Case Law Details
M/s. Kamineni Educational Society vs. Joint DIT (Exemptions)
Issue- The common issue involved in these appeals is about the disallowance of depreciation claimed by assessee in respective assessment years on the reason that the cost of assets had been claimed as application of income by assessee in the preceding years and this would amount to double deduction in view of decision of Hon’ble Supreme Court in the case of Escorts Ltd., vs. UOI 199 ITR 43 (SC).
Held- The judgment of the Supreme Court in Escorts Limited Vs. Union of India (supra) is inapplicable to the present case. There are two reasons as to why the judgment cannot be applied to the present case. Firstly, the Supreme Court was not concerned with the case of a charitable trust/institution involving the question as to whether its income should be computed on commercial principles in order to determine the amount of income available for application to charitable purposes. It was a case where the assessee was carrying on business and the statutory computation provisions of Chapter IV-D of the Act were applicable. In the present case, we are not concerned with the applicability of these provisions. We are concerned only with the concept of commercial income as understood from the accounting point of view. Even under normal commercial accounting principles, there is authority for the proposition that depreciation is a necessary charge in computing the net income. Secondly, the Supreme Court was concerned with the case where the assessee had claimed deduction of the cost of the asset under Section 35(1) of the Act, which allowed deduction for capital expenditure incurred on scientific research. The question was whether after claiming deduction in respect of the cost of the asset under Section 35(1), can the assessee again claim deduction on account of depreciation in respect of the same asset. The Supreme Court ruled that, under general principles of taxation, double deduction in regard to the same business outgoing is not intended unless clearly expressed. The present case is not one of this type, as rightly distinguished by the CIT(Appeals).
Andhra Pradesh High Court in Commissioner of Income-tax. v. Nizam’s Suppl. Religious Endowment Trust (1981) 127 ITR 378 and by the Madras High Court in Commissioner Of Income-Tax vs Rao Bahadur Calavala Cunnan Chetty Charities (1982) 135 ITR 485. The Madhya Pradesh High Court in CIT vs. Raipur Pallottine Society (supra) has held, following the judgment of the Karnataka High, that in computing the income of a charitable institution/trust, depreciation of assets owned by the trust/institution is a necessary deduction on commercial principles. The Gujarat High Court, after referring to the judgments of the Karnataka, Maharashtra and Madhya Pradesh High Courts cited above, also came to the same conclusion and held that the amount of depreciation debited to the accounts of the charitable institution has to be deducted to arrive at the income available for application to charitable and religious purposes.
IN THE INCOME TAX APPELLATE TRIBUNAL
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