2013 (7) TMI 727 - AT - Income Tax

Charitable Trust having spent excess amount in the preceding assessment years has been wrongly rejected Whilst computing assessee s incomes from assessment year 1999-2000 to preceding assessment year ie. 2008-09 corpus donations totaling Rs.24,999,000/- have been taken as income as per Commissioner(A) order - Thereafter, Commissioner(A) has calculated total application of income which has resulted in short fall of Rs.2,18,31,054/- - It is manifest from the latter portion of the abovesaid Order of Comm(A) that the corpus donations have been held as not part of the income Held that - The said findings are mutually contradictory ie. on the one hand the corpus donations have been taken as income; on the other, they have been held not to be treated as part of assessee s income by quoting relevant provision sec.11(1)(d) of the Act - Issue requires a detailed adjudication at the hands of the Assessing Officer Matter remanded back to the Assessing Officer Decided in favor of Assessee. Depreciation on Fixed assets under section 32 of I.T.Act,1961 Held that - Since the main issue has been restored to the Assessing Officer, this claim of the assessee would also be decided afresh after taking into consideration the case law cited Also, in case it turns out that the assessee is carrying on any business, then only, while computing business income, it would be entitled for depreciation on assets used in the business.

Summary

Issues Involved:
1. Excess application of income in preceding assessment years.
2. Depreciation on fixed assets as an application of income.

Detailed Analysis:

1. Excess Application of Income in Preceding Assessment Years:

The assessee, a registered trust running an educational institution, claimed that there was an excess application of income in preceding years which should be allowed to be carried forward and considered as application of income in the current assessment year. The Commissioner of Income Tax (Appeals) rejected this claim on the grounds that the capital expenditures were out of borrowed funds and there was no real excess application of income. The correct calculation should be based on the amount applied over and above 100% of the trust's income, not just the 85% minimum stipulated by Section 11(1) of the Act. The Commissioner found that the assessee's calculation was incorrect and not allowable. The Commissioner also noted that the cumulative application of all years showed a net deficit application of income. The Tribunal found the Commissioner's findings contradictory, as corpus donations were included as income but also stated not to be part of income. The Tribunal restored this issue to the Assessing Officer for detailed adjudication.

2. Depreciation on Fixed Assets as an Application of Income:

The assessee argued that depreciation on fixed assets should be allowed as an application of income for the purpose of Section 11(1) of the Act. The Commissioner of Income Tax (Appeals) rejected this claim, stating that allowing depreciation would result in a double deduction, which is not permitted under the Act. The Commissioner relied on the Supreme Court's decision in Escorts Ltd vs. Union of India and the Madras High Court's decision in CIT v. Rao Bahadur Calavala Cunnan Chetty Charities, which held that only actual expenditure incurred should be considered as an application of income, and not notional expenditures like depreciation. The Tribunal, however, restored this issue to the Assessing Officer to be decided afresh, considering the cited case laws and other judicial precedents. It was also clarified that if the assessee is carrying on any business, it would be entitled to depreciation on assets used in the business.

Conclusion:

The Tribunal restored both issues to the Assessing Officer for fresh adjudication. The appeal was accepted for statistical purposes, and the order was pronounced on July 17, 2013, at Chennai.