9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2019 (8) TMI 1194 - AT - Income TaxExemption of income u/s 11 - Disallowance of depreciation to assessee trust - Whether when deduction u/s 35(2)(iv) is allowed in respect of capital expenditure on scientific research, no depreciation is allowable u/s 32 on the same asset? - impact of amendment by the Finance (No.2) Act, 2014 w.e.f. 1.4.2015 - HELD THAT - The Hon ble Supreme Court in the case of CIT Vs. Rajasthan Gujarati Charitable Foundation Poona, 2017 (12) TMI 1067 - SUPREME COURT has since confirmed the view that depreciation has to be allowed as a deduction even when the cost of acquisition of the depreciable asset has been treated as application of income in the year of its acquisition. The amendment by way of by insertion of sub-section (6) to section 11 is prospective and will apply only from A.Y. 2015-16. Set off of carry forward expenditure incurred in excess of its income of the succeeding years - HELD THAT - The object of the religious and charitable trust can only be achieved by incurring expenditure and in order to incur that expenditure, the trust should have an income. So long as the expenditure incurred is on religious or charitable purposes, it is the expenditure properly incurred by the trust, and the income from out of which that expenditure is incurred, would not be liable to tax. The expenditure, if incurred in an earlier year is adjusted against the income of a later year, it has to be held that the trust had incurred expenditure on religious and charitable purposes from the income of the subsequent year, even though the actual expenditure was in the earlier years, if in the books of account of the trust such earlier expenditure had been set off against the income of the subsequent year. The expenditure that can be so adjusted can only be expenditure on religious and charitable purposes and no other. The High Court relied on the decision in the case of CIT Vs. Society of Sisters of ST. Anne 1983 (8) TMI 44 - KARNATAKA HIGH COURT - no merit in grounds raised by the revenue in this regard and the same is dismissed. Computing accumulation of income of 15% u/s 11(1)((a) - whether one has to take the gross receipts or gross receipts after expenditure for charitable purpose i.e., the net receipts? - HELD THAT - This is issue is no longer res integra and has been decided in the case of Bai Sonabai Hirji Agiary Trust Vs. ITO 2004 (9) TMI 300 - ITAT BOMBAY-E held as per the requirement of s. 11(1) of the IT Act, as it prevailed at that point of time, the assessee had to apply 75 per cent of its income for the objects and purposes of the trust and the assessee was permitted to accumulate or set apart up to 25 per cent of its income, which was subject to fulfilment of other conditions. Having found that trust is entitled to exemption under section 11(1), we are to go to the stage of income before application thereof and take into account 25% of such income. The relevant ground of appeal of the revenue is accordingly dismissed. Allowability of repayment of loan as application of income - Whether the amount borrowed by the assessee which was used for acquiring capital asset should not be allowed as application of income for the purpose of charitable purposes? - HELD THAT - We are of the view that since the AO in asst. year 2012- 13 has considered repayment of amount borrowed for acquiring capital asset his application of income for charitable purpose also gave similar treatment for the capital expenditure incurred in asst. year 2010-11 and 2011-12 and treat repayment of loans as application for charitable purposes. We hold and direct accordingly. Allowability of foreign Tour expenses as application of income - expenditure incurred by the assessee in foreign currency is outside India for the purpose of educational tours undertaken by the students of the assessee disallowed - income has not been applied for charitable purposes in India within the meaning of sec. 11(1) (a) - HELD THAT - As we have already seen under the provision of sec. 11(1)(a) exemption is allowed only to the extent income of charitable trust is applied to such purposes in India. OHIO UNIVERSITY CHRIST COLLEGE 2018 (11) TMI 1055 - KARNATAKA HIGH COURT dealing with an identical situation held that when teaching services were rendered to assessee educational trust by faculty members of foreign university and when such services were utilized for the purpose of trust objective of imparting education in India payment made to foreign university towards faculty teaching charges was allowable as deduction. We are therefore of the view that in the light of the decision that Hon ble Karnataka High Court the deduction claimed should be allowed. It cannot be said that the assessee has not applied the income for charitable purposes outside India as beneficiaries of the education imparted outside India where the assessee s students. Accordingly the relevant grounds of appeal for the assessee are allowed. Allowability of capital expenditure as application - assessee incurred capital expenditure for acquisition of capital assets but the payment for acquisition of the aforesaid capital assets were outstanding and were not paid - HELD THAT - Plea of the assessee deserves to be accepted. As the decision of the Hon ble Andhra Pradesh High Court in the case of Nizzam Trust 1981 (1) TMI 52 - ANDHRA PRADESH HIGH COURT supports the plea of the assessee. The law is well settled that the income of a trust has to be computed keeping in mind commercial principles as per the accepted commercial principles amount due but not paid and should also to taken into consideration for determining income.
Issues Involved:
1. Disallowance of depreciation on assets. 2. Carry forward of excess expenditure for setting off against future income. 3. Calculation of 15% accumulation for future application. 4. Expenditure incurred in foreign currency for educational tours. 5. Disallowance of capital expenditure due to non-payment. 6. Treatment of borrowed amounts used for acquiring capital assets. Issue-wise Detailed Analysis: 1. Disallowance of Depreciation on Assets: The primary issue was whether the depreciation claimed by the assessee, a charitable trust, on assets whose cost was already considered as application of income, amounts to a double deduction. The AO disallowed the depreciation, relying on the Supreme Court's decision in Escorts Limited & another Vs. Union of India, which held that no depreciation is allowable if the capital expenditure has already been deducted. However, the CIT(A) allowed the claim, and this was upheld by the Tribunal. The Tribunal referred to the Karnataka High Court's decisions in All Saints Church and Society of Sisters of St. Ann, which supported the view that depreciation does not amount to a double deduction. The Tribunal also cited the Supreme Court's decision in CIT Vs. Rajasthan & Gujarati Charitable Foundation Poona, which confirmed that depreciation is allowable even if the cost of the asset has been treated as application of income. Consequently, the Tribunal dismissed the revenue's appeal on this ground. 2. Carry Forward of Excess Expenditure: The second issue was whether the assessee could carry forward excess expenditure for setting off against future income. The AO denied this claim, stating there was no provision in the Act for such carry forward. However, the CIT(A) allowed the claim, and the Tribunal upheld this decision. The Tribunal referred to several High Court decisions, including CIT Vs. Maharana of Mewar Charitable Foundation and CIT Vs. Institute of Banking Personnel Selection, which held that excess expenditure in earlier years could be adjusted against income of subsequent years. The Tribunal concluded that the set-off of excess expenditure would amount to application of income in the subsequent year, thus dismissing the revenue's appeal on this ground. 3. Calculation of 15% Accumulation for Future Application: The third issue was whether the 15% accumulation for future application should be calculated on gross receipts or net receipts after deduction of revenue expenditure. The AO calculated it on net receipts, but the CIT(A) allowed the claim based on gross receipts. The Tribunal upheld the CIT(A)'s decision, referring to the Special Bench decision in Bai Sonabai Hirji Agiary Trust Vs. ITO, which held that the accumulation should be allowed on gross receipts. The Tribunal dismissed the revenue's appeal on this ground. 4. Expenditure Incurred in Foreign Currency for Educational Tours: The issue was whether expenditure incurred in foreign currency for educational tours could be disallowed on the ground that it was not applied for charitable purposes in India. The AO disallowed the expenditure, but the Tribunal allowed the claim. The Tribunal referred to the Karnataka High Court's decision in CIT(E) Vs. Ohio University, Christ College, which held that payments made for educational purposes, even if incurred outside India, should be allowed if the education benefits students in India. The Tribunal concluded that the expenditure was for charitable purposes and allowed the deduction. 5. Disallowance of Capital Expenditure Due to Non-Payment: The issue was whether capital expenditure could be disallowed if the payment for the acquisition of the capital asset was outstanding. The AO disallowed the claim, but the Tribunal allowed it. The Tribunal referred to the Andhra Pradesh High Court's decision in CIT Vs. Trustees of HEH, The Nizzams Charitable Trust, which held that the word 'applied' should not be equated with 'spent' and that sanctioned but unpaid amounts should be considered as application of income. The Tribunal concluded that unpaid liabilities should be considered for determining income and allowed the claim. 6. Treatment of Borrowed Amounts Used for Acquiring Capital Assets: The issue was whether amounts borrowed and used for acquiring capital assets should be allowed as application of income. The Tribunal noted that the AO had allowed repayment of borrowed amounts in subsequent years as application of income. The Tribunal directed that similar treatment should be given for the capital expenditure incurred in earlier years, treating the repayment of loans as application for charitable purposes. Conclusion: The Tribunal dismissed the revenue's appeals and partly allowed the assessee's appeals, providing relief on all the contested issues. The judgment reinforced the principles of allowing depreciation on assets for charitable trusts, permitting carry forward of excess expenditure, calculating accumulation on gross receipts, and recognizing sanctioned but unpaid liabilities as application of income.
|
