2015 (7) TMI 615 - AT - Income Tax

Disallowing the depreciation - assessee is a trust - Held that - As relying on the Anjuman-E-Himayath-E-Islam 2015 (7) TMI 594 - ITAT CHENNAI the assessee will not be entitled to claim the benefit of depreciation while computing income for the purpose of Section-11 of the Act. However, if the benefit of section-11 is denied and when the income of the assessee trust is computed under the other heads of the Act, then of course the benefit of depreciation can be availed by the assessee in accordance with relevant provisions of the Act. Decided against the assessee. Disallowance of benefit of carry forward of the excess expenditure of the previous year for setting off the same in the current year s income for the purpose of section-11 - Held that - When the Trust applies its funds from its Corpus, accumulated fund, Sundry creditors or from the loan obtained by the Trust, then such funds which are applied cannot be said to be funds applied from the income of the Trust. Therefore, there cannot be a case where the trust can apply its income more than the income received by it for the purpose of Section-11(1)(a)&(b) of the Act. Thus excess application of fund over and above the income of the Trust can arise only when funds are applied from the Corpus of the Trust, accumulated fund, Loan obtained by the Trust or goods and services received from Sundry Creditors. It can be logical to deduce that when funds are applied from borrowed funds or by way of Sundry creditors the same can be treated as application of fund in the year in which such Loan/Sundry creditors are repaid from the income of the Trust. However when amount is applied from the corpus fund or accumulated fund the same cannot be treated as application of fund for the purpose of Section 11 of the Act, because such fund have already been exempt from the income of the Trust in the year in which it is received or such amount is set aside and therefore once again treating the same as application of fund will amount to double deduction. Similarly voluntary contribution received toward Corpus is exempt from income of the trust in the year in which it is received and therefore when it is utilized for the objects of the Trust it cannot be considered as application of fund otherwise it will amount to double deduction. From the above factual and mathematical matrix it is evident that carry forward of excess application of fund in the commercial principles cannot be allowed as per the provisions of the Act because it would result in notional application of income in the subsequent year. Thus we hereby hold that the claim of the assessee to carry forward the excess application of fund cannot be entertained applying the commercial principles - Decided against assessee.

Summary

Issues Involved:
1. Disallowance of depreciation of Rs. 16,61,341.
2. Non-allowance of carry forward of excess expenditure of the previous year for setting off in the current year's income for the purpose of Section 11 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Disallowance of Depreciation of Rs. 16,61,341:

The assessee, a trust, claimed depreciation of Rs. 16,61,341 in its income and expenditure account. The Assessing Officer disallowed this claim on the grounds that the cost of the asset had already been allowed as an application of income in earlier years, thus claiming depreciation would amount to a double deduction. The Officer cited several legal precedents, including the Supreme Court's decision in Escorts Ltd. vs. UOI, which emphasized that double deduction is not permissible unless specifically allowed by statute.

On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] upheld the disallowance, noting conflicting judicial decisions but relying on the Delhi High Court's decision in DIT(E) vs. Charanjiv Charitable Trust. The CIT(A) also referenced the Finance (No.2) Bill 2014, which introduced sub-section (6) to Section 11, clarifying that depreciation on assets, the acquisition cost of which has been claimed as an application of income, is not allowable.

The Tribunal, in agreement with the CIT(A) and the Assessing Officer, cited the Kerala High Court's decision in Lissie Medical Institution vs. CIT and other relevant judgments, confirming that allowing depreciation would result in a double deduction. The Tribunal concluded that the assessee is not entitled to claim depreciation while computing income for the purpose of Section 11 of the Act unless the benefit of Section 11 is denied and the income is computed under other heads of the Act.

2. Non-allowance of Carry Forward of Excess Expenditure of the Previous Year:

The assessee sought to carry forward a sum of Rs. 5,79,100, which was omitted in the previous year's accounts, to the current year's income. The Assessing Officer denied this claim, stating that the revised return was not filed within the prescribed time under Section 139(1) and did not qualify under Section 139(5). The CIT(A) upheld this decision, referencing several judicial decisions including Govindu Naicker Estate vs. ADIT and CIT vs. Institute of Banking Personnel Selection, which allowed the adjustment of previous years' expenditures against subsequent years' income under commercial principles. However, the CIT(A) noted that there is no provision under Section 11 for carrying forward excess expenditure.

The Tribunal, referencing the Chennai Bench decision in The Anjuman-E-Himayath-E-Islam and other relevant cases, affirmed that the concept of carrying forward excess expenditure does not align with the provisions of Section 11. The Tribunal emphasized that the income of the trust should be real income and not computed for assessment purposes. It concluded that excess application of funds over income cannot be carried forward, but if funds are applied from loans or sundry creditors, they can be treated as application of funds in the year they are repaid. The Tribunal dismissed the appeal, holding that the claim to carry forward excess application of funds cannot be entertained under the commercial principles of the Act.

Conclusion:
The Tribunal dismissed the appeal, upholding the disallowance of depreciation and the non-allowance of carry forward of excess expenditure, aligning with legal precedents and statutory provisions.