Charitable institution denied depreciation on capital asset under IT Act - Double deduction impermissible

The Appellate Tribunal ITAT Chennai held that a charitable institution, having availed exemption under section 11 of the Income Tax Act, cannot claim depreciation on a capital asset. The Tribunal emphasized that allowing depreciation on an asset with nil cost due to exemption would lead to double deduction, which is impermissible. Consequently, the Tribunal set aside the Commissioner of Income-tax (Appeals) order and reinstated that of the Assessing Officer, ruling in favor of the Revenue. The decision was rendered on June 26, 2015, in Chennai.

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Issues:
Claim of depreciation by a charitable institution.

Analysis:
The appeal before the Appellate Tribunal ITAT Chennai involved a dispute regarding the claim of depreciation by a charitable institution for the assessment year 2010-11. The only issue for consideration was whether the assessee, being a charitable institution, was entitled to claim depreciation on a capital asset. The Departmental representative argued that since the cost of acquisition of the asset was fully allowed earlier as application of income, no depreciation should be allowed. The representative cited a judgment of the Kerala High Court to support this argument. On the other hand, the counsel for the assessee contended that depreciation should be allowed as the income of the assessee must be computed on a commercial basis, and any remaining income after depreciation should be allowed as application of income. The counsel also highlighted the existence of divergent opinions on this issue.

Upon considering the submissions from both sides and examining the relevant provisions of the Income Tax Act, particularly section 32 which deals with depreciation, the Tribunal made a detailed analysis. It was noted that the cost of the asset had been allowed as application of income under section 11 of the Act due to the charitable institution's entitlement for exemption under section 11. Consequently, the cost of the asset was considered nil. The Tribunal emphasized that allowing depreciation on an asset with a nil cost would result in double deduction, which is impermissible. Additionally, it was clarified that if an assessee claims exemption under section 11, they cannot simultaneously claim depreciation under section 32. The Tribunal held that the provisions of section 11, falling under Chapter III of the Act, would override section 32, which falls under Chapter IV concerning the computation of total income. Therefore, the Tribunal concluded that the assessee was not entitled to depreciation in this case.

Ultimately, the Tribunal set aside the order of the Commissioner of Income-tax (Appeals) and restored that of the Assessing Officer, thereby allowing the appeal of the Revenue. The judgment was delivered on June 26, 2015, in Chennai.

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