Trust entitled to depreciation on assets under Income Tax Act despite exemption under section 11.

The Tribunal dismissed the Revenue's appeal against the Commissioner of Income-tax (Appeals) order for the Assessment Year 2009-10, regarding the allowance of depreciation on assets considered as an application of income under section 11 of the Income Tax Act. The Tribunal emphasized that depreciation on trust assets is a necessary deduction for calculating the income of a trust, even if the cost had been exempted under section 11 in preceding years. By following the principle of favoring the assessee in cases of conflicting High Court decisions, the Tribunal upheld the allowance of depreciation and rejected the Revenue's claim of double deduction.

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Issues Involved:
- Appeal filed by Revenue against Commissioner of Income-tax (Appeals) order for AY 2009-10.
- Allowance of depreciation when cost of acquisition treated as application of income under section 11.

Analysis:
1. Issue of Depreciation Claim:
The primary issue in this case revolves around the claim of depreciation by the assessee in the context of treating the cost of acquisition of assets as an application of income for exemption under section 11 of the Income Tax Act. The Revenue contended that allowing depreciation on assets already considered as an application of income would result in double deduction. However, the Tribunal, after considering various precedents, emphasized that for determining the income of a trust eligible for exemption under section 11, income from property held under trust constitutes the income of the trust. The Tribunal highlighted that depreciation on trust assets is a necessary deduction for calculating the income of a trust, as the concept of commercial income includes such deductions. The Tribunal also cited decisions from different High Courts supporting the allowance of depreciation on assets, even if the cost had been exempted under section 11 in preceding years.

2. Judicial Precedents Considered:
The Tribunal extensively analyzed previous decisions, including those of the Bombay High Court, Karnataka High Court, Madhya Pradesh High Court, and Gujarat High Court, which upheld the allowance of depreciation on trust assets. The Tribunal noted that the Delhi High Court, in a separate case, took a contrary view without considering these decisions. In light of conflicting judgments, the Tribunal followed the principle established by the Supreme Court in CIT v. Vegetable Products Ltd., emphasizing that when High Courts have conflicting decisions, the one in favor of the assessee should be followed. Consequently, the Tribunal upheld the Commissioner of Income-tax (Appeals) order and dismissed the Revenue's appeal.

3. Conclusion:
Ultimately, the Tribunal dismissed the Revenue's appeal, affirming the order of the Commissioner of Income-tax (Appeals) regarding the allowance of depreciation on assets considered as an application of income under section 11. By relying on established legal principles and precedents from various High Courts, the Tribunal concluded that depreciation should be deductible to arrive at the income of a trust, and the claim of double deduction was unfounded in this context. The decision highlighted the importance of following favorable judgments for the assessee in cases of conflicting High Court decisions.

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