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2015 (7) TMI 594 - AT - Income TaxDisallowance of the carry forward and set off of excess application of income - Held that - Section-11(1)(a) of the Act provides that income derived from property held under Trust wholly for charitable or religious purpose shall not be included in the total income to the extent such income is applied for charitable or religious purpose in India. The Act also provides that upto 15% of such income is accumulated or set apart, then that shall also not be included in the total income. Further Section-11(1)(d) of the Act provides that income in the form of voluntary contribution made with specific direction that they shall form part of the corpus of the trust or institution will also not be included in the total income. The amount applied from the Loan or Sundry Creditors will be allowed as application of fund in the year in which such Loan or Sundry Creditors are repaid. It is pertinent to mention that if the amount is applied from the Corpus fund or accumulated fund it will not be treated as application of fund because Corpus fund and accumulate fund are already exempt from the income of the Trust and once again if it is treated as application of fund it would amount to double deduction. Therefore the claim of the assessee to carry forward the excess application of fund cannot be entertained applying the commercial principles. However if the excess amount of ₹ 23,96,355/- is applied from the borrowed fund or from Sundry Creditors, the same shall be allowed as application in the year in which such Loan or Sundry Creditors are repaid from the income of the Trust as discussed herein above. - Decided against assessee. Disallowance of the depreciation while computing the income of the assessee trust - Held that - This issue is elaborately discussed in the case of Lissie Medical Institution Vs. CIT reported in 2012 (4) TMI 115 - KERALA HIGH COURT and held the issue against the assessee wherein held that after writing off the full value of the capital expenditure on acquisition of assets as application of income for charitable purposes and when the assessee again claimed the same amount in the form of depreciation, such notional claim became a cash surplus available with the assessee, which was outside the books of account of the trust unless it was written back which was not done by the assessee. It was not permissible for a charitable institution to generate income outside the books in this fashion and there would be violation of section 11(1)(a). It was for the assessee to write back the depreciation and if that was done, the Assessing Officer would modify the assessment determining higher income and allow recomputed income with the depreciation written back by the assessee to be carried forward for subsequent years for application for charitable purposes - Decided against assessee. Gross rent received - treated as the income from house property of the assessee OR computed in accordance with the provisions of U/s.23 & 24 - Held that - While determining the income of the assessee trust and its application of income for the purpose of claiming exemption U/s.11(1)(a) of the Act, the provisions of Chapter-IV - Sections 22 to 27 of the Act which is applicable for computing the income chargeable to tax under the head income from house property will not be attracted. However, provisions of section 22 to 27 of the Act will come into play when the assessee is not entitled to the benefit of Section-11(1)(a) of the Act and when such income of the Trust is chargeable to tax under the head income from house property . It is pertinent to mention here that Hon ble Calcutta High Court supra has held that income contemplated by the provisions of section 11 is the real income and not the income as assessed or assessable. Accordingly, while arriving at the rental income of the assessee-trust any expenditure incurred whatsoever related to the rental income has to be allowed as deduction and the net income which is the real income, will be treated as the income of the Trust. From our above discussion the ground raised by the assessee on this issue will not survive and therefore, the order of the Revenue is upheld. - Decided against assessee.
Issues Involved:
1. Disallowance of the carry forward and set off of excess application of income. 2. Disallowance of the depreciation while computing the income of the assessee trust. 3. Treatment of gross rent received as the income from house property without computing in accordance with the provisions of Sections 23 & 24 of the Act. Issue-wise Analysis: 1. Disallowance of the Carry Forward and Set Off of Excess Application of Income: The assessee claimed Rs. 1,00,70,474 as excess application of income to be carried forward, but the Assessing Officer allowed only Rs. 23,96,355. The CIT (A) denied the benefit, stating that income derived from property held under trust means real income, not computed income. The CIT (A) referenced the ITAT Delhi Bench decision in Pushpawati Singhania Research Institute and the Bombay High Court decision in the case of CIT Vs. Institute of Banking Personnel Selection, which emphasized that excess expenditure cannot be carried forward for trusts. The Tribunal held that Section 11(1)(a) of the Act provides that income derived from property held under trust shall not be included in total income to the extent applied for charitable purposes. The Act does not reference the application of funds from the corpus, loans, sundry creditors, or accumulated funds for claiming exemption under Section 11. Therefore, excess application of funds over income received cannot be carried forward. The Tribunal concluded that the claim of the assessee to carry forward excess application of funds cannot be entertained as per the provisions of the Act, and the ground was disposed of accordingly. 2. Disallowance of the Depreciation While Computing the Income of the Assessee Trust: The assessee claimed depreciation on assets as an application of income. The Assessing Officer disallowed this, citing that it would amount to double deduction since the cost of assets was already claimed as application of income when purchased. The CIT (A) upheld this view. The Tribunal referenced the Kerala High Court decision in Lissie Medical Institution Vs. CIT, which held that claiming depreciation on assets already written off as application of income results in a cash surplus outside the books, violating Section 11(1)(a). The Tribunal, following this and the Calcutta High Court decision in DCIT Vs. Girdharilal Shewnarain Tantia Trust, confirmed the CIT (A)'s order, holding the issue in favor of the Revenue. 3. Treatment of Gross Rent Received as the Income from House Property Without Computing in Accordance with the Provisions of Sections 23 & 24 of the Act: The Assessing Officer substituted the actual rental income received by the assessee with a lower amount, disallowing notional deductions under Sections 23 & 24. The CIT (A) confirmed this, stating that gross receipts should be considered for calculating 85% application, not income after deductions. The Tribunal held that while determining the income of the trust for exemption under Section 11(1)(a), the provisions of Sections 22 to 27 (Chapter IV) for computing income from house property do not apply. Instead, the real income, after deducting any related expenditure, should be considered. Therefore, the Tribunal upheld the Revenue's order, dismissing the ground raised by the assessee. Conclusion: The appeal of the assessee was dismissed, and the Tribunal upheld the decisions of the lower authorities on all grounds: 1. Denial of carry forward and set off of excess application of income. 2. Disallowance of depreciation as an application of income. 3. Treatment of gross rent received without applying Sections 23 & 24 deductions.
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