2014 (8) TMI 686 - HC - Income Tax

High Court upholds depreciation allowance for charitable trusts promoting financial sustainability and income calculation.

Commissioner of Income-tax Versus Siliguri Regulated Market Committee

Commissioner of Income-tax Versus Siliguri Regulated Market Committee - [2014] 366 ITR 51 Issues Involved:1. Justification of allowing depreciation under section 32 of the Income-tax Act, 1961, to a charitable organization without income from business and profession.2. Justification of allowing depreciation on assets whose cost has already been treated as application of income for charitable purposes, potentially leading to double deduction.Issue-wise Detailed Analysis:1. Justification of Allowing Depreciation under Section 32 to a Charitable Organization:The primary issue was whether the Tribunal was justified in allowing depreciation under section 32 of the Income-tax Act to a charitable organization whose income does not include income from business and profession. The Tribunal had relied on the precedent set by the Calcutta High Court in the case of Bhorukha Public Welfare Trust, which held that depreciation claimed in the accounts by the assessee was an outgoing for the purpose of determining income in terms of section 11(1) of the Act. The Tribunal directed the Assessing Officer to grant the benefit of depreciation, considering it a mistake apparent from the record if not granted.The Revenue's contention was that depreciation should only be allowable against income from business and profession, as per section 32, and not for charitable organizations. The Revenue relied on the Supreme Court judgment in Escorts Ltd. v. Union of India, which emphasized that allowing depreciation on assets whose cost has already been deducted would amount to double deduction.2. Justification of Allowing Depreciation on Assets Leading to Double Deduction:The second issue was whether allowing depreciation on assets, whose cost has already been treated as application of income for charitable purposes, would result in a double deduction. The Revenue argued that the Tribunal's decision effectively allowed a double deduction, as the cost of the assets had already been fully deducted as an application of income under section 11 in past years.In contrast, the assessee's argument, supported by judgments from the Punjab and Haryana High Court in CIT v. Market Committee, Pipli, and the Bombay High Court in CIT v. Institute of Banking, was that depreciation should be reduced from the income to determine the percentage of funds applied for charitable purposes. These courts held that there was no double deduction, as depreciation was a legitimate deduction in computing the real income of the trust on general principles or under section 11(1)(a) of the Income-tax Act.The Calcutta High Court, in CIT v. Jayashree Charity Trust, also supported the view that income from properties held under a trust should be calculated in a commercial manner, allowing for depreciation to maintain the corpus of the trust. This view was consistent with the Central Board of Direct Taxes Circular No. 5-P (LXX-6) dated May 19, 1968, which stated that the word 'income' in section 11(1)(a) should be understood in a commercial sense, allowing for depreciation.Conclusion:The High Court concluded that the views expressed in CIT v. Jayashree Charity Trust were logical and in consonance with common sense. Allowing depreciation ensures that the corpus of the trust remains intact, as the value of the assets diminishes over time. The court found no reason to refer the matter to a larger Bench and answered both questions in favor of the assessee, affirming the Tribunal's decision to allow depreciation. The appeal was thus disposed of, with appreciation recorded for the assistance rendered by the senior advocate.The High Court's judgment underscores the principle that the income of a charitable trust should be computed in a commercial manner, allowing for depreciation to maintain the trust's assets and further its charitable purposes.