48. CIT vs. Bhatia General Hospital; 405 ITR 24 (Bom): Date of order: 26th February, 2018: A. Y.: 2007-08 Sections 11, 32(1)(iii) and 37 – Charitable purpose – Hospital – Equipment – Equipment which had outlived its useful life – Depreciation – Government rules prohibiting sale as scrap – Additional depreciation allowable – Computation of income – On commercial principles

The assessee was a charitable
trust, running a hospital. For the A. Y. 2007-08, the Assessing Officer
disallowed the assessee’s claim to additional depreciation on the hospital
equipment, which had completed their usefulness of 10 years. It was submitted
by the assessee that the claim was only for the purpose of writing off the
value of the assets. However, the Assessing Officer held that in a case where the
assets had outlived their useful life, they should have been sold as scrap and
in the absence of such evidence, disallowed the claim of additional
depreciation.

The Commissioner (Appeals) held
that the income of the trust was required to be computed on commercial
principles and allowed the assessee’s claim to additional depreciation. The
Tribunal recorded that the additional depreciation had been claimed by the
assessee in respect of hospital equipment which had outlived its life and that
according to the Government rules the assessee was prohibited from selling such
hospital equipment as scrap and upheld the order of the Commissioner (Appeals)
and reiterated the fact that the income of the trust had to be computed on
commercial principles.

On appeal by the Revenue, the
Bombay High Court upheld the decision of the Tribunal and held as under:

“i)  According
to the provisions of section 32(1)(iii) of the Income-tax Act, 1961, where a
plant and machinery was discarded or destroyed in the previous year, the amount
of money received on sale as such or as scrap or any insurance amount received
to the extent it fell short of the written down value was allowed as
depreciation, provided the same was written off in the books of account.

ii)   The
assessee could not sell the hospital equipment as scrap nor it could use the
hospital equipment. Therefore, the written down value of the hospital
equipment, was to be allowed as depreciation, as the asset had been written off
from its books of account. Thus, the nomenclature, as additional depreciation
rather than depreciation, was the only objection of the Department and the
nomenclature could not decide a claim.

iii)  It was also allowable as business u/s. 37 as it was an expenditure
incurred wholly and exclusively for carrying out its activity as hospital.(on
commercial principles).”