Court affirms depreciation claim on assets bought with exempted funds

The court upheld the decision of the Income Tax Appellate Tribunal regarding undisclosed interest income, stating no question of law arose. It affirmed the right of the assessee to claim depreciation on assets purchased with exempted funds under section 35AC, following precedent on charitable trusts and depreciation allowances. The court dismissed the Tax Appeal, allowing the depreciation claim on assets used for business purposes.

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Issues:
1. Undisclosed interest income not included in total interest offered for taxation.
2. Claim of depreciation on assets purchased out of exempted income under section 35AC of the Income Tax Act.

Analysis:

Issue 1: Undisclosed Interest Income
The appeal filed by the Revenue challenged the judgment of the Income Tax Appellate Tribunal regarding the undisclosed interest income of Rs. 23,08,970, which was not included in the total interest offered for taxation by the assessee. The Commissioner of Income Tax (Appeals) noted that the assessee had already offered a larger interest income that covered the error component. The Tribunal upheld this view, stating that no question of law arose in this matter.

Issue 2: Claim of Depreciation on Assets
The second issue revolved around the assessee's claim of depreciation under section 35AC of the Income Tax Act for assets purchased for its cardiac center using grants received, which were exempted under section 35AC. The Assessing Officer contended that since the donees would claim exemption under section 35AC for the grants, the assessee could not claim depreciation on the same assets to avoid double deduction.

However, both the Commissioner of Income Tax (Appeals) and the Tribunal disagreed with this stance. They relied on a decision involving a charitable trust, where it was established that even if assets purchased by the trust were allowed as a deduction, depreciation had to be permitted on the value of such assets while calculating taxable income. The courts referred to a Supreme Court decision confirming the grant of depreciation to a Trust eligible for exemption under section 11 of the Act. The court emphasized that the conditions for claiming depreciation under section 32 were met in the present case, as the assets were tangible and used for business purposes.

In conclusion, the court dismissed the Tax Appeal, affirming the assessee's right to claim depreciation on assets acquired with funds exempted under section 35AC, following the precedent set by previous decisions regarding charitable trusts and depreciation allowances.

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