2019 (6) TMI 665 - AT - Income Tax

Tribunal upholds CIT(A)'s decisions for Assessment Year 2010-11, allowing depreciation and deficit carry forward.

The Tribunal dismissed the Revenue's appeal for Assessment Year 2010-11, upholding the CIT(A)'s decisions on both issues. The claim for depreciation on ... Disallowance of claim of depreciation to assessee trust - double deduction - HELD THAT:- Assessee trust in the case on hand is to be allowed its deduction of depreciation on assets while computing its income u/s 11 even though the amount spent on acquisition of the said capital asset was already allowed as application of income in furtherance of the objects/charitable activities of the assessee trust in the year of acquisition. In coming to this view, we place reliance on the decisions of CIT Vs. Society of Sisters of St. Anne [1983 (8) TMI 44 - KARNATAKA HIGH COURT] , Al-Ameen Charitable Fund Trust [2016 (3) TMI 462 - KARNATAKA HIGH COURT] and Karnataka Reddy Janasangha [2016 (3) TMI 462 - KARNATAKA HIGH COURT] and the decisions of City Hospital Charitable Trust [2015 (6) TMI 235 - ITAT BANGALORE] and Jyothi Charitable [2015 (7) TMI 859 - ITAT BANGALORE] which have decided the issue in favour of the assessee and against revenue on the issue of the assessee being entitled to be allowed depreciation on assets, the cost of which has already been claimed as application of income u/s 11 of the Act. - Decided against revenue. Carry forward of current year’s deficit along with earlier year’s deficit for set off to the subsequent years - HELD THAT:- Following the decision of the co-ordinate bench of this Tribunal in the case of Shraddha Trust [2017 (4) TMI 1289 - ITAT BANGALORE] we uphold the order of the learned CIT(A) in allowing the assessee’s claim to carry forward of current year’s deficit along with earlier year’s deficit for set off to the subsequent years. Consequently, the ground No.2 raised by Revenue in this appeal is dismissed. Issues Involved:1. Disallowance of claim of depreciation on assets.2. Denial of carry forward of deficit (excess application over income) to subsequent years.Issue-Wise Detailed Analysis:1. Disallowance of Depreciation on Assets:The Revenue appealed against the CIT(A)'s decision to allow depreciation on assets, arguing it amounted to a double deduction since the cost of acquisition was already treated as application of income in previous years. The AO relied on the Supreme Court's decision in *Escorts Ltd. vs. Union of India* (199 ITR 43) and the Kerala High Court's decision in *Lissie Medical Institutions vs. CIT* (348 ITR 344), which held that depreciation on such assets constitutes double deduction.On appeal, the assessee cited several judicial precedents, including the Karnataka High Court's decision in *DIT (Exemption) vs. Al-Ameen Charitable Fund Trust* (383 ITR 517) and *CIT vs. Society of Sisters of St. Anne* (146 ITR 28), which supported the claim for depreciation. The CIT(A) allowed the claim based on these precedents.The Tribunal upheld the CIT(A)'s decision, referencing the Karnataka High Court's ruling in *Al-Ameen Charitable Fund Trust*, which clarified that depreciation on assets, whose cost was treated as application of income, should be allowed. The Tribunal also noted that Section 11(6) of the Income Tax Act, which disallows such depreciation, is prospective and applicable from Assessment Year 2015-16 onwards. Thus, the assessee's claim for depreciation for Assessment Year 2010-11 was valid. Consequently, Revenue's ground of appeal on this issue was dismissed.2. Carry Forward of Deficit to Subsequent Years:The Revenue contended that the CIT(A) erred in allowing the carry forward of the current year's deficit and brought forward deficits from earlier years, arguing that the Income Tax Act does not provide for computing losses for charitable trusts in this manner. The CIT(A) allowed the carry forward, resulting in Revenue's appeal.The Tribunal examined precedents, including decisions from the Co-ordinate Benches in cases like *City Hospital Charitable Trust* (ITA No.676/Bang/2014) and *Shraddha Trust* (ITA No.899/Bang/2016). These cases established that excess expenditure over income in one year could be carried forward and set off against income in subsequent years, treating such adjustments as application of income for charitable purposes.The Tribunal upheld the CIT(A)'s decision, allowing the carry forward of the current year's deficit and earlier years' deficits for set off in subsequent years. This decision was consistent with the judicial precedents that supported the assessee's position. Consequently, Revenue's ground of appeal on this issue was also dismissed.Conclusion:The Tribunal dismissed the Revenue's appeal for Assessment Year 2010-11, upholding the CIT(A)'s decisions on both issues: allowing depreciation on assets and permitting the carry forward of deficits to subsequent years. The order was pronounced on June 12, 2019.