In ITA No.7074/Del/2018- ITAT - Institute of Marketing and Management eligible for depreciation as application of income, benefit of exemption under Section 11 of the Income Tax Act upheld: ITAT (Delhi)
Members Chandra Mohan Garg (Judicial) & Pradip Kumar Kedia (Accountant) [24-05-2023]



Read Order: DCIT(E), Circle 1(1) v. Institute of Marketing & Management


Chahat Varma


New Delhi, May 25, 2023: The Delhi bench of the Income Tax Appellate Tribunal has ruled that in the case of a charitable institution, when the income is utilized for charitable purposes, including the purchase of fixed assets, it should be treated as a deduction of income and hence, the income, to the extent utilized for charitable purposes, is considered as applied for such purposes and is not taxable under section 11(1)(a) of the Income Tax Act.


Brief facts of the case were that the Assessing Officer (AO) disallowed the depreciation claimed by the assessee. The AO argued that the CIT(A) erred in allowing the assessee the benefit of exemption despite the violation of provisions under section 13(1)(c) read with section 13(3) of the Income Tax Act. The AO contended that the assessee failed to provide documentary evidence to substantiate that the use of vehicles was for charitable purposes. Additionally, the AO claimed that the depreciation in question pertained to assets purchased in earlier years, and the entire cost of those assets had already been allowed as an application of income in the year of purchase. On the other hand, the assessee argued that the issue of allowing depreciation was already addressed in the Tribunal's order dated 21.02.2014 for Assessment Year 2009-10, where it was held that depreciation is a normal expenditure incurred in the course of activities and should be deducted while computing the income. The assessee also mentioned that similar issues had been decided in their favor for the preceding assessment and the assessee contended that the CIT(A) was correct in following the same order and deleting the disallowance made by the AO regarding the alleged personal use of vehicles.

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The two-member bench of Chandra Mohan Garg (Judicial) and Pradip Kumar Kedia observed that the issue regarding the deduction of depreciation while computing the income as application of income for a charitable trust had already been decided by the Co-ordinate bench of the Tribunal in the assessee's own case in a previous order, wherein, the Tribunal, relying on the judgment of the High Court of Delhi in the case of DIT vs. Vishwa Jagriti Mission [LQ/DelHC/2012/1775], has held that depreciation was inextricably linked with the charitable activities of the trust and should be allowed as a deduction.


The bench noted that the revenue department failed to present any contrary judgment or factual position that would justify a different view. As a result, the bench concluded that there was no ambiguity or perversity in the first appellate order, wherein the appellate authority had allowed the claim of depreciation for assets purchased in the earlier years as application of income.


The bench further held that the assessee was eligible for the allowance of depreciation claimed on the cost of assets purchased during the preceding assessment years as an application of income for the assessment year 2014-15. The bench based its decision on the fact that the amendment made in section 11(6) of the Income Tax Act, was applicable from the assessment year 2015-16 onwards and did not have a retrospective effect for the immediately preceding assessment year 2014-15. The bench relied on the judgment of the Supreme Court in the case of Commissioner of Income Tax vs. Rajasthan and Gujarati Foundation [LQ/SC/2017/1836] in support of its decision.


Dismissing the appeal of the revenue, it was concluded by the bench that the CIT (A) was correct in holding that the assessee was eligible for claiming depreciation as an application of income on the assets purchased during the preceding assessment year and consequently, the assessee was also eligible for the benefit of exemption under section 11 of the Income Tax Act.


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