ITAT Chennai grants deduction under sec.11, supports depreciation claim for assessee society

The ITAT Chennai ruled in favor of the assessee society in the appeal related to eligibility for deduction under sec.11 for the assessment year 2010-11. The ITAT held that the payment made to the founder's wife was in compliance with the trust's terms, qualifying for exemption under sec.11. The assessing authority was directed to grant all available exemptions under sec.11. Additionally, the ITAT allowed the depreciation claim, emphasizing that recognizing depreciation does not conflict with applying funds for charitable purposes. The order was pronounced in May 2014 at Chennai.

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Issues:
1. Eligibility for deduction under sec.11
2. Permissibility of depreciation claim

Eligibility for deduction under sec.11:
The appeal pertains to the assessment year 2010-11, challenging the order of the Commissioner of Income-tax(Appeals) regarding the denial of exemption under sec.11. The assessee, a society engaged in educational activities, declared NIL income for the year. The Assessing Officer disallowed a depreciation claim and found a payment made to the founder's wife, triggering a violation of sec.13(1)(c) and disentitling the assessee to exemption under sec.11. The Commissioner of Income-tax(Appeals) upheld this decision, leading to the second appeal. The assessee argued that the payment to the founder's wife was in compliance with the trust's terms established before the Income-tax Act, 1961, thus qualifying for exemption under sec.11. The ITAT Chennai concurred, holding that the lower authorities erred in denying the exemption. Consequently, the assessing authority was directed to grant all available exemptions under sec.11.

Permissibility of depreciation claim:
The issue of depreciation allowance was also scrutinized. Citing a previous ITAT Chennai judgment, the ITAT referred to the distinction between computing income and applying funds for charitable purposes. Depreciation is allowed in the first segment, akin to any other assessee, from which funds for charitable purposes are derived. The ITAT emphasized that recognizing depreciation does not clash with acknowledging charitable fund application. Consequently, the Assessing Officer was instructed not to disallow the depreciation claimed by the assessee. As a result, the appeal was allowed, and the order was pronounced in open court in May 2014 at Chennai.

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