Depreciation for charitable trusts remains allowable even when asset cost was treated as application of income.

A charitable institution claiming exemption under Section 11 is entitled to depreciation on capital assets used for its activities even where the acquisition cost was earlier treated as application of income. The Madras HC followed the Supreme Court in Rajasthan and Gujarati Charitable Foundation and also noted that the same view had been applied in the assessee's earlier appeals. On that basis, the Revenue's legal challenge could not succeed and the allowance of depreciation was affirmed.

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Issues: Whether the assessee, claiming exemption under Section 11, is entitled to depreciation on capital assets even though the cost of acquisition of those assets had already been treated as application of income.

Analysis: The issue stood covered by the Supreme Court's ruling in Rajasthan and Gujarati Charitable Foundation, which held that depreciation is allowable to a charitable institution notwithstanding that the acquisition cost of the asset was earlier treated as application of income. The same view had also been applied in the assessee's own earlier appeals. On that basis, the question of law raised by the Revenue no longer survived in its favour.

Conclusion: The assessee was held entitled to claim depreciation on the assets, and the Revenue's challenge failed.

Ratio Decidendi: A charitable institution is entitled to depreciation on capital assets used by it, even if the cost of those assets has been treated as application of income under Section 11 of the Income-tax Act, 1961.

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