Charitable or religious trust – Sections 11 and 32 – A. Y. 2009-10 – Section 11(6) inserted by the Finance (No. 2) Act, 2014 denying depreciation while computing income of charitable trust, is prospective in nature and operates with effect from 1-4-2015 – For the relevant year the depreciation is allowable

The assessee was a charitable institution registered u/s. 12AA. In the course of assessment, the Assessing Officer denied exemption u/s. 11, read with section 10(23C) and also made an addition of income on account of disallowance of depreciation. The Commissioner (Appeals) as well as the Tribunal allowed assessee’s claim for depreciation.

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

“i) It is to be noticed that while in the year of acquiring the capital asset, what is allowed as exemption is the income out of which such acquisition of asset is made and when depreciation deduction is allowed in the subsequent years, it is for the losses or expenses representing the wear and tear of such capital asset incurred if, not allowed then there is no way to preserve the corpus of the trust for deriving its income. As such, the arguments advanced by the revenue apprehending double deduction is totally misconceived.

ii) Section 11(6) was inserted with effect from 1-4-2015 by Finance Act No. 2/2014. The plain language of the amendment establishes the intent of the legislature in denying the depreciation deduction in computing the income of charitable trust is to be effective from 1-4- 2015. This view is further supported by the Notes on Clauses in Finance [No. 2] Bill 2014, memo explaining provisions and circulars issued by the Central Board of Direct Taxes in this regard. “The said amendment shall take effect from 1-4-2015 and will accordingly apply in relation to the assessment year 2015-16 and subsequent assessment years”.

iii) In view of above, it is held that the Tribunal is correct in holding that depreciation is allowable u/s. 11 and there is no double claim of capital expenditure as held by the Assessing Officer.”