IN SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 7186 OF 2014 COMMISSIONER OF INCOME TAX -III,PUNE Appellant(s) VERSUS RAJASTHAN AND GUJARATI CHARITABLE FOUNDATION POONA Respondent(s) WITH C.A. No. 1453/2017 C.A. No. 1067/2017 C.A. No. 1565/2017 C.A. No. 3822/2017 C.A. No. 4452/2017 SLP(C) No. 8179/2014 C.A. No. 3174/2016 C.A. No. 3618/2016 C.A. No. 5153/2017 C.A. No. 6059/2017 C.A. No. 5171/2016 SLP(C) No. 17312/2015 SLP(C) No. 17629/2014 SLP(C) No. 19779/2015 SLP(C) No. 17313/2015 SLP(C) No. 17314/2015 SLP(C) No. 17315/2015 SLP(C) No. 21374/2015 C.A. No. 7012/2015 SLP(C) No. 17630/2014 C.A. No. 8368/2014 SLP(C) No. 20837/2014 C.A. No. 7376/2014 SLP(C) No. 20296/2015 SLP(C) No. 20836/2014 C.A. No. 6112/2015 C.A. No. 7173/2016 C.A. No. 6612/2015 C.A. No. 8019/2016 C.A. No. 10405/2016 SLP(C) No. 33940/2013 C.A. No. 7927/2015 Signature Not VerifiedC.A. No. 9722/2016 Digitally signed by BALA PARVATHI Date: 2017.12.19 C.A. No. 9957/2016 11:23:08 IST Reason: C.A. No. 8908/2015 C.A. No. 9813/2014 SLP(C) No. 37618/2013 C.A. No. 10451/2016 1 C.A. No. 7186/ 2014 etc. C.A. No. 11027/2013 C.A. No. 10695/2016 SLP(C) No. 33757/2016 C.A. No. 11806/2016 C.A. No. 11733/2016 SLP(C) No. 34614/2016 C.A. No. 13569/2015 C.A. No. 14608-14609/2015 C.A. No. 11734/2016 C.A. No. 11805/2016 C.A. No. 1066/2017 C.A. No. 11978/2016 C.A. No. 12280/2016 C.A. No. 14672/2015 C.A. No. 14252/2015 C.A. No. 794/2014 SLP(C) No. 30624/2017 C.A. No. 18430/2017 ORDER These are petitions and appeals filed by Income Tax Department against orders passed by various High Courts granting benefit of depreciation on assets acquired by respondents-assessees. It is matter of record that all assessees are charitable institutions registered under Section 12A of Income Tax Act (hereinafter referred to as 'Act'). For this reason, in previous year to year with which we are concerned and in which year depreciation was claimed, entire expenditure incurred for acquisition of capital assets was treated as application of income for charitable puruposes under Section 11(1)(a) of Act. view taken by Assessing Officer in disallowing depreciation which was claimed under Section 32 of Act was that once capital expenditure is treated as application of income for 2 C.A. No. 7186/ 2014 etc. charitable purposes, assessees had virtually enjoyed 100 per cent write off of cost of assets and, therefore, grant of depreciation would amount to giving double benefit to assessee. Though it appears that in most of these cases, CIT (Appeals) had affirmed view, but ITAT reversed same and High Courts have accepted decision of ITAT thereby dismissing appeals of Income Tax Department. From judgments of High Courts, it can be discerned that High Courts have primarily followed judgment of Bombay High Court in 'Commissioner of Income Tax v. Institute of Banking Personnel Selection (IBPS)' [(2003) 131 Taxman 386 (Bombay)]. In said judgment, contention of Department predicated on double benefit was turned down in following manner: 3. As stated above, first question which requires consideration by this Court is: whether depreciation was allowable on assets, cost of which has been fully allowed as application of income under section 11 in past years? In case of CIT v. Munisuvrat Jain 1994 Tax Law Reporter, 1084 facts were as follows. assessee was Charitable Trust. It was registered as Public Charitable Trust. It was also registered with Commissioner of Income Tax, Pune. assessee derived income from temple property which was Trust property. During course of assessment proceedings for assessment years 1977-78, 1978-79 and 1979-80, assessee claimed depreciation on value of building @2 % and they also claimed depreciation on furniture @ 5%. question which arose before Court for determination was : whether depreciation could be denied to assessee, as expenditure on acquisition of assets had been treated as application of income in year of acquisition? It was held by Bombay High Court that section 11 of Income Tax Act makes provision in respect of 3 C.A. No. 7186/ 2014 etc. computation of income of Trust from property held for charitable or religious purposes and it also provides for application and accumulation of income. On other hand, section 28 of Income Tax Act deals with chargeability of income from profits and gains of business and section 29 provides that income from profits and gains of business ahll be computed in accordance with section 30 to section 43C. That, section 32(1) of Act provides for depreciation in respect of building, plant and machinery owned by assessee and used for business purposes. It further provides for deduction subject to section 34. In that matter also, similar argument, as in present case, was advanced on behalf of revenue, namely, that depreciation can be allowed as deduction only under section 32 of Income Tax Act and not under general principles. Court rejected this argument. It was held that normal depreciation can be considered as legitimate deduction in computing real income of assessee on general principles or under section 11(1)(a) of Income Tax Act Court rejected argument on behalf of revenue that section 32of Income Tax Act was only section granting benefit of deduction on account of depreciation. It was held that income of Charitable Trust derived form building, plant and machinery and furniture was liable to be computed in normal commercial manner although Trust may not be carrying on any business and assets in respect whereof depreciation is claimed may not be business assets. In all such cases, section 32 of Income Tax Act providing for depreciation for computation of income derived from business or profession is not applicable. However, income of Trust is required to be computed under section 11 on commercial principles after providing for allowance for normal depreciation and deduction thereof from gross income of Trust. In view of aforesatated judgment of Bombay High Curt, we answer question No. 1 in affirmative i.e., in favour of assessee and against Department. 4. Question No. 2 herein is identical to question which was raised before Bombay High Court in case of Director of Income-tax (Exemption) v. Framjee Cawasjee Institute [1993] 109 CTR 463. In that case, facts were as follows: assessee was Trust. It derived its income from depreciable assets. assessee took into account depreciation on those assets in computing income of Trust. ITO held that depreciation could not be taken into account because, full capital expenditure had 4 C.A. No. 7186/ 2014 etc. been allowed in year of acquisition of assets. assessee went in appeal before Assistant Appellate Commissioner. Appeal was rejected. Tribunal, however, took view that when ITO stated that full expenditure had been allowed in year of acquisition of assets, what he really meant was that amount spent on acquiring those assets had been 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. This view of Tribunal has been confirmed by Bombay High Court in above judgment. Hence, Question No. 2 is covered by decision of Bombay High Court in above Judgment. Consequently, Question No. 2 is answered in Affirmative i.e., in favour of assessee and against Department. After hearing learned counsel for parties, we are of opinion that aforesaid view taken by Bombay High Court correctly states principles of law and there is no need to interfere with same. It may be mentioned that most of High Courts have taken aforesaid view with only exception thereto by High Court of Kerala which has taken contrary view in 'Lissie Medical Institutions v. Commissioner of Income Tax'. It may also be mentioned at this stage that legislature, realising that there was no specific provision in this behalf in Income Tax Act, has made amendment in Section 11(6) of Act vide Finance Act No. 2/2014 which became effective from Assessment Year 2015-2016. Delhi High Court has taken view and rightly so, that said amendment is prospective in nature. 5 C.A. No. 7186/ 2014 etc. It also follows that once assessee is allowed depreciation, he shall be entitled to carry forward depreciation as well. For aforesaid reasons, we affirm view taken by High Courts in these cases and dismiss these matters. J. [ A.K. SIKRI ] J. [ ASHOK BHUSHAN ] New Delhi; December 13, 2017. 6 C.A. No. 7186/ 2014 etc. ITEM NO.101 COURT NO.6 SECTION III SUPREME COURT OF INDIA RECORD OF PROCEEDINGS Civil Appeal No. 7186/2014 COMMISSIONER OF INCOME TAX-III,PUNE Appellant(s) VERSUS RAJASTHAN AND GUJARATI CHARITABLE FOUNDATION POONA Respondent(s) WITH C.A. No. 1453/2017 (XV) C.A. No. 1067/2017 (XV) C.A. No. 1565/2017 (IV-A) C.A. No. 3822/2017 (IV-A) C.A. No. 4452/2017 (IV-A) SLP(C) No. 8179/2014 (IV-B) C.A. No. 3174/2016 (XV) C.A. No. 3618/2016 (XV) C.A. No. 5153/2017 (XV) C.A. No. 6059/2017 (IV-A) C.A. No. 5171/2016 (XIV) SLP(C) No. 17312/2015 (XIV) SLP(C) No. 17629/2014 (XIV) SLP(C) No. 19779/2015 (IX) SLP(C) No. 17313/2015 (XIV) SLP(C) No. 17314/2015 (XIV) SLP(C) No. 17315/2015 (XIV) SLP(C) No. 21374/2015 (XIV) C.A. No. 7012/2015 (III) SLP(C) No. 17630/2014 (XIV) C.A. No. 8368/2014 (III) SLP(C) No. 20837/2014 (III) C.A. No. 7376/2014 (III) SLP(C) No. 20296/2015 (IX) SLP(C) No. 20836/2014 (III) C.A. No. 6112/2015 (XV) C.A. No. 7173/2016 (XV) C.A. No. 6612/2015 (III) C.A. No. 8019/2016 (IV-A) C.A. No. 10405/2016 (IV-A) SLP(C) No. 33940/2013 (IX) C.A. No. 7927/2015 (III) C.A. No. 9722/2016 (IV-A) C.A. No. 9957/2016 (XV) C.A. No. 8908/2015 (IV-A) C.A. No. 9813/2014 (III) SLP(C) No. 37618/2013 (IX) 7 C.A. No. 7186/ 2014 etc. C.A. No. 10451/2016 (III) C.A. No. 11027/2013 (III) C.A. No. 10695/2016 (IV-A) SLP(C) No. 33757/2016 (IX) C.A. No. 11806/2016 (XV) C.A. No. 11733/2016 (IV-A) SLP(C) No. 34614/2016 (IV-A) C.A. No. 13569/2015 (XV) C.A. No. 14608-14609/2015 (III-A) C.A. No. 11734/2016 (IV-A) C.A. No. 11805/2016 (III) C.A. No. 1066/2017 (XV) C.A. No. 11978/2016 (XV) C.A. No. 12280/2016 (XV) C.A. No. 14672/2015 (III) C.A. No. 14252/2015 (XV) C.A. No. 794/2014 (IV-A) SLP(C) No. 30624/2017 (XIV) (With IA No.110544/2017-CONDONATION OF DELAY IN FILING, IA No.110546/2017-EXEMPTION FROM FILING C/C OF IMPUGNED JUDGMENT and IA No.110545/2017-CONDONATION OF DELAY IN REFILING) C.A. No. 18430/2017 (XV) (With IA No.106430/2017-CONDONATION OF DELAY IN FILING) Date : 13-12-2017 These matters were called on for hearing today. CORAM : HON'BLE MR. JUSTICE A.K. SIKRI HON'BLE MR. JUSTICE ASHOK BHUSHAN For parties Ms. Pinky Anand, ASG. Mr. Yashank Adhyaru, Sr. Adv. Mr. Arijit Prasad, Adv. Mr. Rajiv Nanda, Adv. Ms. Snidha Mehra, Adv. Mr. Rupesh Kumar, ADV. Mr. D. L. Chidanand, Adv. Ms. Gargi Khanna, Adv. Ms. Sadhna Sandhu, Adv. Ms. Kriti Dua, Adv. Mr. Hemant Arya, Adv. Mrs. Anil Katiyar, AOR Mr. Shashi M. Kapila, Adv. Mr. Pravesh Sharma, Adv. Mr. Siddharth Kapila, Adv. Ms. Malvika Kapila, Adv. Mr. Sushil Kumar, Adv. Mr. Vikas Mehta, Adv. Mr. Amit Anand Tiwari, Adv. 8 C.A. No. 7186/ 2014 etc. Ms. Vishakha, Adv. Mr. Shadan Farasat, Adv. Ms. Rudrakshi Deo, Adv. Mr. Ved Jain, Adv. Mr. Pranjal Srivastava, Adv. Ms. Praveena Gautam, AOR Mr. Jitesh Prakash Gupta, Adv. Ms. Anusueya, Adv. Mr. Dhanish Kumar, Adv. Mr. T. R. B. Sivakumar, AOR Mr. Senthil Jagadeesan, AOR Ms. Shruti Iyer, Adv. Ms. Sonakshi Malhan, Adv. Ms. Suriti Chowdhary, Adv. Mr. Rameshwar Prasad Goyal, AOR Mr. Salil Agarwal, Adv. Mr. Madhur Agarwal, Adv. Mr. Bhargava V. Desai, AOR Mr. Akshat Malpani, Adv. Mr. Vikas Mehta, AOR Mr. Shadan Farasat, AOR Mr. Jatin Zaveri, AOR Mr. H. D. Thanvi, Adv. Ms. Preeti Thanvi, Adv. Mr. Rishi Matoliya, AOR Mr. S. C. Tiwari, Adv. Mr. Jatin Zaveri, Adv. Mr. Neel Kamal Mishra, Adv. Mr. B. P. Sarangi, Adv. Mr. S. Sarfaraz Karim, Adv. Mr. Simanta Kumar, Adv. Mr. Ambar Qamaruddin, AOR Mr. Roni O John, Adv. Ms. Vanita Bhargava, Adv. Mr. Ajay Bhargava, Adv. Ms. Abhisaar Bairagi, Adv. M/S. Khaitan & Co., AOR Mr. Gagan Gupta, AOR 9 C.A. No. 7186/ 2014 etc. Mr. Prateek K. Chadha, Adv. Ms. Mihira Sood, AOR Mr. Vinodh Kanna B., AOR Ms. Arti Singh, AOR Ms. Pooja Singh, Adv. Mr. Parag P. Tripathi, Sr. Adv. Mr. A. V. Rangam, AOR Mr. Buddy A. Ranganadhan, Adv. Ms. Mishika Bajpai, Adv. Mr. Ajay Vohra, Sr. Adv. Ms. Kavita Jha, AOR Mr. Bhuwan Dhoopar, Adv. Mr. Sanjay Bansal, Sr. Adv. Mr. Aljo K. Joseph, Adv. Ms. Shelna K., Adv. UPON hearing counsel Court made following ORDER matters are dismissed in terms of signed order. (NIDHI AHUJA) (MALA KUMARI SHARMA) COURT MASTER COURT MASTER [Signed order is placed on file.] 10 Commissioner of Income-tax -III, Pune v. Rajasthan and Gujarati Charitable Foundation