Tribunal rules in favor of assessee on hostel income, upholds Revenue on asset depreciation. Orders reconsideration by Assessing Officer.

The Tribunal allowed the assessee's appeal regarding the disallowance of income from the Working Women Hostel but upheld the Revenue's appeal on the claim of depreciation on assets. The lower authorities' orders were set aside, directing the Assessing Officer to reconsider the issues in line with the law. The judgment was delivered on 21st August 2015 in Chennai.

---

---

Issues:
1. Disallowance of income generated from a Working Women Hostel for computing taxable income.
2. Claim of depreciation on assets for which deduction under Section 11 was claimed as application of income.

Issue 1: Disallowance of income from Working Women Hostel:

The appeal focused on the disallowance of income generated from running a Working Women Hostel while computing taxable income. The assessee, a charitable institution, claimed exemption under Section 11 of the Income-tax Act, 1961, stating that the income was applied for the institution's primary object of education. The Revenue argued that the hostel activity was not incidental to education and questioned the application of funds. The Tribunal noted discrepancies in the lower authorities' orders regarding the educational activities and directed the Assessing Officer to re-examine the issue, considering the Memorandum of the assessee-society and the establishment of the hostel under "public utility service" as per Section 2(15) of the Act.

Issue 2: Claim of depreciation on assets:

The second appeal revolved around the claim of depreciation on assets for which deduction under Section 11 had been previously claimed as application of income. The Revenue contended that since the cost of the asset was allowed under Section 11, the depreciation computation failed as the Written Down Value was NIL. The Tribunal analyzed the interplay between Section 11 (Chapter III) and Section 32 (Chapter IV(D)) of the Act. It concluded that when an income is exempted under Section 11 as application of income, depreciation under Section 32 cannot be claimed. Referring to judicial precedents and a division Bench ruling, the Tribunal emphasized that Chapter III deals with income not forming part of the total income, while Chapter IV focuses on total income computation. Consequently, the assessee's claim for depreciation was disallowed, and the Assessing Officer's decision was upheld.

In conclusion, the Tribunal allowed the assessee's appeal for statistical purposes regarding the disallowance of income from the Working Women Hostel. However, the Revenue's appeal concerning the claim of depreciation on assets was allowed. The orders of the lower authorities were set aside, and the Assessing Officer was directed to re-examine the issues in accordance with the law. The judgment was pronounced on 21st August 2015 at Chennai.

---