2021 (2) TMI 536 - AT - Income Tax

Exemption u/s 11 - permissible accumulation of 15% of the total income of the appellant contemplated in section 11(1)(b) - method of computation - whether capital expenditure incurred by the appellant in the purchase of the printing machinery at the cost financed out of Bank loan does not qualify for the claim of application in computing the income of the Appellant Trust? - HELD THAT - CIT (Appeals) computed the application amount wherein he has mentioned the value of the asset purchased at ₹ 7,15,540. However he has not mentioned how he has arrived the figure. Further we make it clear that purchase of capital asset by availing loan cannot be construed as application of income. There is a difference between application of income and utilization of loan as a source for acquisition of capital asset. Only the repayment of loan out of income will be construed as application of income.

Summary

Issues: Appeal against order of Commissioner of Income Tax (Appeals) for Assessment Year 2008-09 regarding permissible accumulation computation under section 11(1)(b) and treatment of capital expenditure for printing machinery.

Analysis:
1. Permissible accumulation computation: The appeal raised concerns about the method adopted by the Commissioner (Appeals) in computing the permissible accumulation of 15% of the total income under section 11(1)(b) of the Act. The Assessing Officer had rejected the claim of the assessee for carrying forward a deficit amount, which was challenged in the appeal. The Commissioner (Appeals) recomputed the income of the assessee, considering the standard allowance of 15% with reference to the net income after application for charitable purposes. The Tribunal observed that the purchase of printing machinery using a bank loan cannot be treated as an application of income. It clarified that utilizing a loan for acquiring capital assets does not constitute income application; only loan repayment from income qualifies as such. The Tribunal allowed the appeal on this issue for statistical purposes.

2. Treatment of capital expenditure: The second ground of appeal questioned the Commissioner (Appeals)'s decision regarding the capital expenditure incurred by the assessee in purchasing printing machinery financed through a bank loan. The Assessing Officer disallowed the depreciation claim, arguing that a deduction for capital expenditure already allowed cannot be claimed again. However, the Commissioner (Appeals) allowed the depreciation claim and upheld the validity of the accumulation notice under section 11(2) while rejecting certain aspects of the claim. The Tribunal, after hearing both parties, emphasized that the purchase of capital assets using a loan does not amount to income application. It differentiated between income application and loan utilization for asset acquisition, stating that only loan repayment from income qualifies as application of income. The Tribunal allowed the appeal on this issue for statistical purposes.

3. Procedural matter: The Tribunal noted that one ground of appeal was of an academic nature and did not require adjudication. This ground was not further discussed, and the appeal was allowed solely for statistical purposes. The Tribunal's decision highlighted the distinction between income application and capital asset acquisition through loans, emphasizing the importance of income utilization for loan repayment to qualify as income application under charitable trust provisions.