Interest Income only cannot attract Depreciation under Section 32 of the Income Tax Act: ITAT [Read Order]

The Income Tax Appellate Tribunal Ahmedabad ( ITAT ) Presided by Vice President P.M. Jagtap, and Judicial Member Siddhartha Nautiyal has held that, assessee not earning any business income and has earned only interest income which is assessable as “income from other sources”, accordingly, depreciation cannot be allowed.

The assesse, Sports Authority of Gujarat, is a society registered under the Society Registration Act, 1960 with the object to augment and promote sports in the State of Gujarat. The Society is funded by the Government of Gujarat by way of grant provided by the Ministry of Sports and Cultural activities of the Government of Gujarat to carry out various sports related activities. For the captioned year the assesse filed return of income declaring total income of Rs. 6960/- on 13-10-2017. A notice u/s. 143(2) of the Act was issued initiating assessment proceedings. During the course of assessment, the Assessing Officer noticed that the assesse had earned interest income of Rs.1,15,71,995/- from investment made by it. The assesse also claimed depreciation of Rs. 1,15,65,042/- against interest income. Therefore, income of Rs. 6953/- was declared under the head “income from business and profession”.

The Assessing Officer observed that the assesse is not a commercial organization but is a sports authority formed with the objective to promote sports policies and sports activities in the State of Gujarat. After spending funds for sports activities, the unspent funds are parked with GFSC on which interest income is earned. The said interest income so earned is then utilized for promotion of sports. Therefore, from facts, it is observed that none of the activity can be termed as business or professional activity. The Assessing Officer further held that on plain reading section 57(ii), it is clear that the depreciation u/s. 32(1) or 32(2) of the Act is allowable in case if any income is assessable under this head only if it is from letting on hire of any machinery, plants and furniture etc., but in the instant case, income is earned from interest on investment of surplus fund and accordingly if the interest income is assessable under the head “income from other sources”, depreciation u/s. 32(1) or (2) is not allowable. Aggrieved by the order of the assessing officer, appeal filed before the ITAT.

By upholding the decision of the assessing officer, ITAT clearly stated that, “Section 57(ii) of the Act provides that depreciation u/s.32(1) or 32(2) is allowable in case any income is assessable under this head only if it is income from letting on hire of any machinery, plant or furniture. However, in the instant case, since income received is from interest on investment of surplus fund and since the same is assessable under the head “income from other sources”, depreciation u/s. 32 of the Act is not allowable to the assesse”.

To Read the full text of the Order CLICK HERE

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