Bombay H.C : Whether in the facts and in the circumstance of the case and in law, the Tribunal was justified in dismissing the case of revenue without considering the fact that in the present case, Assessee has claimed written down value of assets as Additional depreciation after its useful life?

High Court Of Bombay

CIT (Exemptions) vs. Bhatia General Hospital

Section 260-A

Asst. Year 2007-08

M.S.Sanklecha & Sandeep K. Shinde, JJ.

Income Tax Appeal No. 846 OF 2015

26th February, 2018

Counsel Appeared:

A. K. Saxena, for the Appellant. : Ajaykumar R. Singh, for the Respondent.

P.C:

This Appeal under Section 260-A of the Income Tax Act, 1961 (the Act), challenges the order dated 20th October, 2014 passed by the Income Tax Appellate Tribunal (the Tribunal). The impugned order dated 20th October, 2014 is in respect of Assessment Year 2007-08.

Revenue urges only the following re-framed question of law, for our consideration:

“ Whether in the facts and in the circumstance of the case and in law, the Tribunal was justified in dismissing the case of revenue without considering the fact that in the present case, Assessee has claimed written down value of assets as Additional depreciation after its useful life?”

3. The Respondent is a charitable trust, running a hospital. During the course of assessment proceedings, the Assessing Office noticed that the Respondent had claimed additional depreciation of Rs.83.15 lakhs in addition to the normal depreciation of Rs.2.14 Crores. On an explanation being sought, the Respondent points out that the claim of additional depreciation has been made on the hospital equipments, which had completed its usefulness of 10 years, and this was claimed only for the purpose of writing off the value of the assets i.e. hospital equipments. However, the Assessing Officer held that in case where the asset i.e. hospital equipment has outlived its useful life, then the same should be sold as scrap and in the absence of such evidence, the claim of additional depreciation of Rs.83.15 lakhs was disallowed. This resulted in addition of the above amount of Rs.83.15 lakhs while determining the income in Assessment Order dated 18th December, 2009.

Being aggrieved by the order of the Assessing Officer dated 18th December, 2009, the Respondent carried the issue in appeal the Commissioner of Income Tax (Appeals) [CIT(A)]. The appeal of the Respondent was allowed by an order dated 15th March, 2011 of the CIT(A) holding that income of the Trust is required to be computed on commercial principles as held by this Court in Institute of Banking Personal Selection v/s. CIT 264 ITR 110. Thus, the claim of additional depreciation of Rs.83.15 lakhs was allowed.

Being aggrieved with the order dated 15th March, 2001, the Respondent filed appeal to the Tribunal. The impugned order dated 20th October, 2014 of the Tribunal records the fact that the additional depreciation has been claimed in respect of its hospital equipments which had outlived its life. Further, in terms of Government Rules, the Respondent-Assessee was prohibited from selling such hospital equipments as scrap. Thus, the impugned order dated 20th October, 2014 dismissed the Revenue’s appeal by upholding the order dated 15 th March of the CIT(A), reiterating the fact that income of the Tribunal has to be completed on commercial principles as held by this Court in Institute of Banking Personal Selection (supra).

The grievance of the Revenue before us is that the aforesaid amount of Rs.83.15 lakhs cannot be allowed by way of additional depreciation on hospital equipments. There is no provision in the Act to allow such additional depreciation.

We find that the CIT(A) as well as Tribunal has after placing reliance upon Institute of Personal Banking Selection (supra) that the income of the Trust is required to be computed on commercial principles have implicitly upheld the application of the principle laid down in Section 32(1)(iii) of the Act in respect of depreciation. The aforesaid provision takes care of a situation where a plant and machinery is discarded/ destroyed in the previous year, the amount of money received on sale as such or as scrap or any insurance amount received to the extent it falls short of the written down value is allowed as depreciation, provided the same is written off in the books of account. In this case, the Respondent-Assessee could not sell the hospital equipments as scrap nor the Assessee could use the hospital equipments. Therefore, the written down value of the hospital equipments, was to be allowed as depreciation. This is so, provided the hospital equipment (asset) is written off in its books of accounts. This has been admittedly done i.e. writing off from its books. Thus, the nomenclature, as additional depreciation rather then depreciation, is the only objection of the Revenue. Nomenclature, cannot decide a claim. In any case, this could also be allowed as an expenses under Section 37 of the Act as it is an expenditure incurred wholly and exclusively for carrying out its its activity as a hospital (on application of commercial principles).

In view of the above, the question as proposed does not give rise to any substantial question of law. Accordingly, Appeal dismissed. No order as to costs.

[Citation : 405 ITR 24]