2019 (1) TMI 1451 - AT - Income Tax

ITAT Kolkata: Depreciation claim upheld for AY 2008-09, Section 11(6) not retrospective

Belle Vue Clinic Versus DCIT (Exemption) -1

Belle Vue Clinic Versus DCIT (Exemption) -1 - TMI Issues Involved:1. Whether the depreciation claimed by the assessee constitutes a double deduction.2. Applicability of Section 11(6) of the Income Tax Act, 1961, and its retrospective effect.3. Interpretation of commercial principles in the computation of income for charitable trusts.Issue-wise Detailed Analysis:1. Whether the depreciation claimed by the assessee constitutes a double deduction:The primary issue revolves around the assessee's claim of depreciation amounting to Rs. 2,52,14,568/- as an application of income. The CIT(A) reversed the assessment findings, treating this depreciation claim as a double deduction because the assessee had already claimed the cost of acquisition as an expenditure. The CIT(A) relied on the decision of the Hon'ble Calcutta High Court in the case of Commissioner of Income-tax v. Siliguri Regulated Market Committee [2014] 51 Taxmann.com 455 (Calcutta), which allowed depreciation to ensure that the corpus of the trust remains intact. However, the CIT(A) noted that the appellant did not maintain a separate reserve fund for depreciation, leading to a potential misuse of funds by the trustees. The CIT(A) upheld the disallowance of depreciation by the Assessing Officer, emphasizing that allowing depreciation would result in no trail of funds in the balance sheet, thus facilitating potential revenue leakage and generation of black money.2. Applicability of Section 11(6) of the Income Tax Act, 1961, and its retrospective effect:The learned DR contended that the Assessing Officer rightly disallowed the depreciation claim, arguing that the corresponding cost of acquisition had already been claimed for section 11 exemption purposes, making it a case of double deduction. However, the Hon'ble Apex Court in CIT vs Rajasthan and Gujarati Charitable Foundation [2018] 402 ITR 441 (SC) clarified that section 11(6), introduced by the Finance Act, 2014, applies prospectively from AY 2015-16 and does not have retrospective effect. Since the case pertains to AY 2008-09, the provision of section 11(6) does not apply, and the assessee's depreciation claim is valid.3. Interpretation of commercial principles in the computation of income for charitable trusts:The assessee argued that the income of a charitable/religious trust should be understood in its commercial sense, which includes the deduction of depreciation on the trust's assets. The ITAT Chennai in The Music Academy Madras, Chennai vs Assessee held that depreciation is allowable while computing income under commercial principles, even for charitable institutions. However, the CIT(A) and the learned DR argued that Section 32 of the Act, which provides for depreciation, applies only to business assets and not to assets used for charitable purposes. The ITAT Chennai emphasized that the Income Tax Act does not provide for depreciation on assets used for charitable purposes, and any conflict between commercial principles and statutory provisions should be resolved in favor of the statutory provisions.Conclusion:The ITAT Kolkata, following the decision of the Hon'ble Apex Court in CIT vs Rajasthan and Gujarati Charitable Foundation, concluded that the assessee's depreciation claim is valid for AY 2008-09, as section 11(6) does not have retrospective effect. Thus, the CIT(A)'s findings accepting the assessee's depreciation claim were confirmed, and the appeal was dismissed. The judgment underscores the importance of adhering to statutory provisions while also considering judicial precedents in interpreting the application of income for charitable trusts.