Facts of the Case

The assessee, Raguvanshi Charitable Trust, was a duly registered charitable trust under Section 12A of the Income Tax Act and was engaged in running an educational institution under the name Guru Gram Public School International, Gurgaon. For Assessment Year 2010–11, the assessee claimed depreciation on capital assets and additions to fixed assets.

The Assessing Officer disallowed depreciation amounting to Rs. 34,02,284/- on the ground that allowing depreciation on assets whose acquisition cost had already been treated as application of income would amount to double deduction.

The assessee challenged the disallowance before the Commissioner of Income Tax (Appeals), where it succeeded. The Revenue thereafter appealed before the ITAT, which upheld the relief granted to the assessee. Aggrieved by the ITAT’s findings, the Revenue filed an appeal before the Delhi High Court under Section 260A of the Income Tax Act.

Issues Involved

  1. Whether a charitable trust can claim depreciation on capital assets where the cost of acquisition has already been treated as application of income under Section 11?
  2. Whether such depreciation amounts to double deduction under the Income Tax Act?
  3. Whether Section 11(6), inserted by Finance (No. 2) Act, 2014, applies retrospectively or prospectively?

Petitioner’s Arguments (Revenue/Appellant)

  • The Revenue contended that once capital expenditure on acquisition of assets had been allowed as application of income, allowing depreciation on the same assets would result in double deduction.
  • It was argued that the legislative insertion of Section 11(6) clarified the intent of Parliament to prohibit such double deduction while computing income of charitable institutions.
  • The Revenue sought interference with the findings of the ITAT on this ground.

Respondent’s Arguments (Assessee/Respondent)

  • The assessee relied upon settled judicial precedents recognizing depreciation as a legitimate deduction for determining real income of a charitable trust.
  • It was argued that depreciation is distinct from capital expenditure and is necessary to ascertain actual income available for charitable purposes.
  • The assessee also contended that Section 11(6), introduced in 2014, is prospective and cannot apply to Assessment Year 2010–11.

Court Findings / Court Order

The Delhi High Court dismissed the Revenue’s appeal and upheld the ITAT’s findings.

The Court held that:

  • The issue relating to depreciation on assets of charitable trusts was already covered by the earlier decision in Director of Income Tax vs Vishwa Jagriti Mission, wherein depreciation was allowed despite the asset cost being treated as application of income.
  • The amendment under Section 11(6) introduced by the Finance (No. 2) Act, 2014, was prospective in operation and effective from 01.04.2015.
  • Since the relevant assessment year in the present case was AY 2010–11, Section 11(6) had no application.
  • No substantial question of law arose for consideration.

Accordingly, the appeal filed by the Revenue was dismissed.

Important Clarification

This judgment reinforces that prior to the insertion of Section 11(6) (effective from 01.04.2015), charitable trusts were legally entitled to claim depreciation on capital assets even where the acquisition cost had been treated as application of income.

The decision confirms that Section 11(6) is prospective and not retrospective, thereby protecting charitable trusts from retrospective disallowance of depreciation claims for earlier assessment years.

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2017:DHC:7304-DB/SAS28112017ITA10652017.pdf

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