Charitable Trust Allowed Depreciation on Capital Expenditure despite Application of Income

The Tribunal upheld the decision of the ld.CIT(A), allowing the assessee, a public charitable trust, to claim depreciation on capital expenditure despite it being treated as application of income. The Tribunal held that granting depreciation did not result in a double benefit, in accordance with the Supreme Court's ruling. The specific provision prohibiting depreciation on charitable expenditure was prospective from the assessment year 2015-16. Therefore, the Revenue's appeal was dismissed, affirming the assessee's entitlement to depreciation allowance under section 32 of the Income Tax Act.

---

---

Issues:
Disallowance of depreciation claimed by the assessee.

Analysis:
The Revenue appealed against the order of the ld.CIT(A)-5, Baroda for the assessment year 2011-12. The sole issue raised was the deletion of disallowance of depreciation of &8377; 2,19,24,996/- made by the AO. The assessee, a public charitable trust engaged in educational activities, had claimed depreciation under section 11 of the Income Tax Act, in addition to capital expenditure for fixed assets. The AO disallowed the depreciation, considering it as double deduction since all capital expenditure had been treated as application of income. The ld.CIT(A) directed the AO to allow full depreciation, leading to the Revenue's appeal before the Tribunal.

The Tribunal analyzed whether depreciation on capital expenditure, treated as application of income, amounted to double deduction. Referring to the case of Rajasthan and Gujarati Charitable Foundation Poona, the Tribunal noted that the grant of depreciation did not constitute a double benefit. The Hon'ble Supreme Court held that even if capital expenditure was treated as application of income for charitable purposes, the assessee was entitled to claim depreciation under section 32 of the Act. The specific provision of section 11(6) prohibiting depreciation on charitable expenditure was prospective from the assessment year 2015-16. Therefore, the assessee was entitled to depreciation allowance despite the capital expenditure being considered as application of income. The Tribunal upheld the decision of the ld.CIT(A), dismissing the Revenue's appeal.

In conclusion, the Tribunal confirmed that the assessee was entitled to claim depreciation on capital expenditure, even if treated as application of income for charitable purposes. The decision was in line with the Supreme Court's ruling, allowing the depreciation allowance and rejecting the Revenue's appeal.

---