2021 (7) TMI 1023 - AT - Income Tax

Charitable trust wins appeal for depreciation & carry forward rights

M/s. Rama Naick Charitable Trust Versus The Income Tax Officer (Exemptions), Ward 2, Chennai

The Tribunal allowed the appeal filed by the charitable trust, directing the Assessing Officer to permit depreciation on fixed assets and carry forward of ... Assessment of trust - depreciation on assets whose cost has been allowed as application of income to charitable purpose u/s.11(1)(a) - HELD THAT:- Hon’ble Supreme Court in the case of CIT v. Rajasthan and Gujarati Charitable Foundation [2017 (12) TMI 1067 - SUPREME COURT] where after considering the amendment in section 11(6) of the Act, by the Finance Act, 2014 held that the assessee is entitled to depreciation u/s. 32 of the Act on assets whose cost has been allowed as application to charitable purpose. The court further observed that once the assessee is allowed depreciation, it shall be entitled to carry forward depreciation as well. The Hon’ble Karnataka High Court in the case of Pr.CIT (Exemptions) vs. Shushrutha Educational Trust [2018 (12) TMI 329 - KARNATAKA HIGH COURT, had considered an identical issue and by following the decision of the Hon’ble Supreme Court in the case of CIT v. Rajasthan and Gujarati Charitable Foundation held that charitable institutions are entitled to depreciation on assets whose cost has been allowed as application of income. The court further noted that excess application of income for charitable purpose can be carry forward to subsequent years and further set-off against income of the trust in the subsequent years. Thus we are of the considered view that the AO as well as the ld.CIT(A) were erred in not allowing depreciation on assets and further carry forward of excess application of income to subsequent years. - Decided in favour of assessee. Issues:1. Disallowance of depreciation on fixed assets.2. Disallowance of carry forward of excess application of income for charitable purpose.Issue 1: Disallowance of Depreciation on Fixed AssetsThe assessee, a charitable trust, filed an appeal against the order of the Commissioner of Income Tax (Appeals) confirming the disallowance of depreciation on assets previously claimed as application of income. The assessing officer disallowed the depreciation claim, citing it as double deduction. The CIT(A) upheld this disallowance, stating there is no provision for carry forward and set off of excess expenditure in charitable trusts. The assessee argued that recent court decisions support their claim for depreciation on assets used for charitable purposes. The Tribunal noted that previous decisions against the assessee did not consider binding judgments of High Courts and Supreme Court. Relying on these judgments, the Tribunal allowed the depreciation claim and directed the AO to permit carry forward of excess application of income for subsequent years.Issue 2: Disallowance of Carry Forward of Excess Application of Income for Charitable PurposeThe AO disallowed the carry forward of excess application of income for charitable purposes, stating there is no provision for such carry forward in trusts. The CIT(A) upheld this disallowance, relying on past decisions. However, the assessee argued that recent court decisions support their right to carry forward excess application of income. The Tribunal, after considering the relevant judgments, found in favor of the assessee. The Tribunal held that the AO and CIT(A) erred in not allowing the carry forward of excess application of income for subsequent years and directed the AO to permit such carry forward and set off against the trust's income.In conclusion, the Tribunal allowed the appeal filed by the assessee, setting aside the CIT(A)'s order and directing the AO to allow depreciation on fixed assets and carry forward of excess application of income for subsequent years. The decision was based on recent court judgments supporting the rights of charitable trusts in claiming depreciation and carrying forward excess application of income.