Appellant Trust Wins Depreciation Claim for AY 2014-2015

The Tribunal allowed the appellant trust's claim for depreciation up to AY 2014-2015, directing the AO to delete the disallowance. However, the issue of carrying forward excess application of funds was not adjudicated. The order was pronounced on April 29, 2022.

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Issues Involved:

1. Disallowance of claim of depreciation on assets.
2. Disallowance of claim to carry forward excess application of funds.

Detailed Analysis:

1. Disallowance of claim of depreciation on assets:

The primary issue in the appeal concerns whether a claim of depreciation is allowable on the value of assets, the acquisition cost of which was claimed as application under Section 11 of the Income-tax Act, 1961. The appellant, a registered Charitable Trust engaged in running an Eye Hospital and Research Centre, filed its returns for AY 2013-2014 and 2014-2015, declaring NIL income. The Assessing Officer (AO) disallowed the depreciation claim, citing the decision of the Hon'ble Kerala High Court in "Lessie Medical Institution Vs CIT" which held that depreciation cannot be allowed when the full cost has been treated as application in any year, considering it a double deduction.

The AO also referenced the newly inserted provision of subsection 6 to section 11 of the Act by the Finance Act, 2014, asserting that it was clarificatory in nature and effective from AY 2015-2016. The CIT(A) upheld the AO's decision, reasoning that charitable trusts should prepare only Receipt and Payment Accounts to avoid any claim for notional expenditure like depreciation, which is otherwise available for commercial entities. The CIT(A) concurred that allowing depreciation on assets, the cost of which was already treated as application of income, would amount to double deduction.

Upon appeal, the Tribunal considered the appellant's reliance on the Supreme Court's decision in "CIT Vs Rajasthan & Gujarati Charitable Foundation" reported in 402 ITR 441 (SC), which allowed depreciation claims for charitable trusts even if the entire expenditure for acquiring capital assets had been treated as application of income. The Tribunal noted that the issue was no longer res integra, as the Supreme Court had settled it in favor of the assessee. The Tribunal distinguished the case from "Escorts Ltd. Vs UOI," where the issue involved dual claims under Section 35 for the same asset, whereas the present case involved exemption claims for income earned from property held for charitable purposes.

The Tribunal cited several High Court decisions supporting the allowance of depreciation, including those from the Bombay, Karnataka, Madhya Pradesh, Gujarat, Punjab and Haryana, and Calcutta High Courts. Additionally, the Tribunal referenced the Karnataka High Court's decision in "DIT V/s Al-Ameen Charitable Fund Trust," which held that the amended provision of section 11(6) is prospective and effective from AY 2015-2016.

Conclusion:

The Tribunal concluded that the appellant trust is eligible for depreciation up to AY 2014-2015 and directed the AO to delete the disallowance of depreciation.

2. Disallowance of claim to carry forward excess application of funds:

During the hearing, the appellant's representative stated that Ground No. 2 in both appeals, concerning the disallowance of the claim to carry forward excess application of funds, was not pressed for adjudication. Consequently, this issue was not adjudicated by the Tribunal.

Conclusion:

The Tribunal allowed the appeals of the assessee in terms of the disallowance of depreciation, while the issue of carrying forward excess application of funds was not adjudicated. The order was pronounced on April 29, 2022.

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