2015 (5) TMI 1197 - AT - Income Tax

Revenue's Appeals Dismissed: Depreciation & Income Accumulation Upheld

The Assistant Commissioner of Income Tax (E), Circle 1, Bangalore Versus The Karnataka State Cricket Association

The Assistant Commissioner of Income Tax (E), Circle 1, Bangalore Versus The Karnataka State Cricket Association - TMI Issues Involved:1. Depreciation on capital assets for a charitable trust.2. Accumulation of income under Section 11(2) of the Income Tax Act.3. Set apart/accumulation of income under Section 11(1)(a) of the Income Tax Act.Issue-wise Detailed Analysis:1. Depreciation on Capital Assets for a Charitable Trust:The primary issue in ITA No.17/Bang/2015 was whether the CIT(Appeals) was correct in directing the AO to allow depreciation on capital assets, even though the acquisition of these assets was previously treated as an application of income for charitable purposes. The Revenue contended that this would result in a double deduction, contrary to the principles laid down by the Hon'ble Supreme Court in Escorts Ltd., 199 ITR 43.The CIT(Appeals) followed the Karnataka High Court's decision in CIT v. Society of Sisters of St. Anns, 146 ITR 28, which held that allowing depreciation on assets, even if their acquisition cost was treated as application of income, does not amount to double deduction. This view was supported by the ITAT Bangalore Bench in DDIT(E) v. Cutchi Memon Union (2013) 60 SOT 260, which emphasized that depreciation is a necessary deduction for computing the income of charitable institutions to preserve the corpus of the trust. The Tribunal also noted that the legal position has since been amended prospectively by the Finance (No.2) Act, 2014, effective from 1.4.2015, but this amendment does not apply to the assessment years in question. Consequently, the Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal.2. Accumulation of Income under Section 11(2) of the Income Tax Act:In ITA No.72/Bang/2015, the Revenue challenged the CIT(A)'s decision to allow the accumulation of income under Section 11(2), arguing that the original Form No. 10 filed by the assessee did not specify the purposes for accumulation adequately and that the revised Form No. 10 was filed after the completion of the scrutiny assessment.The CIT(A) found that the revised Form No. 10, filed by the assessee, specified the purposes for accumulation in detail and should be considered valid. The CIT(A) also referenced several decisions by the Delhi High Court, which held that the purposes mentioned in Form 10 need not be specific and that accumulation of income under Section 11(2) cannot be denied even if the purposes are general. The Tribunal upheld the CIT(A)'s decision, noting that the requirements under Section 11(2) were met and that the revised Form No. 10 was validly filed before the completion of the assessment.3. Set Apart/Accumulation of Income under Section 11(1)(a) of the Income Tax Act:The Revenue also contested the CIT(A)'s allowance of 15% accumulation of income under Section 11(1)(a), arguing that the assessee failed to fulfill the conditions for accumulation under Section 11(2) and that the entire income should be assessed under Section 11(3).The CIT(A) clarified that the provisions of Section 11(1) and Section 11(2) operate independently. The accumulation of 15% of income under Section 11(1)(a) does not require the same conditions as the accumulation under Section 11(2). The Tribunal agreed with the CIT(A)'s interpretation, emphasizing that the 15% accumulation is independent of the conditions under Section 11(2) and should be allowed. Consequently, the Tribunal dismissed the Revenue's grounds on this issue as well.Conclusion:The Tribunal dismissed both appeals by the Revenue, upholding the CIT(A)'s decisions to allow depreciation on capital assets, accumulation of income under Section 11(2), and the 15% accumulation of income under Section 11(1)(a). The judgments were pronounced in the open court on May 29, 2015.