COMMISSIONER OF INCOME TAX Vs. RAIPUR PALLOTTINE SOCIETY

JUDGEMENT

(1.) AS directed by this court, the Income -tax Appellate Tribunal, Nagpur Bench, has referred the following question of law to this court for its opinion :

(2.) THE material facts giving rise to this reference, briefly, are as follows : The assessee is a religious and charitable institution and was assessed in the status of an association of persons. For the assessment year 1973 -74, the assessee claimed depreciation of Rs. 45,650 on its assets. That was disallowed. Aggrieved by the order passed by the Income -tax Officer, the assessee preferred an appeal. The Appellate Assistant Commissioner upheld the order passed by the Income -tax Officer in this behalf. On further appeal before the Tribunal, the Tribunal held that, on assets held by the assessee trust, the assessee was entitled to depreciation. The Tribunal, accordingly, directed that the Income -tax Officer should allow depreciation as claimed by the assessee. Aggrieved by the order passed by the Tribunal, the Revenue sought reference and it is at the instance of the Revenue that the aforesaid question of law has been referred to this court for its opinion.

(3.) AT the end of its effective life, the asset ceases to earn revenue, i.e., the capital value has expired and the asset will have to be replaced or a substitute found. Provision for depreciation is the setting aside, out of the revenue of an accounting period, of the estimated amount by which the capital invested in the asset has expired during that period. It is the provision made for the loss or expense incurred through using the asset for earning profits, and should, therefore, be charged against those profits as they are earned.