The Chennai Bench of Income Tax Appellate Tribunal (ITAT) has allowed the depreciation claim holding that once a trust is assessed as Association of Persons (AOP) has been denied exemption under Section 11 of the Income Tax Act 1961, the entire receipts should be assessed as business income.
The assessee Annaimullai Educational and Social Service Trust, was an unregistered trust. Admittedly, the assessee had claimed expenditure which has been allowed by CPC. The assessee was a trust and got registered under Section 12AA of the Act only on 11.07.2018 relevant to assessment year 2018-19 by CIT(Exemptions), Chennai. Hence, for the relevant assessment year 2017-18, the assessee was not a registered trust under Section 12AA of the Act.
The assessee trust filed its return of income for the relevant assessment year 2017-18 disclosing net income, that is the surplus from running an educational institute. The trust had gross total receipts. Against this gross receipt, the assessee had claimed administrative expenses and depreciation. The CPC, Bangalore allowed administrative expenses but disallowed depreciation.
V. Sreenivasan, who appeared on behalf of the revenue contented that depreciation could not be allowed under Section 32 of the Act, as the assessee was not carrying on any business
A Single Bench of Mahavir Singh, (Vice President) allowed the appeal observing that it was clear that the assessee was running an educational institute which meant that the assessee was engaged in the business and it had been assessed as AOP.
The Bench held that once the assessee was assessed as an AOP and no exemption had been allowed under Section 11 of the Act, the entire receipts were to be assessed as business receipt and consequently, depreciation had to be allowed.
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