The Ahmedabad bench of the Income Tax Appellate Tribunal (ITAT) held that depreciation is allowable only on fixed assets not used for commercial purpose.
The assessee cannot be considered to cover by the proviso to Section 2(15) of the Income Tax Act, 1961 and cannot withdraw the claim of exemption under Section 11 of the Income Tax Act to the assessee.
The counsel appearing for the assessee submitted that ground no. 1 is covered in favour of the assessee by the Supreme Court judgment in the assessee’s own case reported in 449 ITR 1 (SC).
Regarding Ground Nos. 2 to 6, the same are consequential and covered in favour of the assessee pursuant to the Supreme Court Judgment in the assessee’s own case, hence the same are not pressed.
The Departmental Representative could not dispute the above submission thus Ground No. 1 is allowed in favour of the assessee and Ground Nos. 2 to 6 are dismissed as not pressed.
The Commissioner of Income Tax (Appeal) [CIT(A)] directed Assessing Officer to verify and apply the rate of depreciation on the basis of normal commercial principles and not as per Section 32 of the Income Tax Act.
In the case of Paradip Port Trust Vs. Additional Commissioner of Income-tax reported in 20 taxmann.com 311 (Cuttack) wherein the Co-ordinate Bench of the tribunal held that permanent way, wharves, roads, and boundaries which were serving some special purpose of working of assessee-port were to be treated as ‘plant and machinery’ and depreciation on the same was to be allowed at the rate of 15% on those fixed assets.
Thus, the Commissioner of Income Tax (Appeal) is not correct in holding that the rates of depreciation as per Section 32 of the Income Tax Act will not be applicable to the assessee’s case.
The Co-ordinate Bench of the Tribunal held that the fixed assets served some special purpose of the working of the assessee and were thereby considered as ‘plant and machinery’ in the working process of the assessee.
The two- member comprising of Waseem Ahmed (Accountant member) and Senthil Kumar (Judicial member) held that the assessee is entitled to claim the depreciation as ‘plant and machinery’ as the assessee in promoting public objects which are activities in the nature of trade, commerce or business but without commercial motive.
And the application of income shall precede accumulation by directing Assessing Officer to allow accumulation under Section 11(1)(a) of the Income Tax Act, from income remaining after deducting the amount applied for the objects of the assessee trust.
Thus, the appeal filed by the Assessee was partly allowed.
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