Normal Depreciation could be considered as Legitimate Deduction in computing Real Income of Assessee on General Principles


The Madras High Court ruled that the normal depreciation could be considered as a legitimate deduction in computing the real income of the assessee on general principles.

Facts of the case:-

The assessee, Music Academy Madras has sought the ruling on the issue of whether the Tribunal was right in law in holding that while computing income under section 11(1)(a) of the Income Tax Act, 1961, depreciation is not to be allowed.

The assessee has raised the issue of whether the Appellate Tribunal was right in law in holding that deduction of depreciation under Section 32 falls under chapter ‘Profit and gains from business and profession’ of the Income-tax Act, 1961 and would therefore not be available to a Charitable Trust where income is otherwise not assessable and whether the Tribunal was right in law in not holding that having regard to the scheme of the Act, ‘income’ referred to in section 11(1)(d) of the Act is to be computed not in accordance with the provisions of the Act but in accordance with the normal rules of accountancy under which the depreciation has to be allowed while computing such income under section 11(1)(a) of the Act.


The division bench of Justice T.S. Sivagnanam and Justice Sathi Kumar Sukumara Kurup in the light of the decision of the Supreme Court in the case of CIT vs. Rajasthan and Gujarati Charitable Foundation Poona ruled that the amount spent on acquiring those assets had been treated as ‘application of income’ of the Trust in the year in which the income was spent in acquiring those assets. This did not mean that in computing income from those assets in subsequent years, depreciation in respect of those assets cannot be taken into account.

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