2018 (6) TMI 1393 - HC - Income Tax

Charitable Trusts Entitled to Depreciation under Income Tax Act Section 32

The High Court upheld the Tribunal's decision, affirming the entitlement of Charitable Trusts to claim depreciation under Section 32 of the Income Tax ... Depreciation claim of assessee trust - Held that:- Since the issue regarding claim of Depreciation in the hands of the Charitable Trust is no longer res integra as relying on Hon’ble Supreme Court in the case of ‘Commissioner of Income Tax-III, Pune v. Rajasthan & Gujarati Charitable Foundation Poona’ [2017 (12) TMI 1067 - SUPREME COURT] - We are of the opinion that no substantial question of law now arises in the present Appeals filed by the Revenue. Finding of the learned Tribunal of the accumulation of income not exceeding 15% of the income is concerned, the same is a pure finding of fact and does not give rise to any substantial question of law. Accordingly, We are of the opinion that the Appeals filed by the Revenue are devoid of any merits Issues:1. Claim of Depreciation under Section 32 of the Income Tax Act, 1961 by a Charitable Trust.2. Compliance with the procedure under Section 11[2] of the Act for accumulated income exceeding 15% for charitable purposes.Analysis:Issue 1: Claim of Depreciation under Section 32 of the Income Tax ActThe first appeal before the Tribunal centered around the Revisional Order passed by the Commissioner of Income Tax under Section 263 of the Act. The Tribunal ruled that the Charitable Trust, as an Assessee, was entitled to claim deduction under Section 32 for depreciation, as the Act did not differentiate between a Charitable Trust and other Assessees in terms of income computation. The Tribunal emphasized that depreciation is a legitimate deduction based on generally accepted principles of accountancy, even for charitable institutions. It highlighted that the CBDT circular accepted the treatment of capital expenditure as application towards charitable activities, supporting the allowance of depreciation. The Tribunal concluded that the Commissioner's disallowance of depreciation was not sustainable in law. Furthermore, the Tribunal pointed out that the Commissioner overlooked the provisions allowing depreciation for income from other sources, reinforcing the Assessee's entitlement to depreciation deduction.Issue 2: Compliance with Section 11[2] ProcedureThe subsequent appeal by the Revenue challenged the Tribunal's decision, focusing on the claim of Depreciation under Section 32. The Counsel argued that the controversy regarding depreciation for Charitable Trusts had been settled by the Supreme Court and Bombay High Court judgments. The courts affirmed that depreciation could be claimed even if the assets' cost had been fully allowed as application of income in previous years. The High Court reiterated that depreciation is a legitimate deduction under general principles or Section 11(1)(a) of the Act. The Court emphasized that depreciation should be considered in computing the Trust's income on commercial principles, irrespective of whether the Trust is engaged in business activities. Consequently, the Court found no substantial legal question in the Appeals filed by the Revenue, leading to the dismissal of the Appeals.In conclusion, the High Court upheld the Tribunal's decisions, emphasizing the entitlement of Charitable Trusts to claim depreciation under Section 32 and the application of generally accepted principles of accountancy in income computation. The judgments referenced established legal precedents supporting the allowance of depreciation for Charitable Trusts, leading to the dismissal of the Revenue's Appeals.