Case Law Details

Case Name : ITO (E) Vs S.D.College Society, Lahore (ITAT Delhi)
Appeal Number : I.T.A No. 3640/Del/2012
Date of Judgement/Order : 11/07/2014
Related Assessment Year : 2008- 09
Courts : All ITAT (5168) ITAT Delhi (1162)

Hon’ble ITAT Delhi has held in the case of ITO(E) Vs. S.D.College Society (Lahore) that  where the capital expenditure has been treated to have been applied for the object of the trust, allowance of deduction on account of depreciation will not amount to double deduction?

Facts of the case

In the course of assessment proceedings, the assessing officer noticed that assessee had claimed an amount of Rs. 58,65,877/- towards depreciation on fixed assets.

Further, the assessee had also claimed investment in fixed assets as an application of income. The assessing officer referred to the decision of the Tribunal in the case of Parkash Education Society wherein, inter alia, it was held as under:

“In a case where the capital expenditure has been treated to have been applied for the object of the trust, allowance of deduction on account of depreciation will amount to double deduction”.

Accordingly, the assessing officer disallowed the sum of Rs. 58,65,877/-.

Decision of ITAT

We find that on this issue, in the case of J.D. Tytler School Society (supra), the ITAT has held as under:

“Held, dismissing the appeal, that in accordance with the directions issued by the Directorate of Education, the school was entitled to collect the development fund for the purpose of supplanting the resources for purchase, up gradation and replacement of furniture, fixtures and equipment. The fund collected from the students was utilized for development of amenities for the benefit and welfare of the children. The school had during the previous year provided a swimming pool and other games facilities and computers and testing equipment in the science laboratories. For all those activities the school collected the development fund which was treated as capital fund being earmarked for development of the activities. This system of accounting had been followed by the assessee in earlier assessment years also and it was not disturbed by the Department, Hence when the collection was meant for being spent on activities in the capital field, it could not be treated as revenue receipt. The decision of the Commissioner (Appeals) was justified.

The assessee claimed depreciation in the income and expenditure account. The Assessing officer held that since the benefit of application of fund had already been taken when the assets were purchased, the claim of the assessee was not allowable and disallowed the claim of the depreciation. The Commissioner (Appeals) decided in favour of the assessee. On appeal by the Department:

Held, dismissing the appeal, that it was not a case of double deduction and depreciation had to be allowed.”

The order of the CIT(A) being in conformity with the aforementioned decisions, we see no reason to interfere with the same. Accordingly, order of CIT(A) is confirmed.

Amendment Vide Budget 2014-

Budget 2014 proposed to amend the Act to provide that under section 11 and section 10(23C), income for the purposes of application 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 these sections in the same or any other previous year.
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