SUPREME COURT
CIT VS. RAJASTHAN AND GUJARATI CHARITABLE FOUNDATION
POONA
DATED : 13/12/2017
Summarised Judgement (Scroll for Complete Judgement )
Introduction:
Grounds:
The first question which requires consideration by this Court is: whether depreciation was allowable on the assets, the cost of which has been fully allowed as application of income under section 11 in the past years?
The income of a Charitable Trust derived form building, plant and machinery and furniture was liable to be computed in normal commercial manner although the Trust may not be carrying on any business and the assets in respect whereof depreciation is claimed may not be business assets. In all such cases, section 32 of the Income Tax Act providing for depreciation for computation of income derived from business or profession is not applicable.
However, the income of the 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 the Trust. the affirmative i.e., in favour of the assessee and against the Department. It also follows that once assessee is allowed depreciation, he shall be entitled to carry forward the depreciation as well.
Judgement:
For the aforesaid reasons, we affirm the view taken by the High Courts in these cases and dismiss these matters.
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Complete Judgement
(SUPREME COURT)
CIT VS. RAJASTHAN AND GUJARATI CHARITABLE FOUNDATION
POONA
DATED : 13/12/2017
IN THE 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)
O R D E R
These are the petitions and appeals
filed by the Income Tax Department against the orders passed by various High Courts
granting benefit of depreciation on the assets acquired by the
respondents-assessees. It is a matter of record that all the assessees are
charitable institutions registered under Section 12A of the Income Tax Act
(hereinafter referred to as 'Act'). For this reason, in the previous year to
the year with which we are concerned and in which year the depreciation was
claimed, the entire expenditure incurred for acquisition of capital assets was
treated as application of income for charitable puruposes under Section
11(1)(a) of the Act.
The view taken by the Assessing Officer
in disallowing the depreciation which was claimed under Section 32 of the Act
was that once the capital expenditure is treated as application of income for
charitable purposes, the assessees had virtually enjoyed a 100 per cent write
off of the cost of assets and, therefore, the grant of depreciation would
amount to giving double benefit to the assessee. Though it appears that in most
of these cases, the CIT (Appeals) had affirmed the view, but the ITAT reversed
the same and the High Courts have accepted the decision of the ITAT thereby
dismissing the appeals of the Income Tax Department.
From the judgments of the High Courts,
it can be discerned that the High Courts have primarily followed the judgment
of the Bombay High Court in 'Commissioner of Income Tax v. Institute of Banking
Personnel Selection (IBPS)' [(2003) 131 Taxman 386 (Bombay)]. In the said
judgment, the contention of the Department predicated on double benefit was
turned down in the following manner:
3. As stated above, the first question
which requires consideration by this Court is: whether depreciation was
allowable on the assets, the cost of which has been fully allowed as
application of income under section 11 in the past years? In the case of CIT v.
Munisuvrat Jain 1994 Tax Law Reporter, 1084 the facts were as follows. The
assessee was a Charitable Trust. It was registered as a Public Charitable
Trust. It was also registered with the Commissioner of Income Tax, Pune. The
assessee derived income from the temple property which was a Trust property.
During the course of assessment proceedings for assessment years 1977-78,
1978-79 and 1979-80, the assessee claimed depreciation on the value of the
building @2½% and they also claimed depreciation on furniture @ 5%.
The question which arose before the
Court for determination was : whether depreciation could be denied to the
assessee, as expenditure on acquisition of the assets had been treated as
application of income in the year of acquisition? It was held by the Bombay
High Court that section 11 of the Income Tax Act makes provision in respect of
computation of income of the Trust from the property held for charitable or
religious purposes and it also provides for application and accumulation of
income. On the other hand, section 28 of the 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 the Act provides
for depreciation in respect of building, plant and machinery owned by the
assessee and used for business purposes. It further provides for deduction
subject to section 34. In that matter also, a similar argument, as in the
present case, was advanced on behalf of the revenue, namely, that depreciation
can be allowed as deduction only under section 32 of the Income Tax Act and not
under general principles. The Court rejected this argument. It was held that
normal depreciation can be considered as a legitimate deduction in computing
the real income of the assessee on general principles or under section 11(1)(a)
of the Income Tax Act The Court rejected the argument on behalf of the revenue
that section 32of the Income Tax Act was the only section granting benefit of
deduction on account of depreciation.
It was held that income of a Charitable
Trust derived form building, plant and machinery and furniture was liable to be
computed in normal commercial manner although the Trust may not be carrying on
any business and the assets in respect whereof depreciation is claimed may not
be business assets. In all such cases, section 32 of the Income Tax Act
providing for depreciation for computation of income derived from business or
profession is not applicable. However, the income of the 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
the Trust. In view of the aforesatated judgment of the Bombay High Curt, we
answer question No. 1 in the affirmative i.e., in favour of the assessee and
against the Department.
4. Question No. 2 herein is identical to
the question which was raised before the
Bombay High Court in the case of Director of Income-tax (Exemption) v. Framjee
Cawasjee Institute [1993] 109 CTR 463. In that case, the facts were as follows:
The assessee was the Trust. It derived its income from depreciable assets. The
assessee took into account depreciation on those assets in computing the income
of the Trust. The ITO held that depreciation could not be taken into account
because, full capital expenditure had been allowed in the year of acquisition
of the assets. The assessee went in appeal before the Assistant Appellate
Commissioner. The Appeal was rejected.
The Tribunal, however, took the view
that when the ITO stated that full expenditure had been allowed in the year of
acquisition of the assets, what he really meant was that the amount spent on
acquiring those assets had been treated as 'application of income' of the Trust
in the year in which the 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 the
Tribunal has been confirmed by the Bombay High Court in the above judgment.
Hence, Question No. 2 is covered by the decision of the Bombay High Court in
the above Judgment. Consequently, Question No. 2 is answered in the Affirmative
i.e., in favour of the assessee and against the Department.”
After hearing learned counsel for the
parties, we are of the opinion that the aforesaid view taken by the Bombay High
Court correctly states the principles of law and there is no need to interfere
with the same.
It may be mentioned that most of the
High Courts have taken the aforesaid view with only exception thereto by the
High Court of Kerala which has taken a contrary view in 'Lissie Medical
Institutions v. Commissioner of Income Tax'.
It may also be mentioned at this stage
that the legislature, realising that there was no specific provision in this
behalf in the Income Tax Act, has made amendment in Section 11(6) of the Act
vide Finance Act No. 2/2014 which became effective from the Assessment Year
2015-2016. The Delhi High Court has taken the view and rightly so, that the
said amendment is prospective in nature.
It also follows that once assessee is
allowed depreciation, he shall be entitled to carry forward the depreciation as
well.
For the aforesaid reasons, we affirm the
view taken by the High Courts in these cases and dismiss these matters.
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