Trust can claim depreciation on assets despite section 11 application and pharmacy operations qualify as charitable activities

The ITAT Mumbai ruled in favor of a trust on two key issues. First, the tribunal held that a trust can claim depreciation on assets even if their cost was previously allowed as application of income under section 11, rejecting the AO's double deduction argument. Second, regarding the trust's pharmacy operations, the tribunal determined that running a pharmacy store within a hospital constitutes an integral part of charitable activities rather than a separate business under section 11(4A). Following Bombay HC precedent in Baun Foundation Trust, the tribunal found the pharmacy was incidental to the hospital's dominant charitable purpose, with profits utilized for hospital operations, thus qualifying for tax exemption.

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Issues:
1. Claim of depreciation by a charitable trust.
2. Treatment of income from a pharmacy store run by a charitable trust.

Claim of Depreciation:
The appeal was filed by the Revenue against the order of the Commissioner of Income Tax (Appeals) regarding the claim of depreciation by a charitable trust for the assessment year 2010-11. The Revenue contended that allowing depreciation on assets already claimed as application of income would result in double deduction. However, the Judicial Member relied on the decision of the Bombay High Court and allowed the claim of depreciation. The Judicial Member cited a similar decision by the Bombay High Court in another case, emphasizing that there is no question of double deduction in such cases. The grounds raised by the Revenue were dismissed based on the precedents cited by the Judicial Member.

Treatment of Income from Pharmacy Store:
The second issue involved the treatment of income from a pharmacy store run by the charitable trust. The Assessing Officer treated the pharmacy store's income as separate business income, invoking section 11(4A) of the Income Tax Act. However, the Commissioner of Income Tax (Appeals) overturned this decision, stating that the pharmacy was integral to the trust's activities of providing medical relief. The trust argued that the pharmacy was essential for providing timely medical aid to patients and was not run as a separate business. The trust cited a Bombay High Court decision and a Tribunal ruling to support their position. The Tribunal agreed with the trust, emphasizing that the pharmacy was an integral part of the hospital's operations and not a separate business activity. The Tribunal concluded that the trust fulfilled the conditions required under the law and dismissed the Revenue's grounds on this issue.

Conclusion:
The Tribunal dismissed the appeal of the Revenue, upholding the decisions of the Commissioner of Income Tax (Appeals) regarding the claim of depreciation and the treatment of income from the pharmacy store. The Tribunal's decision was based on legal precedents and interpretations of relevant provisions of the Income Tax Act. The judgment was pronounced on 15.06.2016, with all grounds raised by the Revenue being dismissed.

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