Tax Tribunal Confirms Depreciation Rules on WDV & Pension Payments

The Tribunal upheld the Commissioner of Income Tax (Appeals)'s decision to allow depreciation on the Written Down Value (WDV) of assets, even for assets acquired during exemption periods. It confirmed that WDV should be based on book depreciation and allowed direct pension payments to retired employees as business expenses. The Tribunal remitted the matter back to the Assessing Officer for clarity on depreciation computation. The Revenue's appeal for 2009-2010 was allowed for statistical purposes, and appeals for 2010-2011 and 2012-2013 were partly allowed for statistical purposes.

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Issues Involved:

1. Allowance of depreciation on Written Down Value (WDV) of assets for assessment years 2009-2010, 2010-2011, and 2012-2013.
2. Computation method for WDV.
3. Disallowance of payments made to retired employees for assessment years 2010-2011 and 2012-2013.

Issue-wise Detailed Analysis:

1. Allowance of Depreciation on WDV of Assets:

The Revenue's grievance was that the Commissioner of Income Tax (Appeals) allowed depreciation on WDV of assets, including those purchased during the period when the assessee enjoyed exemption under Sections 11 & 12 of the Income Tax Act. The Revenue raised two facets: (i) whether WDV for computing depreciation should be based on book depreciation or depreciation allowable under Section 32(1) of the Act, and (ii) whether WDV should exclude the cost of acquisition of assets considered as application of income under Sections 11 & 12 in earlier years.

The Tribunal referenced the case of Rajasthan and Gujarati Charitable Foundation India, where it was held that an assessee enjoying exemption under Sections 11 & 12 is entitled to claim depreciation on assets, even if the cost of such assets was claimed as application of income. Thus, the Tribunal upheld the Commissioner of Income Tax (Appeals)'s decision to allow depreciation on the WDV of assets.

2. Computation Method for WDV:

The Tribunal examined Explanation 6 to Section 43(6) of the Act, which states that for computing WDV, depreciation provided in the books of accounts should be deemed as depreciation actually allowed under the Act. The Tribunal noted that the assessee considered itself exempt under Sections 10(22) or 11 & 12 for various years. Therefore, the assessee could take advantage of Explanation 6, and WDV should be calculated based on book depreciation, not as per Section 32(1) of the Act. The Tribunal did not find any reason to interfere with the Commissioner of Income Tax (Appeals)'s order on this matter.

However, the Tribunal noted a lack of clarity in the Assessing Officer's computation of depreciation and remitted the matter back to the Assessing Officer for fresh consideration.

3. Disallowance of Payments Made to Retired Employees:

For assessment years 2010-2011 and 2012-2013, the Revenue argued that the assessee made direct pension payments to retired employees over and above contributions to approved pension and gratuity funds. The Revenue contended that only contributions to approved funds were allowable, not direct pension payments.

The Tribunal found that the assessee had provided evidence of direct pension payments to retired employees, which were credited to their bank accounts. The genuineness of these payments was not in doubt. The Tribunal held that such payments could be allowed under Section 37(1) of the Act as business outgo, supporting the Commissioner of Income Tax (Appeals)'s decision.

Conclusion:

The Tribunal allowed the Revenue's appeal for the assessment year 2009-2010 for statistical purposes and partly allowed the appeals for assessment years 2010-2011 and 2012-2013 for statistical purposes. The cross objections were dismissed as infructuous. The order was pronounced on February 22, 2018, at Chennai.

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