Commissioner of Income-tax-II, Jodhpur v. Krishi Upaj Mandi Samiti
[Citation -2015-LL-0116-25]

Citation 2015-LL-0116-25
Appellant Name Commissioner of Income-tax-II, Jodhpur
Respondent Name Krishi Upaj Mandi Samiti
Court HIGH COURT OF RAJASTHAN AT JODHPUR
Relevant Act Income-tax
Date of Order 16/01/2015
Judgment View Judgment
Keyword Tags charitable institution • plant and machinery • capital expenditure • religious trust • cost of asset • written off
Bot Summary: The Commissioner of Income Tax affirmed the order of assessment but the Income Tax Appellate Tribunal, Jodhpur Bench, Jodhpur by its order dated 18.7.2008, while accepting the appeal preferred by the assessee, directed the Income Tax Department to allow the claim of depreciation made by the assessee this appeal by revenue is before us with a substantial question of law in the terms that whether the Tribunal was justified in allowing depreciation claimed by the assessee on capital assets for which capital expenditure has already been allowed in the year under consideration The argument advanced by learned counsel that the depreciation could have not been taken into account because full capital expenditure has been allowed in the year of -2- acquisition of the assets. In the case aforesaid the Delhi High Court held that if the cost of asset has been allowed as deduction by way of application of income then the depreciation on the same asset cannot be allowed in computation of the income of the trust. Per contra, as per learned counsel for the assessee, Section 32 of the Act of 1961 nowhere makes any distinction in the charitable trust or any other body or person so far as the application of depreciation is concerned, thus, normal depreciation is required to be considered as a legitimate deduction in computing the real income of the assessee as per provisions of Section 11(1)(a) of the Act of 1961. To substantiate the contention reliance is placed upon the judgment of Bombay Court in Director of Income Tax v. Framjee Cawasjee Institute, reported in 109 CTR 463, concluding that the depreciation on depreciable assets had to be taken into account in computing income of a religious trust although the amount spent of acquiring such assets has been treated as application of income of the trust in the year in which assets were acquired. In CIT v. Institute of Banking Personnel, reported in 2003 131 TAXMAN 386, the High Court of Bombay held that when the full expenditure had been allowed to a charitable institution in the year of acquisition of assessment, the amount spent on acquiring the assets are required to be treated as application of income of the trust in the year in which the income was spent in acquiring those assets. Income of a charitable trust like the present assessee derived from the depreciable heads is also liable -4- to be computed on commercial basis while doing so it is to be kept in mind that ultimately assessee is a charitable institution and its income for tax purposes is required to be determined by taking into consideration provisions of Section 11 of the Act of 1961 after extending normal depreciation and deductions from its gross income. In computing the income of a charitable institution/trust depreciation of assets owned by such institution is a necessary deduction on commercial principles the amount of depreciation has to be deducted to arrive at the income available.


-1- IN HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR. JUDGMENT Commissioner of Income Tax-II, Jodhpur v. Krishi Upaj Mandi Samiti, Jaisalmer D.B. Income Tax Appeal No.32/2010 Date of Judgment :: 16th January, 2015 PRESENTT HON'BLE MR.JUSTICE GOVIND MATHUR HON'BLE MR.JUSTICE ANUPINDER SINGH GREWAL Mr. Sunil Bhandari, for appellant. Mr. Rajesh Choudhary, for respondent. .... BY COURT : (PER HON'BLE GOVIND MATHUR,J.) For assessment year 2004-05 Assessing Officer disallowed assessee's claim for depreciation of Rs.26,20,926/-. Commissioner of Income Tax (Appeals) affirmed order of assessment but Income Tax Appellate Tribunal, Jodhpur Bench, Jodhpur by its order dated 18.7.2008, while accepting appeal preferred by assessee, directed Income Tax Department to allow claim of depreciation made by assessee, hence, this appeal by revenue is before us with substantial question of law in terms that whether Tribunal was justified in allowing depreciation claimed by assessee on capital assets for which capital expenditure has already been allowed in year under consideration? argument advanced by learned counsel that depreciation could have not been taken into account because full capital expenditure has been allowed in year of -2- acquisition of assets. argument advanced is substantiated by placing reliance upon Division Bench judgment of High Court of Delhi in Director of Income Tax (Exemption) v. Charanjiv Charitable Trust, reported in [2014]43 taxmann.com 300 (Delhi). In case aforesaid Delhi High Court held that if cost of asset has been allowed as deduction by way of application of income then depreciation on same asset cannot be allowed in computation of income of trust. Reliance is also placed by learned counsel for revenue upon judgment of High Court of Kerala in Lissie Medical Institutions v. Commissioner of Income Tax, Kochi, reported in [2012]24 taxmann.com 9 (Ker.), holding that when acquisition of assets is treated as application of income for charitable purposes, value of assets stands fully written off, and over and above, if depreciation is allowed, same will result in double deduction of capital expenditure leading to violation of provisions of Section 11(1) of Income Tax, 1961 (hereinafter referred to as 'the Act of 1961'). Per contra, as per learned counsel for assessee, Section 32 of Act of 1961 nowhere makes any distinction in charitable trust or any other body or person so far as application of depreciation is concerned, thus, normal depreciation is required to be considered as legitimate deduction in computing real income of assessee as per provisions of Section 11(1)(a) of Act of 1961. It is asserted that deduction of depreciation in case of charitable institution is permissible in order to preserve corpus of trust -3- and, therefore, it does not amount to double benefit or double deduction. To substantiate contention reliance is placed upon judgment of Bombay Court in Director of Income Tax v. Framjee Cawasjee Institute, reported in (1993) 109 CTR 463 (Bombay), concluding that depreciation on depreciable assets had to be taken into account in computing income of religious trust although amount spent of acquiring such assets has been treated as application of income of trust in year in which assets were acquired. In CIT v. Institute of Banking Personnel, reported in 2003 131 TAXMAN 386, High Court of Bombay held that when full expenditure had been allowed to charitable institution in year of acquisition of assessment, amount spent on acquiring assets are required to be treated as application of income of trust in year in which income was spent in acquiring those assets. This did not mean that in computing income from those assets in subsequent years, depreciation in respect of those assets cannot be taken into account. We have considered arguments advanced. assessee is charitable institution registered under Section 12-A of Act of 1961 and 100% capital expenditure was availed by it against asset concerned i.e. building. Section 32(1) of Act of 1961 provides for depreciation in respect of building, plant and machinery owned by assessee and used for business purposes. Income of charitable trust like present assessee derived from depreciable heads is also liable -4- to be computed on commercial basis, however, while doing so it is to be kept in mind that ultimately assessee is charitable institution and its income for tax purposes is required to be determined by taking into consideration provisions of Section 11 of Act of 1961 after extending normal depreciation and deductions from its gross income. In computing income of charitable institution/trust depreciation of assets owned by such institution is necessary deduction on commercial principles, hence, amount of depreciation has to be deducted to arrive at income available. In view of discussions made above, we find ourselves in agreement with view taken by Bombay High Court in Director of Income Tax v. Framjee Cawasjee Institute (supra) and in CIT v. Institute of Banking Personnel (supra). substantial question framed in instant matter, thus, is answered in terms that Income Tax Appellate Tribunal rightly allowed depreciation claimed by assessee on capital assets for which capital expenditure was already given in year under consideration. appeal stands dismissed accordingly. (ANUPINDER SINGH GREWAL),J. (GOVIND MATHUR),J. kkm/ps. Commissioner of Income-tax-II, Jodhpur v. Krishi Upaj Mandi Samiti
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