2015 (1) TMI 310 - AT - Income Tax

Trusts entitled to claim depreciation for charitable purposes; Tribunal dismisses Revenue's appeal.

The Income Tax Officer Versus M/s. Ramanandha Adigalar Foundation Kumaraguru College of Tech Campus Chinnavedampatti, M/s Kongunadu Arts & Science College Council

The Income Tax Officer Versus M/s. Ramanandha Adigalar Foundation Kumaraguru College of Tech Campus Chinnavedampatti, M/s Kongunadu Arts & Science College ... Issues Involved:1. Whether the CIT(A) erred in allowing the claim of depreciation to the assessee trusts.2. Whether allowing depreciation on assets whose cost has already been treated as application of income results in double deduction.Issue-wise Detailed Analysis:1. Allowance of Depreciation to Assessee Trusts:The appeals were filed by different assessees against the orders of the CIT(A)-I, Coimbatore, for the assessment year 2009-10. The primary issue was whether the CIT(A) erred in allowing the claim of depreciation to the assessee trusts. The assessees, M/s Kongunadu Arts and Science College Council and M/s Ramanandha Adigalar Foundation, claimed depreciation which was disallowed by the Assessing Officer (AO) on the grounds that the provisions of section 11 are distinct from those of section 14, and the deduction or allowance provided in Chapter-IV (sections 14 to 59) cannot be applied for determining the income for the purposes of section 11. The AO relied on the decision of the Hon'ble Supreme Court in Escorts Ltd vs UOI, 199 ITR 43, and the Hon'ble Madras High Court in CIT vs Rao Bahadur Calavala Cunnan Chetty Charities, 135 ITR 485 (Mad).The CIT(A) allowed the claim of depreciation by referring to several judgments, including those of the Punjab and Haryana High Court in CIT Vs Market Committee, Pipli (2011) 330 ITR 16 and CIT Vs Tiny Tots Education Society (2011) 330 ITR 21, which held that there is no double deduction of depreciation and capital expenditure on fixed assets in respect of trusts. The ITAT 'C' Bench, Chennai, in GKR Charities Vs DDIT (Exemptions)-1, Chennai, and Rengalatchumi Educational Trust Vs ITO, also supported this view.2. Double Deduction Issue:The DR argued that allowing depreciation to a trust whose income is assessed u/s 11 would amount to double deduction, citing the Hon'ble Kerala High Court in Lissie Medical Institutions vs CIT, 348 ITR 344. Conversely, the AR relied on the Hon'ble Delhi High Court in Director of Income Tax vs Vishwa Jagriti Mission, 2012-TIOL-271-HC-DEL-IT, which held that the income of the assessee-trust should be computed on commercial principles, including depreciation on fixed assets utilized for charitable purposes.The Tribunal examined similar cases, including M/s Great Lakes Institute of Management, where it was held that allowing depreciation does not amount to double deduction since the income of the trust is exempt, and depreciation is considered to determine the percentage of funds applied for charitable purposes. The Tribunal also referred to the Hon'ble P&H High Court in Market Committee, Pipli, which clarified that there is no double deduction as the depreciation reduces the income for determining the application of funds for the trust's purposes.Conclusion:The Tribunal found that the issue is covered in favor of the assessee by various High Court decisions and previous Tribunal rulings. It concluded that allowing depreciation does not result in double deduction and should be considered while computing income for the purposes of section 11. The orders of the CIT(A) were upheld, and the appeals of the Revenue were dismissed. The judgment emphasized that the income of the trust should be computed on commercial principles, including depreciation, to determine the application of funds for charitable purposes.Order Pronouncement:The appeals of the Revenue were dismissed, and the orders of the CIT(A) were confirmed. The judgment was pronounced on February 14, 2013, at Chennai.