India: Supreme Court Settles Debate; Upholds Depreciation Claim By Charitable Institutions


The Supreme Court (SC), has recently put to rest a much debated issue regarding the claim for depreciation by charitable / religious institutions (Institutions) on assets.

Under Section 11 of the Income Tax Act, 1961 (Act), income of an Institution derived from property held under trust wholly for charitable or religious purposes, is not included in the total income of the Institution, to the extent that such income is applied for charitable or religious purposes, or is accumulated or set aside for such purposes, subject to certain conditions.

The Tax Authorities have, on certain occasions disallowed claims for depreciation on the assets of such Institutions, on the basis that once the capital expenditure to acquire assets is treated as the application of income for charitable purposes, the Institutions had virtually enjoyed a 100% write-off of the cost of assets. Therefore, the grant of depreciation would amount to giving double benefit to such Institutions.

Holding in favour of the Institutions, the SC disagreed with the above view, and upheld the decision of the Bombay High Court (Bombay HC) in the case of Commissioner of Income Tax v. Institute of Banking Personnel Selection (IBPS), ([2003] 264 ITR 110 (Bombay)) wherein it was held that the income of an Institution was to be computed on commercial principles, after providing for allowance for normal depreciation.


Rajasthan and Gujarati Charitable Foundation Poona (Taxpayer) is a charitable institution registered under Section 12A of the Act. In accordance with Section 11(1)(a) of the Act, the entire expenditure incurred by the Taxpayer for the acquisition of capital assets was treated as, 'application of income for charitable purposes'. The claim for depreciation on these assets, was allowed by the jurisdictional High Court against which the Tax Authorities were in appeal before the SC.

Decision of the SC

The SC noted that several High Courts across the country had decided the issue in favour of Institutions by relying on the decision of Institute of Banking Personnel Selection (IBPS) (supra). The Bombay HC in that case had based its decision on Commissioner of Income Tax v. Munisuvrat Jain, (1994 Tax Law Reporter, 1084) another decision of the Bombay HC, wherein the taxpayer was a registered public charitable trust that derived income from a temple property that belonged to the trust. The taxpayer claimed depreciation on such property and furniture, and the question before the Bombay HC was whether depreciation could be denied to the taxpayer, since the expenditure on acquisition of assets had been treated as application of income in the year of acquisition of the assets. The Bombay HC, in its judgment highlighted that, while Section 11 of the Act provides for computation of income of Institutions from the property held for charitable or religious purposes, and for the application and accumulation of income, Section 28 of the Act deals with chargeability of income from profits and gains of business. The Bombay HC also noted that Section 29 provides for calculation of such income in accordance with Sections 30 to 43C of the Act.

Thereafter, the Bombay HC laid down that even though Section 32 of the Act (which provides for depreciation for computation of income derived from business or profession) is not applicable to an Institution since it does not carry on business, the income of an Institution derived from building, plant and machinery, and furniture was liable to be computed in a normal commercial manner under Section 11 of the Act, based on commercial principles, and after providing for allowance for normal depreciation, and deduction of the depreciation from gross income of the Institution. Accordingly, it was held that, normal depreciation could be considered as a legitimate deduction in computing the real income of the taxpayer on general principles, or under Section 11(1)(a) of the Act.

The SC held that the view taken by the Bombay HC correctly states the principles of law and found no reason to interfere with the decision.

The SC also took note of and confirmed the prospective nature of Section 11(6) of the Act (introduced with effect from Assessment Year 2015-16) which clarifies that income of an Institution would be calculated without provision for any depreciation or deduction in relation to an asset that has been acquired by the Institution.


The deduction of depreciation from various sources of income by an Institution, effectively reduces the amount of income that an Institution is mandatorily required to spend towards its objectives. This gives Institutions the ability to build their corpus. Therefore, this decision of the SC is a welcome one, as it settles the position regarding claims for depreciation by Institutions, and shall prevent avoidable litigation.

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions