2019 (5) TMI 1320 - AT - Income Tax

Assessment of trust - Set off brought forward excess application of income and carry forward the excess application of income - HELD THAT - This issue is no longer res-integra as per the decision of Hon ble Supreme Court in the case of CIT vs. Subros Educational Society, 2018 (4) TMI 1622 - SC ORDER wherein it is held that eligible trust which are enjoying the registration u/s.12AA of the Act are entitled to carry forward and set off of the excess application of income. Thus, we do not find any merits in the grounds of appeal. Therefore grounds of appeal No.2.1 to 2.4 filed by the Revenue are dismissed. Depreciation as application of income before the amendment - HELD THAT - This issue is also covered in favour of the assessee by the decision of Hon ble Supreme Court in the case of CIT vs. Rajasthan Gujarti Charitable Foundation 2017 (12) TMI 1067 - SUPREME COURT wherein it was held that the income of the trust is required to be computed u/s.11 of the Act on commercial principles after providing for allowance for normal depreciation, affirmed the view of the Hon ble Bombay High Court in the case of DIT (Exemption) vs. Framjee Casasjee Institute 1992 (7) TMI 331 - BOMBAY HIGH COURT and differing with the view expressed in the case of Lissie Medical Institutions vs. CIT 2012 (4) TMI 115 - KERALA HIGH COURT . Therefore in view of the settled legal proposition in favour of the assessee trust, we do not find any reason to interfere with the order of the ld. Commissioner of Income Tax (Appeals). - Decided against revenue

Issues:
- Eligibility of set off of brought forward excess application of funds to subsequent years
- Allowance of depreciation as application of income for claiming exemption u/s. 11 of the Act

Eligibility of set off of brought forward excess application of funds to subsequent years:
The Revenue challenged the decision of the Commissioner of Income Tax (Appeals) regarding the eligibility of the assessee to set off brought forward excess application of funds to subsequent years. The Revenue contended that there is no provision in the Income Tax Act allowing for the determination of loss under section 11 and carry forward of the same to be set off against income of subsequent years. The Revenue also argued that the income of the trust is not computed on the principles of business income, thus carry forward of excess application of funds would result in notional application of income in subsequent years, which is impermissible in law. However, the Appellate Tribunal relied on the decision of the Hon'ble Supreme Court in the case of CIT vs. Subros Educational Society, which held that eligible trusts registered under section 12AA of the Act are entitled to carry forward and set off the excess application of income. Consequently, the Tribunal dismissed the Revenue's grounds of appeal, affirming the eligibility of the assessee to set off brought forward excess application of funds to subsequent years.

Allowance of depreciation as application of income for claiming exemption u/s. 11 of the Act:
The Revenue contested the decision of the Commissioner of Income Tax (Appeals) in allowing depreciation as application of income before the amendment. The Revenue argued that depreciation is neither a loss nor expenditure, but an allowance, and treating it as application of income for charitable purposes is incorrect. The Revenue cited various judicial decisions to support its contention that depreciation should not be allowed when the cost of acquisition of assets is treated as application of income. However, the Appellate Tribunal referred to the decision of the Hon'ble Supreme Court in the case of CIT vs. Rajasthan & Gujarti Charitable Foundation, which emphasized that the income of the trust should be computed under section 11 of the Act on commercial principles, including providing for normal depreciation. The Tribunal also mentioned the decision of the Hon'ble Bombay High Court, affirming the allowance of depreciation as application of income. Consequently, the Tribunal dismissed the Revenue's grounds of appeal, upholding the decision to allow depreciation as application of income for claiming exemption under section 11 of the Act.

In conclusion, the Appellate Tribunal dismissed the appeal filed by the Revenue, affirming the decisions of the Commissioner of Income Tax (Appeals) regarding the eligibility of the assessee to set off brought forward excess application of funds to subsequent years and the allowance of depreciation as application of income for claiming exemption under section 11 of the Act. The Tribunal based its decisions on established legal principles and relevant judicial precedents, thereby upholding the rights of the assessee in both aspects of the appeal.

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