Depreciation allowed under Income Tax Act Section 11, amendment prospective from 01.04.2015

The Court upheld the Tribunal's decision to allow depreciation under Section 11 of the Income Tax Act, finding no double claim of capital expenditure. The 2012 amendment was deemed prospective from 01.04.2015, as clarified by legislative history and tax authorities. Consequently, the appeal was dismissed, ruling in favor of the assessee and against the Revenue.

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Issues Involved:

1. Whether depreciation on assets put into use during the accounting year can be claimed by the assessee, despite the entire cost of these assets being claimed as an application of income for charitable activities.
2. Applicability of the amendment made in 2012 to the Income Tax Act concerning the entitlement of depreciation on assets put to use.

Issue-wise Detailed Analysis:

1. Depreciation on Assets for Charitable Activities:

The primary issue revolves around whether the Tribunal was justified in law in allowing the assessee's claim for depreciation on assets put into use during the accounting year, even though the entire cost of these assets was claimed as an application of income for charitable activities. The Court referenced its previous decision in the case of The Director of Income Tax Vs. Al-Ameen Charitable Fund Trust, where it was established that depreciation is allowable under Section 11 of the Act, and there is no double claim of capital expenditure. The Court noted that the income derived from property held under trust cannot be the total income because Section 11(1) of the Act states that such income shall not be included in the total income of the person in receipt of the income. Depreciation is considered a necessary outgoing and is allowed to be debited to the expenditure account of the trust, as it represents the wear and tear of the capital asset.

2. Applicability of the 2012 Amendment:

The Court also addressed the applicability of the amendment made in 2012 to the Income Tax Act, which inserted Section 11(6) effective from 01.04.2015. This amendment states that income shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of any asset, acquisition of which has been claimed as an application of income under this section in the same or any other previous year. The Court held that the plain language of the amendment indicates that it is to be effective from 01.04.2015 and not retrospectively. This view was supported by the Notes on Clauses in the Finance Bill, 2014, and the Central Board of Direct Taxes circulars. The Court further referenced the Supreme Court's judgment in Vatika Township P. Ltd., which laid down general principles concerning retrospectivity, emphasizing that amendments imposing a burden or liability are presumed to be prospective unless clearly stated otherwise.

Conclusion:

The Court concluded that the Tribunal was correct in allowing depreciation under Section 11 of the Act, and there was no double claim of capital expenditure. The amendment made in 2012 to the Income Tax Act was held to be prospective in nature, effective from 01.04.2015. Consequently, the appeal was dismissed, and the question of law was answered in favor of the assessee and against the Revenue.

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