Revenue's Appeal Dismissed, CIT Decisions Upheld on Depreciation & Excess Income Application

The Tribunal dismissed the revenue's appeal and upheld the CIT (Appeals)'s decisions on both issues. It allowed depreciation on assets and the carry forward of excess application of income. The order was pronounced on May 19, 2017.

---

---

Issues Involved:
1. Disallowance of depreciation.
2. Carry forward of excess application of income.

Detailed Analysis:

1. Disallowance of Depreciation:
The primary issue raised by the revenue concerns the disallowance of depreciation, which was allowed by the CIT (Appeals). The revenue argued that allowing depreciation on assets, whose cost was already treated as application of income, would result in double deduction. They referenced the Hon'ble Kerala High Court's decision in Lissie Medical Institutions Vs. CIT and the Hon'ble Supreme Court's decision in Escorts Ltd. & another Vs. Union of India, which held that double deduction is not permissible unless explicitly stated in the statute.

The Tribunal, however, upheld the CIT (Appeals)'s decision, referencing the jurisdictional High Court's ruling in CIT Vs. Society of Sisters of St. Anne, which allows depreciation on assets acquired by a charitable trust from its income. The Tribunal also cited consistent views from other cases, including DCIT Vs. Manipal Academy of Higher Education and DIT(Exemption), Mumbai Vs Ville Parle Kelavani Mandal, Mumbai, which clarified that depreciation does not constitute double deduction but is a permissible deduction considering the use of the assets.

The Tribunal noted that the Finance Act, 2014, introduced a prospective amendment effective from 01.04.2015, which prohibits the allowance of depreciation on assets whose acquisition cost was claimed as application of income. However, this amendment applies only from A.Y. 2015-16 onwards. Thus, for the relevant assessment year, the Tribunal found no error in the CIT (Appeals)'s order allowing depreciation.

2. Carry Forward of Excess Application of Income:
The second issue raised by the revenue pertains to the carry forward of excess application of income under Section 11(1)(a) of the Income Tax Act, 1961. The revenue contended that there is no provision in the Income Tax Act for carrying forward excess expenditure over income for charitable trusts.

The Tribunal upheld the CIT (Appeals)'s decision, which allowed the carry forward of the deficit, referencing its earlier decisions, including the case of Dr. T.M.A Pai Foundation and City Hospital Charitable Trust. The Tribunal reiterated that Section 11(1)(a) does not limit the application of income to the year in which it arises. Expenses incurred in earlier years can be adjusted against the income of subsequent years, and such adjustment is considered as application of income for charitable purposes.

The Tribunal also referenced the decisions of various High Courts, including the Hon’ble Rajasthan High Court in CIT Vs. Maharana of Mewar Charitable Foundation and the Hon’ble Bombay High Court in CIT Vs. Institute of Banking Personnel Selection, which support the view that excess expenditure in earlier years can be adjusted against the income of subsequent years.

The Tribunal found no merit in the revenue's appeal and upheld the CIT (Appeals)'s order allowing the carry forward of the deficit.

Conclusion:
The appeal of the revenue was dismissed, and the cross-objection by the assessee became infructuous. The Tribunal upheld the CIT (Appeals)'s decisions on both issues, allowing depreciation on assets and the carry forward of excess application of income. The order was pronounced in the open court on the 19th day of May, 2017.

---