd for the assessment year 2006-07 in I.T.A.No. 1853/Mds/2011, dated 11.5.2012. The A.R. submitted that the same decision should be applied to all the current appeals.

The DR opposed this by relying on the Supreme Court decision in Nectar Beverages (P) Ltd vs Dy. CIT, [2009] 182 Taxman 319 (S.C), which held that depreciation is neither a loss nor an expenditure nor a trading liability, and hence, no deduction of the same was allowable.

Upon hearing the submissions and reviewing the orders and materials on record, the Tribunal found that the issue is squarely covered by its previous decision in the case of Services Association of Seventh Day Adventists P. Ltd. The Tribunal had held that depreciation should be allowed as it is a charge against profit on account of diminution in the value of assets due to wear and tear, and this principle is consistent with normal accounting practices.

The Tribunal cited several precedents, including the decision of the Hon'ble Punjab & Haryana High Court in the case of CIT v. Tiny Tots Education Society (330 ITR 21), and the decision of the Hon'ble Madras High Court in the case of CIT vs Market Committee, Pipli [2011] 330 ITR 16 (P&H). The Tribunal concluded that the decision of the Hon'ble Supreme Court in Nectar Beverages (P) Ltd was not applicable to the issue at hand, as it pertained to a different context involving section 41(2) of the Income-tax Act.

Therefore, the Tribunal directed the Assessing Officer to allow the claim of depreciation to the assessee, setting aside the orders of the lower authorities. The grounds of appeal of the assessee on this issue were allowed.

2. Non-quantification and Carry Forward of Excess Application of Income:

The second issue involved the CIT(A)'s refusal to quantify the excess application of income from earlier years and allow it to be carried forward for set-off in subsequent years. The CIT(A) held that each assessment year is independent and there are no specific provisions in the Income-tax Act to carry forward the excess application of income to subsequent years.

The A.R. of the assessee argued that this issue is covered in favor of the assessee by the decision of the Hon'ble Madras High Court in the case of CIT vs Matriseva Trust, 242 ITR 20 (Mad). The Tribunal noted that while there are no specific provisions for carry forward of excess application of income, courts have held that if a Trust incurs a deficit in a particular year, the surplus made in a subsequent year to make up for the past deficit should be allowed to be set off against such deficit.

The Tribunal cited several decisions supporting this view, including:

CIT vs Maharana of Mewar Charitable Foundation	164 ITR 439 (Raj)
CIT vs Shri Plot Swetambar Murti Pujak Jain Mandal	211 ITR 293(Guj)
CIT vs Matriseava Trust	242 ITR 20 (Mad)
Govindu Naicker Estate vs ADIT	248 ITR 368(Mad)
CIT vs Institute of Banking	264 ITR 114 (Bom)

The Tribunal concluded that income derived from trust property should be determined on commercial principles, allowing the expenditure incurred in an earlier year to be set off against the income of a subsequent year. Therefore, the Tribunal set aside the orders of the lower authorities and directed the Assessing Officer to quantify the excess application of income by the assessee-Trusts and allow the carry forward of the same for set-off against the surplus made in subsequent years.

In conclusion, the Tribunal allowed all the appeals of the assessee on both issues.

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