2018 (11) TMI 1055 - HC - Income Tax

Charitable activities - exemption u/s 11 - income derived from property held under the trust for charitable or religious purposes to the extent to which such income is applied to such purposes in India - payments made to the professors of Ohio University USA for which the requisite provision was made in the books of account of the previous year but actual payment was made in the next assessment year - Held that - We are of the opinion that in view of the findings of fact recorded by the learned Tribunal that a provision was made to the Ohio University for charitable activity by way of education being imparted in India and the fact of the actual payment made to the Ohio University in the very next year and that too offered for taxation in India being undisputed no such substantial question of law arises for our further consideration. Depreciation claim - the matter is squarely covered by a decision of the cognate Bench of this court in the case of CIT v. Society of the Sisters of St. Anne 1983 (8) TMI 44 - KARNATAKA HIGH COURT wherein the cognate Bench of this court held that even the depreciation not involving any cash outflow is also in the character of expenditure and therefore such depreciation is nothing but decrease in the value of property through wear and tear deterioration or obsolescence and the allowance made for that purpose in the books of account were deemed to be the application of funds for the purpose of section 11 of the Act. Allowing any expenditure of the earlier year which has been brought forward and set off in the year under consideration is a justified finding of fact based on the correct interpretation of law and the judgment relied upon by it rendered by the cognate Bench. Therefore the same does not call for interference. A similar view was also taken by the Division Bench of the Bombay High Court in CIT v. Institute of Banking 2003 (7) TMI 52 - BOMBAY HIGH COURT wherein the Division Bench of the Bombay High Court held that the income derived from the trust property has also got to be computed on commercial principles and if commercial principles are applied then adjustment of expenses incurred by the trust for charitable and religious purposes in the earlier years against the income earned by the trust in the subsequent year will have to be regarded as application of income of the trust for charitable and religious purposes in the subsequent year. No substantial question of law - decided against revenue

Summary

Issues Involved:
1. Deletion of faculty teaching charges to Ohio University for academic expenses.
2. Set off of brought forward excess application of income/loss of income for earlier years.
3. Disallowance of accumulation of income due to non-specific reasons for accumulation.

Detailed Analysis:

Issue 1: Deletion of Faculty Teaching Charges
The Tribunal found that the payments made to Ohio University professors for teaching in India were accounted for in the books of the previous year, satisfying the conditions of section 11(1)(a) of the Income-tax Act, 1961. The Tribunal noted that the services were rendered in India, and the income was applied for charitable purposes in India, even though the payments were made outside India. The Tribunal cited judicial precedents, including Gem and Jewellery Export Promotion Council v. Sixth ITO and National Association of Software and Services Companies (Nasscom) v. Deputy DIT (Exemptions), to support the view that expenditure incurred outside India for charitable purposes in India qualifies for exemption under section 11(1)(a). The Tribunal also referred to the Supreme Court's decision in CIT v. Thanthi Trust, which clarified that the term "applied" has a broader connotation than "spent," and provisions for expenditures made in one year but paid in the next can be considered as application of income.

Issue 2: Set Off of Brought Forward Excess Application of Income
The Tribunal upheld the Commissioner of Income-tax (Appeals)'s decision allowing the set-off of brought forward expenses against current year income, citing the Karnataka High Court's decision in CIT v. Society of the Sisters of St. Anne and CBDT Circular No. 5-P (LXX)-6 of 1968. The Tribunal emphasized that income should be understood in its commercial sense, allowing for the amortization of expenses over multiple years. The Tribunal found that the assessee had properly amortized preliminary expenses over five years, and the unamortized expenses were correctly brought forward and set off in subsequent years.

Issue 3: Disallowance of Accumulation of Income
The Tribunal addressed the Assessing Officer's disallowance of the assessee's claim for accumulation of income due to non-specific reasons in Form 10. The Tribunal noted that the purposes mentioned, such as "purchase of fixed assets" and "fulfillment of the objects of the trust," were sufficiently specific. The Tribunal relied on the Karnataka High Court's decision in DIT (Exemptions) v. Envisions, which held that as long as the objects of the trust are charitable and the purposes mentioned in Form 10 align with those objects, the benefit under section 11(2) cannot be denied merely due to lack of detailed expenditure plans.

Conclusion:
The High Court found that the Tribunal's findings were based on correct interpretations of law and judicial precedents. The Court agreed that the term "applied" in section 11(1)(a) does not necessitate actual spending within the same year but includes provisions made for future payments. The Court upheld the Tribunal's decisions on all three issues, concluding that no substantial question of law arose for further consideration. The appeals filed by the Revenue were dismissed without costs.