Charitable purpose – Depreciation – Disallowance u/s. 11(6) – A. Y. 2005-06 – Section 11(6) barring allowance of depreciation on such assets is prospective in nature operating w.e.f. 01/04/2015 – Depreciation on assets allowable for earlier period –

The assessee is a charitable institution registered u/ss. 12AA and 10(23C) . For the A. Y. 2005-06, the Assessing Officer completed the assessment u/s. 144 of the Act denying exemption u/s. 10(23C) of the Act. The Assessing Officer disallowed the claim for depreciation on the ground that the assets were acquired out of the exempt income. The Commissioner(Appeals) and the Tribunal allowed the assessee’s claim.

On appeal by the Revenue, the Karnataka High Court upheld the decision of the Tribunal and held as under:

“i) The argument advanced by the Department apprehending double deduction was misconceived. While in the year of acquiring the capital asset, what is allowed as exemption is income out of which such acquisition is made, when depreciation is allowed in the subsequent years, it is for the losses or expenses representing the wear and tear of such capital incurred, and if it is not allowed there is no way to preserve the corpus for deriving its income. The Appellate Tribunal was right in holding that depreciation was allowable u/s. 11 of the Act and there was no double claim of the capital expenditure.

ii) Section 11(6) of the Act, which provides for disallowance of the depreciation is prospective in nature and operates w.e.f. April 1, 2015.”