Trust entitled to claim depreciation for charitable purposes under IT Act sections 11 & 12

The ITAT upheld the CIT(A)'s decision to allow a trust to claim depreciation as part of its application for charitable purposes under sections 11 & 12 of the Income Tax Act. It emphasized the need to deduct depreciation on trust assets for income calculation, following the view favoring the assessee in the absence of a unanimous High Court decision, thereby dismissing the Revenue's appeal.

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Issues:
- Eligibility of a trust for claiming depreciation as part of the application of income while seeking exemption under sections 11 & 12 of the Income Tax Act, 1961.

Analysis:
1. The Revenue appealed against the decision of the CIT allowing the assessee trust to claim depreciation along with capital expenditure as part of its application for charitable purposes under sections 11 & 12 of the Income Tax Act. The Assessing Officer had disallowed the depreciation claim, citing precedents from the jurisdictional High Court and the Supreme Court.

2. The CIT(A) upheld the assessee's position, referencing decisions from the Punjab & Haryana High Court in favor of allowing depreciation as a utilization for computing exempt income. The contention was that charging depreciation did not amount to a double deduction, as argued by the Revenue.

3. The Revenue, before the ITAT, relied on a judgment from the Kerala High Court which held that a notional claim of depreciation on assets already claimed as income application was impermissible. However, the assessee argued that in cases of conflicting opinions among High Courts, the view favoring the assessee should prevail, citing a Co-ordinate Bench decision supporting the allowance of depreciation.

4. The ITAT analyzed the various High Court decisions and the precedents cited by the parties. It noted that the Kerala High Court's stance conflicted with the Punjab & Haryana High Court decisions, which supported allowing depreciation for computing income of charitable institutions. The ITAT emphasized the commercial income concept, which necessitates deducting depreciation on trust assets for income calculation, as per accounting principles.

5. The ITAT concluded that in the absence of a unanimous view among High Courts, the decision favoring the assessee should be followed until the jurisdictional High Court rules otherwise. Therefore, it upheld the CIT(A)'s direction to allow the depreciation claim as part of the assessee's income utilization, dismissing the Revenue's appeal.

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