We treated a building's full cost as application of income. Can we also claim depreciation on it?
Yes on the law as it stood, but read the editor's note before using this for a current year. The Court held that treating the whole acquisition cost as application under s.11(1)(a) does not bar a s.32 depreciation claim on the same asset, rejected the double benefit objection, and allowed the depreciation to be carried forward.
Decided by the Supreme Court (Supreme Court of India; A.K. Sikri and Ashok Bhushan JJ; C.A. No. 7186 of 2014) on 2017-12-13, reported as (2018) 402 ITR 441 (SC); [2018] 89 taxmann.com 127 (SC); [2018] 253 Taxman 165 (SC); [2018] 300 CTR 1 (SC); Civil Appeal No. 7186 of 2014 and others. It bears on section 11(1)(a), section 11(6), section 32, section 12A of the Income Tax Act 1961, in Charitable Trusts & Exemption matters.
For assessment years up to 2014-15 this disposes of the double benefit disallowance, and the reasoning that a trust's income is computed on normal commercial principles after providing for depreciation remains useful elsewhere. For assessment year 2015-16 onwards the depreciation limb is gone by statute, so citing this case for a current year invites a straightforward rejection. The separate proposition that capital expenditure is application of income under s.11(1)(a) is undisturbed.
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The Income-tax Department appealed against orders of several High Courts allowing depreciation on assets acquired by charitable institutions, all of them registered under section 12A. In each case the entire expenditure on acquiring the capital asset had been treated in an earlier year as application of income for charitable purposes under section 11(1)(a), and depreciation was claimed under section 32 in a later year. The Assessing Officers disallowed the depreciation on the ground that a 100 per cent write-off of the cost had already been enjoyed, so that depreciation would be a double benefit. The Commissioners (Appeals) mostly agreed; the Tribunals reversed; and the High Courts dismissed the Department's appeals, mainly following the Bombay High Court in CIT v. Institute of Banking Personnel Selection.
The Court affirmed the view taken by the High Courts and dismissed the Department's matters (para 6). Where a charitable institution registered under section 12A has had the whole cost of a capital asset treated as application of income under section 11(1)(a), depreciation is still allowable on that asset; the Bombay High Court's reasoning in Institute of Banking Personnel Selection correctly states the law (para 2). Once depreciation is allowed, the assessee is also entitled to carry it forward (para 5). The Court recorded that section 11(6), inserted by the Finance (No. 2) Act 2014, became effective from assessment year 2015-16 and that the Delhi High Court had rightly held the amendment to be prospective (para 4).
The order is short and works by adoption. The Department's case was that treating the cost as application of income had already given a full write-off, so that depreciation would be a double benefit (para 1). The Court set out the passage from Institute of Banking Personnel Selection in which the Bombay High Court had rejected that argument, following its earlier decisions in Munisuvrat Jain and Framjee Cawasjee Institute. The reasoning there is that section 11 provides for computation, application and accumulation of the income of a trust, while sections 28 to 43C govern business income; section 32 is not the only route to a depreciation allowance and is not applicable to a trust that carries on no business. The income of a charitable trust derived from building, plant, machinery and furniture is to be computed in a normal commercial manner, after providing for normal depreciation, and treating the cost as application of income in the year of acquisition does not prevent depreciation being taken into account in computing income from those assets in later years. The Court held that this correctly states the principles of law and needed no interference (para 2). It noted that most High Courts had taken the same view, the only exception being the Kerala High Court in Lissie Medical Institutions (para 3), and that the legislature had since supplied the specific provision that had been absent, by inserting section 11(6) with effect from assessment year 2015-16 (para 4).
It also follows that once assessee is allowed depreciation, he shall be entitled to carry forward the depreciation as well.
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Handle my notice → Ask a CA on WhatsAppYes on the law as it stood, but read the editor's note before using this for a current year. The Court held that treating the whole acquisition cost as application under s.11(1)(a) does not bar a s.32 depreciation claim on the same asset, rejected the double benefit objection, and allowed the depreciation to be carried forward. This was decided by the Supreme Court (Supreme Court of India; A.K. Sikri and Ashok Bhushan JJ; C.A. No. 7186 of 2014) and bears on section 11(1)(a), section 11(6), section 32, section 12A of the Income Tax Act 1961. It is reported as (2018) 402 ITR 441 (SC); [2018] 89 taxmann.com 127 (SC); [2018] 253 Taxman 165 (SC); [2018] 300 CTR 1 (SC); Civil Appeal No. 7186 of 2014 and others. For assessment years up to 2014-15 this disposes of the double benefit disallowance, and the reasoning that a trust's income is computed on normal commercial principles after providing for depreciation remains useful elsewhere. For assessment year 2015-16 onwards the depreciation limb is gone by statute, so citing this case for a current year invites a straightforward rejection. The separate proposition that capital expenditure is application of income under s.11(1)(a) is undisturbed. If it applies to you, the first step is this: Check the assessment year in the notice first, and use this judgment only where the year is 2014-15 or earlier.
The Income-tax Department appealed against orders of several High Courts allowing depreciation on assets acquired by charitable institutions, all of them registered under section 12A. In each case the entire expenditure on acquiring the capital asset had been treated in an earlier year as application of income for charitable purposes under section 11(1)(a), and depreciation was claimed under section 32 in a later year. The Assessing Officers disallowed the depreciation on the ground that a 100 per cent write-off of the cost had already been enjoyed, so that depreciation would be a double benefit. The Commissioners (Appeals) mostly agreed; the Tribunals reversed; and the High Courts dismissed the Department's appeals, mainly following the Bombay High Court in CIT v. Institute of Banking Personnel Selection. The matter was decided on 2017-12-13 by the Supreme Court (Supreme Court of India; A.K. Sikri and Ashok Bhushan JJ; C.A. No. 7186 of 2014). On those facts the Supreme Court held as follows. The Court affirmed the view taken by the High Courts and dismissed the Department's matters (para 6). Where a charitable institution registered under section 12A has had the whole cost of a capital asset treated as application of income under section 11(1)(a), depreciation is still allowable on that asset; the Bombay High Court's reasoning in Institute of Banking Personnel Selection correctly states the law (para 2). Once depreciation is allowed, the assessee is also entitled to carry it forward (para 5). The Court recorded that section 11(6), inserted by the Finance (No. 2) Act 2014, became effective from assessment year 2015-16 and that the Delhi High Court had rightly held the amendment to be prospective (para 4).
The order is short and works by adoption. The Department's case was that treating the cost as application of income had already given a full write-off, so that depreciation would be a double benefit (para 1). The Court set out the passage from Institute of Banking Personnel Selection in which the Bombay High Court had rejected that argument, following its earlier decisions in Munisuvrat Jain and Framjee Cawasjee Institute. The reasoning there is that section 11 provides for computation, application and accumulation of the income of a trust, while sections 28 to 43C govern business income; section 32 is not the only route to a depreciation allowance and is not applicable to a trust that carries on no business. The income of a charitable trust derived from building, plant, machinery and furniture is to be computed in a normal commercial manner, after providing for normal depreciation, and treating the cost as application of income in the year of acquisition does not prevent depreciation being taken into account in computing income from those assets in later years. The Court held that this correctly states the principles of law and needed no interference (para 2). It noted that most High Courts had taken the same view, the only exception being the Kerala High Court in Lissie Medical Institutions (para 3), and that the legislature had since supplied the specific provision that had been absent, by inserting section 11(6) with effect from assessment year 2015-16 (para 4). In the words reproduced by the source cited on this page: "It also follows that once assessee is allowed depreciation, he shall be entitled to carry forward the depreciation as well." The decision followed or applied CIT v. Institute of Banking Personnel Selection (IBPS) [2003] 131 Taxman 386 (Bom.) — followed; CIT v. Rajasthani & Gujarati Charitable Foundation Poona Hospital & Research Centre [2013] 31 taxmann.com 491 (Bom.) — affirmed.
It was decided by the Supreme Court on 2017-12-13 and is reported as (2018) 402 ITR 441 (SC); [2018] 89 taxmann.com 127 (SC); [2018] 253 Taxman 165 (SC); [2018] 300 CTR 1 (SC); Civil Appeal No. 7186 of 2014 and others. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 11(1)(a), section 11(6), section 32, section 12A, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The Court affirmed the view taken by the High Courts and dismissed the Department's matters (para 6). Where a charitable institution registered under section 12A has had the whole cost of a capital asset treated as application of income under section 11(1)(a), depreciation is still allowable on that asset; the Bombay High Court's reasoning in Institute of Banking Personnel Selection correctly states the law (para 2). Once depreciation is allowed, the assessee is also entitled to carry it forward (para 5). The Court recorded that section 11(6), inserted by the Finance (No. 2) Act 2014, became effective from assessment year 2015-16 and that the Delhi High Court had rightly held the amendment to be prospective (para 4). It arises in Charitable Trusts & Exemption matters, on section 11(1)(a), section 11(6), section 32, section 12A of the Income Tax Act 1961, and was decided by Supreme Court of India; A.K. Sikri and Ashok Bhushan JJ; C.A. No. 7186 of 2014. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. For AY 2015-16 onwards, do not press a depreciation claim on assets whose cost was already claimed as application; argue the application claim instead. If an earlier year is under revision or reassessment on the double benefit ground, take the point that the statutory bar is prospective. Where depreciation was allowed for an earlier year, check whether the carry forward was given effect, since the Court held the assessee is entitled to carry it forward.
Superseded by amendment. The proposition that capital expenditure is application of income under s.11(1)(a) is undisturbed, but the depreciation limb is overtaken from assessment year 2015-16 onwards: s.11(6), inserted by the Finance (No.2) Act 2014, bars depreciation on expenditure already applied for charitable purposes and is prospective. That finding was checked against a published source, which is linked on this page, on 2026-08-25. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Superseded on the depreciation point by amendment. Section 11(6), inserted by the Finance (No. 2) Act 2014, bars depreciation on expenditure already applied for charitable purposes; the order records that it took effect from assessment year 2015-16 and that the Delhi High Court had rightly held it prospective. A reader who cites this case for a current year will be wrong: it survives only for years up to assessment year 2014-15, and for the untouched proposition that capital expenditure is application of income under section 11(1)(a). Two points of accuracy. The reasoning the Court adopted is that section 32 does not apply to a trust carrying on no business at all — normal depreciation is allowed in computing the trust's income on commercial principles — so the argument is not that section 11 and section 32 run in parallel. And the Court noted one contrary High Court view, the Kerala decision in Lissie Medical Institutions v. CIT [2012] 348 ITR 344, which it did not follow. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The Court affirmed the view taken by the High Courts and dismissed the Department's matters (para 6). Where a charitable institution registered under section 12A has had the whole cost of a capital asset treated as application of income under section 11(1)(a), depreciation is still allowable on that asset; the Bombay High Court's reasoning in Institute of Banking Personnel Selection correctly states the law (para 2). Once depreciation is allowed, the assessee is also entitled to carry it forward (para 5). The Court recorded that section 11(6), inserted by the Finance (No. 2) Act 2014, became effective from assessment year 2015-16 and that the Delhi High Court had rightly held the amendment to be prospective (para 4).
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