AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2023 (2) TMI 1059
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....pplicable. 2. The Hon. CIT - A erred in construing sec.11(6) of the Act wrongly and retrospectively and in confirming the action of the learned Assessing Officer of disallowing of depreciation of Rs.7,95,37,619 on assets that were acquired prior to previous year relevant to AY 2015-16 during which the section is not in vogue and is not applicable. 3. The Hon. CIT-A ought to have appreciated that the amendment brought into section 11 of the Act by way of insertion of new sub-section 6 to said section 11 of the Act from AY 2015-16 was only that depreciation will not be allowed from the said AY if the cost of the acquisition of the asset is claimed as application of income in the said AY or in any subsequent AY and thereby ought to have allowed the amount of the said claim of depreciation as application in computing income under section 11 of the Act. 4. The Hon. CIT-A ought to have appreciated that the assets acquired prior to the previous year relevant to AY 2015-16 are part of the relevant Gross Block of the Assets under the Act and are inseparable and thus also section 11(6) of the Act restricting allowance of depreciation will be applicable to assets ac....
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.... is that why depreciation on assets purchased after 01.04.2015 can not be claimed. whether the said amendment shall impact the claim of depreciation on assets that are acquired prior to 01.04.2015. In this connection, it would be appropriate to refer to the Section and also the explanatory provisions leading to the insertion of Section 11(6) of the Income Tax Act. Section 11(6) of the income tax act is reproduced as under; "Section 11(6).....In this section where any income is required to be applied or accumulated or set apart for application, then, for such purposes the income shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of any asset, acquisition of which has been claimed as an application of income under this section in the same or an other previous year." 6.3.2 Further, Para 7.5 of Circular No. 01/2015 containing the explanatory notes to the provision of the Finance Act. 2014 is reproduced as under; "7.5 The second issue which had arisen was that the existing scheme of section 11 as well as section 10(23C) of the Income-tax Act provided exemption in respect of income when it is applied to acquire....
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.... on or after 01-04-2014 can be claimed as application of income with no depreciation claim in calculation of income or depreciation can be claimed in calculation of income on the cost of acquisition with no application claim. 5. However, there is a dispute by the learned AO in respect of depreciation claim of Rs.7,95,37,619 in AY 2017-18 on scrutiny on the block of assets acquired upto the previous year relevant to the AY 2014-15 i.e., before 31.03.2014 and the cost of acquisition of which may have been claimed as application of income. The depreciation claim rejection has been affirmed by the Hon'ble CIT(A) [Commissioner of Income tax - Appeals of National Faceless Appeal Centre, New Delhi] vide orders with DIN ITBA/ NFAC/ S/ 250/ 2022-23/ 1044954516(1) 26/08/2022 after a lapse of nearly two years from the date of submission of Written Submissions. 6. There was no dispute on allowance of depreciation upto AY 2016-17 on the assets acquired prior to the previous year relevant to AY 2015-16. This is not taken note of by the Hon. CIT-A. 7. The Hon. CIT - A erred in not considering that sec.11(6) of the Income Tax Act, 1961, [for short "Act"] is prospective i....
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....15-16 during which the section is not in vogue and is not applicable. 9. The Hon. CIT-A ought to have appreciated that the amendment brought into section 11 of the Act by way of insertion of new sub¬section 6 to said section 11 of the Act from AY 2015-16 was only that depreciation will not be allowed from the said AY if the cost of the acquisition of the asset is claimed as application of income in the said AY or in any subsequent AY and thereby ought to have allowed the amount of the said claim of depreciation as application in computing income under section 11 of the Act . 9.1. The Hon. CIT-A did not appreciate that the section has two alternative options made available from AY 2015-16 to the Assessee, being claiming depreciation in arriving at income or cost of the asset as application of income and not both. Prior to the said year, the Assessee has option to choose both. Therefore, the Assessee can choose the option only from AY 2015-16 and can not travel retrospectively reopening the previous assessments. The section is held applicable prospectively too by the Hobble Supreme Court. 10. The Hon. CIT-A ought to have appreciated that the assets acqu....
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....ried forward for application for subsequent years. It is for the assessee to write back depreciation and if done the assessing officer will modify the assessment determining higher income and allow recomputed income with the depreciation written back by the assessee to be carried forward for subsequent years for application for charitable purposes." 13.2 That is, the assessee is entitled to depreciation on cost of acquisition and also as application of cost of acquisition. In addition, the assessee has option to claim depreciation or not to claim depreciation in any AY and carry forward the cost of asset. Further, the right to claim expenditure includes the right to carry forward the unabsorbed expense as held by Apex Court in CIT -III, PUNE Vs. Rajasthan And Gujarati Charitable Foundation Poona, cited supra. 13.3 However, the Hon.CIT-A ought to have considered the necessary implications if he follows that depreciation is not to be allowed from AY 2013-16 even if the cost of the acquisition of the assets was claimed before upto previous year relevant to AY 2014-15. 13.4 This results in different situations and can be broadly classified into 5 categories o....
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....f acquisition of the assets as application under section 11(2) of the Act even when it results in excess application. Depreciation on assets was claimed u/ section 11(1) of the Act even if it results in loss / further loss. For many assessment years the Department had disallowed this claim of deprecation amount by terming the same as double claim, but at appellate forums, after hearing the appellant's detailed submissions the appeals were allowed in favour of the appellant. In appellant's own case ITAT has rendered the decision in its favour as recently as on 03.12.2010 in Asst. Year 2005-06. Thus, till the Asst. Year 2014-15 i.e., before the Act was amended by insertion of sub- section 6 to section 11, the claim of the appellant was duly supported by the jurisdictional Hon'ble ITAT decisions and is accepted by the department. 18 The memorandum explaining clauses of the FINANCE (NO. 2) BILL, 2014 - Provisions relating to direct taxes in the context of insertion of the above sub-section 6 explaining the objects had stated as follows: " Rationalisation of taxation regime in the case of charitable trusts and institutions. The existing provisions ....
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....n respect of such income is preferred and tax on such income is avoided. This defeats the very objective and purpose of placing the conditions of application of income etc. in respect of income derived from property under trust in the first place. Sections 11, 12 and 13 are special provisions governing institutions which are being given benefit of tax exemption, it is therefore imperative that once a person voluntarily opts for the special dispensation it should be governed by these specific provisions and should not be allowed flexibility of being governed by other general provisions or specific provisions at will. Allowing such flexibility has undesirable effects on the objects of the regulations and leads to litigations. Similar situation exists in the context of section 10(23C) which provides for exemption to funds, institution, hospitals, etc. which have been granted approval by the prescribed authority. The provision of section 10(23C) also have similar conditions of accumulation and application of income, investment of funds in prescribed modes etc. Therefore, it is proposed to amend the Act to provide specifically that where a trust or an institut....
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....2014 and claimed as application. The provision is not retrospective in operation and hence Depreciation on assets purchased prior to 01-04-2014 may not be disallowed since no cost of acquisition is claimed on such assets for AY 2015-16 or any subsequent assessment year. 20 The Hon'ble Supreme Court rejected the argument of the Department that the newly inserted said sub-section 6 is clarificatory in nature and therefore the same must be applied retrospectively and should be applied in those cases where the assessments and appeals that are pending: Commissioner of Income Tax -III, Pune vs,. Rajasthan& Gujarati Charitable Foundation Poona, [2018] 89 taxmann.com 127 (SC)/ [2018] 253 Taxman 165 (SC)/ [2018] 300 CTR 1(SC). 21 The provisions relating to charity be it relating to reckoning of income, inclusion of voluntary contributions in income or in respect of application of income, differ in many ways from the usual computation provisions of business income. The Hon. Board had accepted these views in the form of circular/ instructions by recognizing very peculiar aspects which are not known to business assessees, such as repayment of loans ( vide Circular no: 100....
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....elevant to assessment year 2015-16 and subsequent assessment years if their cost is claimed as application. 28. Thus, seen from any angle, the amount of claim of depreciation on assets that were purchased prior to previous year relevant to assessment year 2015-16 and claimed as application is eligible under the provisions of the Act in the assessment year 2015-16 and subsequent assessment years since the appellant has not claimed the cost of acquisition of such assets as application in those assessment years. 29. We therefore pray your good selves to kindly pass orders for allowance of the claim of deprecation amount of Rs.7,95,37,319 against which the cost of acquisition was not claimed as application in the assessment year 2015-16 and subsequent assessment years or to grant such other relief as your good selves deems fit and proper in the circumstances detailed as above." 5. The ld.AR further submitted that the assessee is entitled to depreciation on the assets which were acquired by the assessee in the previous years. 6. Per contra, the ld.DR relied upon the orders of lower authorities. The written submissions filed by the ld. DR in support of its case re....
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....ose : Rs.50 Capital expenditure : Rs.50 Depreciation : Rs.5 Total Income : Rs.(-5) Based on the above example following inferences can be drawn. (a) Trust has claimed loss of Rs.5 which it will set off against next year income and not spend Rs.5 in next year also out of from the gross receipt of next year. (b) Trust will claim depreciation in the subsequent year also, so effectively they will not apply that amount of money for charitable purpose in subsequent year also. (c) Trust has claimed the expenditure more than the actual expenditure done for procuring that capital assets. (d) Whole concept of the charity gets defeated which has given the tax relief to trust just for fulfilling one condition to make application of 85% of the Gross receipt of the year for the charitable purpose or for object of trust. In order to plug the loopholes the CBDT has come with amendment and included one more section 11(6) in I.T Act 1961 v.e.f from 01.04.2015 which is reproduced as follow for ready reference. Section 11(6): "In this section where any income is required to be applied or accumulated or set apart for appli....
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....ritable Trust is to be effective from 01.04.2015. This view is further supported by the Notes on Clauses in Finance [No.2] Bill, 2014, memo explaining provisions and circulars issued by the Central Board of Direct Taxes in this regard. Clause No.7 of the Notes on Clauses reads thus: "Clause 7. of the Bill seeks to amend section 11 of the Income-tax Act relating Income from property held for charitable or religious purposes. The existing provisions of the aforesaid section contain a primary condition that for grant of exemption in respect of income derived from property held under trust, such income should be applied for the charitable purposes in India, and where such income cannot be so applied during the previous year, it has to be accumulated in the prescribed modes. It is proposed to insert sub-sections (6) and (7) in the said section so as to provide that- (i) where any income is required to be applied or accumulated or set apart for application, then, for such purposes the income shall be determined without, any deduction or allowance by way of depreciation or otherwise in respect of any asset, acquisition of which has been claimed as an application of incom....
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....f the assessee shall be determined without any deduction or allowed by way of depreciation. The contention of the ld.AR that the assets acquired prior thereto on which the assessee had claimed the depreciation were not the assets acquired during the year under consideration and therefore, the assessee is entitled to depreciation on such assets, is contrary to the provision to section 11(6) of the Act, as it prohibits the allowance of such depreciation to the assets of the assessee. Section 11(6) of the Act does not make any distinction whether the assets are acquired by application of income in the year under consideration or any other previous year. It only provides non-grant of depreciation to the assessee for the purpose of determining the income of the assessee, as the assessee had claimed full exemption for the expenditure incurred by it as application of income. 10. It is not the case of the assessee before us that the assets acquired by the assessee without claiming the application of income in respect of such asset for which the assessee is claiming the depreciation. In our view, once the assessee has claimed the application of income in acquiring the assets either in th....