Depreciation for charitable trusts on capital assets treated as application of income is permissible; double deduction objection fails.

A charitable trust computing income under section 11 may claim depreciation on capital assets even where the acquisition cost was treated as application of income. Depreciation is a later-year allowance for wear and tear and is necessary to preserve the trust corpus, so it does not amount to impermissible double deduction. The jurisdictional High Court's view that charitable income is to be computed on commercial principles was applied, and section 11(6) was noted as a prospective restriction from 1 April 2015. The trust was entitled to depreciation and the Revenue's objection was rejected.

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Issues: Whether a charitable trust, while computing income under section 11, is entitled to claim depreciation on capital assets whose acquisition was treated as application of income, and whether such claim amounts to impermissible double deduction.

Analysis: The jurisdictional High Court had held that exemption in the year of acquisition operates on the income applied for acquiring the asset, while depreciation in later years is a permissible allowance representing wear and tear of the asset and is necessary to preserve the corpus of the trust. The Court distinguished the Supreme Court ruling on double deduction in the context of business expenditure and held that income of a charitable trust is to be computed on commercial principles under section 11. It also noted that the legislative insertion of section 11(6), effective from 1 April 2015, showed that denial of depreciation was intended only prospectively.

Conclusion: The assessee was entitled to depreciation, and the Revenue's objection based on double deduction was rejected.

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