Depreciation to trusts
This query is : Resolved
Mohit Kumar
(Querist)
01 May 2014
Is depreciation allowable as application of income to trusts?
01 May 2014
U/s. 11 of the Income Tax Act, 1961,
a charitable or religious trust, subject
to certain conditions, is entitled to
exemption in respect of income from
property held under trust for
charitable or religious purposes, to
the extent that such income is applied
for charitable or religious purposes, or
accumulated for charitable or religious
purposes.
The CBDT has clarified vide its
circular number 5 – P(LXX-6) dated
19th June 1968 that for the purposes
of such exemption u/s. 11, the
income of a trust is to be taken in the
commercial sense, and not as
computed under the provisions of the
Income Tax Act. In other words, the
income, that is eligible for exemption,
is the one that has been determined
as per the books of account. This
position clarified by the CBDT is also
confirmed by the decisions of the
various high courts .
Taking this into account, various high
courts have also held that that
depreciation had necessarily to be
deducted in computing the
commercial income, as depreciation
was a necessary accounting
adjustment to income. Further,
various courts, including the Supreme
Court in the case of M. Ct. M.
Tiruppani Trust vs. CIT 230 ITR 636,
have held that all capital expenditure
laid out in furtherance of the objects
and purposes of the trust would be
treated as an application of the
income.
a charitable or religious trust, subject
to certain conditions, is entitled to
exemption in respect of income from
property held under trust for
charitable or religious purposes, to
the extent that such income is applied
for charitable or religious purposes, or
accumulated for charitable or religious
purposes.
The CBDT has clarified vide its
circular number 5 – P(LXX-6) dated
19th June 1968 that for the purposes
of such exemption u/s. 11, the
income of a trust is to be taken in the
commercial sense, and not as
computed under the provisions of the
Income Tax Act. In other words, the
income, that is eligible for exemption,
is the one that has been determined
as per the books of account. This
position clarified by the CBDT is also
confirmed by the decisions of the
various high courts .
Taking this into account, various high
courts have also held that that
depreciation had necessarily to be
deducted in computing the
commercial income, as depreciation
was a necessary accounting
adjustment to income. Further,
various courts, including the Supreme
Court in the case of M. Ct. M.
Tiruppani Trust vs. CIT 230 ITR 636,
have held that all capital expenditure
laid out in furtherance of the objects
and purposes of the trust would be
treated as an application of the
income.
01 May 2014
The question that has arisen before
the courts as to whether, when a
trust has claimed the capital
expenditure on acquisition of an asset
as an application of income for the
purposes of claiming exemption u/s.
11, whether depreciation on such
asset was also allowable as a
deduction in computing the income of
the trust. While the Bombay,
Punjaband Haryana and Delhi High
Courts have taken the view that
depreciation would be allowable as a
deduction even in such cases where
the capital expenditure had been
allowed as an application of income
for charitable purposes, the Kerala
High Court has taken a contrary view,
holding that such depreciation should
be added back to the income of the
trust as disclosed in its books of
account.
the courts as to whether, when a
trust has claimed the capital
expenditure on acquisition of an asset
as an application of income for the
purposes of claiming exemption u/s.
11, whether depreciation on such
asset was also allowable as a
deduction in computing the income of
the trust. While the Bombay,
Punjaband Haryana and Delhi High
Courts have taken the view that
depreciation would be allowable as a
deduction even in such cases where
the capital expenditure had been
allowed as an application of income
for charitable purposes, the Kerala
High Court has taken a contrary view,
holding that such depreciation should
be added back to the income of the
trust as disclosed in its books of
account.
01 May 2014
Gujarat High court has also allowed depreciation as a deduction under section 11(1)(a).
Citation:- CIT V Sheth Manilal Ranchhoddas Vishram Bhavan Trust (1992) 198 ITR 598.
Citation:- CIT V Sheth Manilal Ranchhoddas Vishram Bhavan Trust (1992) 198 ITR 598.
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