Case Law Details
HIGH COURT OF MADHYA PRADESH
Commissioner of Income-tax
versus
Gujrati Samaj (Regd.)
IT Appeal Nos. 21, 22 & 23 of 2011
JULY 8, 2011
JUDGMENT
Shantanu Kemkar, J. – This order shall govern disposal of I. T. A. Nos. 22 and 23 of 2011 as common questions of law are involved in all these appeals and they arise out of the common order.
2. All these appeals under section 260A of the Income-tax Act, 1961 (for short, “the Act”), are against the order dated January 31, 2011 passed by the Income-tax Appellate Tribunal, Indore Bench (for short, “the Tribunal”), by which the Tribunal has decided I. T. A. No. 171/Ind/2010 for the assessment year 2004-05, I.T.A. No. 172/Ind/2010 for the assessment year 2005-06 and I.T.A. No. 173/Ind/2010 for the assessment year 2006-07.
3. Briefly stated, the respondent-assessee is a charitable trust formed with the main object to run educational institutions for the benefit of public. In the course of assessment under section 143(3) of the Act the Assessing Officer, vide order dated December 8, 2006, disallowed the assessee’s claim for depreciation on the fixed assets. The Assessing Officer also denied the claim of the assessee to carry forward deficit in the application of funds. The said order of the Assessing Officer was challenged before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals), vide order dated January 4, 2010, partly allowed the assessee’s appeal to the extent he held that the assessee shall be entitled for claim of depreciation on the assets owned by it. About the claim to carry forward deficit, the Commissioner of Income-tax (Appeals) affirmed the decision of the Assessing Officer of not allowing the carry forward of loss. Aggrieved by the said order of the Commissioner of Income-tax (Appeals) the Revenue and the assessee had approached the Tribunal by filing their respective appeals.
4. The Tribunal, vide the impugned order dated January 31, 2011, allowed the assessee’s appeal and dismissed the appeals of the Revenue. Aggrieved the Revenue has filed the present appeal.
5. Having heard learned counsel for the appellant, we find no ground to interfere into the impugned order passed by the Tribunal.
6. We find that the question, whether a charitable trust is entitled to depreciation under section 32 of the Act in respect of assets owned by it, was dealt with by a Division Bench of this court in CIT v. Raipur Pallottine Society [1989] 180 ITR 579 by placing reliance on a Division Bench judgment of the Karnataka High Court in CIT v. Society of the Sisters of St. Anne [1984] 146 ITR 28 and has held that depreciation is nothing but decrease in value of property through wear, deterioration or obsolescence and allowance is made for this purpose in book keeping, accountancy, etc. It is the exhaustion of the effective life of a fixed asset owing to “use” or obsolescence. It may be computed as that part of the cost of the asset which will not be recovered when the asset is finally put out of use. The object of providing for depreciation is to spread the expenditure, incurred in acquiring the asset, over its effective lifetime ; the amount of the provision, made in respect of an accounting period, is intended to represent the proportion of such expenditure, which has expired during that period. If depreciation is not allowed as a necessary deduction in computing the income of a charitable trust, then there would be no way to preserve the corpus of the trust. A charitable trust is, therefore, entitled to depreciation in respect of the assets owned by it. (Also see Spicer and Pegler’s Book Keeping and Accounts, 17th edition, pages 44, 45 and 46).
7. Having regard to the aforesaid settled legal position in our considered view, the Tribunal has rightly decided the issue about disallowance of claim of depreciation while computing the income of charitable trust and has rightly held that the assessee being a charitable trust is entitled for claim of depreciation on the assets owned by it. We, accordingly, affirm the view taken by the Tribunal in that regard.
8. Coming to the next question as to whether the order of the Tribunal holding that the assessee is entitled for carry forward and set off excess of expenditure incurred during the year over its income. We find that in view of section 11(1)(a) of the Act, it cannot be said that the expenditure incurred in the earlier year cannot be met out of the income of the subsequent year and utilization of such income for meeting the expenditure of the earlier year would not amount to such income being applied for charitable or religious purposes. Having regard to section 11(1)(a) of the Act, in our view, when the income of the trust is used or put to use to meet the charitable or religious purposes, it is applied for charitable purpose and the said application of the income for charitable or religious purposes takes place in the year in which the income is adjusted to meet the expenses incurred for charitable or religious purposes. Thus, even if the expenses for charitable and religious purposes have been incurred in the earlier year and the said expenses are adjusted against the income of a subsequent year, the income of that year can be said to have been applied for charitable and religious purposes in the year in which expenses incurred for charitable and religious purposes had been adjusted. There are no words of limitation in section 11(1)(a) of the Act explaining that the income should have been applied for charitable or religious purposes only in the year in which the income had arisen (see CIT v. Maharana of Mewar Charitable Foundation [1987] 164 ITR 439. In our considered view, the Tribunal has rightly applied the ratio of the judgment and order passed by the Division Bench of the Rajasthan High Court in Maharana of Mewar Charitable Foundation (supra) and committed no error in holding this issue in favour of the assessee.
9. In the circumstances, in our considered view, no case is made out to interfere into the order passed by the Tribunal. Accordingly, the appeal fails and is hereby dismissed.
