2021 (12) TMI 450 - AT - Income Tax

Taxation of charitable or religious trust/institution as codified u/s 11, 12 and 13 - excess application of income/funds of the trust - assessee s claim of carry forward of current year s loss and set-ff of excess deficit pertaining to earlier years - HELD THAT - CIT(A) in the year under consideration as well as the Tribunal in assessment year 2013-14 .has allowed the ground of the assessee relying on the precedent of jurisdictional High Court. In view of the above, we do not find any infirmity in the order of the Ld. CIT(A) on the issue in dispute and accordingly, we dismiss the ground No.1 of the appeal. Deduction of depreciation in case of trust - CIT(A) has deleted the addition relying on the decision of Hon ble Supreme Court in the case of Rajasthan and Gujarat the charitable foundation Poona 2017 (12) TMI 1067 - SUPREME COURT - HELD THAT - As section 11 (6) of the Act has been inserted by way of Finance Bill 2014, which has restricted deduction of depreciation in case of trust etc. We note that the section 11(6) has been made effective from 01/04/2015 i.e. assessment year 2015-16 onwards and hence, same is not applicable for the year under consideration i.e. for A.Y.2014-15. In view of the above, we do not find any error in the order of the Learned CIT(A) on the issue in dispute and accordingly, the ground No.2 of the appeal of the Revenue, is dismissed.

Issues Involved:
1. Allowability of carry forward and set-off of current year's loss and excess deficit from earlier years for a charitable or religious trust/institution.
2. Allowability of depreciation on fixed assets for charitable or religious trust/institution.

Issue-wise Detailed Analysis:

1. Allowability of Carry Forward and Set-off of Losses:

The Revenue challenged the decision of the Learned CIT(A) allowing the assessee’s claim for carry forward and set-off of current year's loss and excess deficit from earlier years. The Revenue argued that the scheme of taxation for charitable or religious trusts under sections 11, 12, and 13 of the Income Tax Act does not provide for computing loss from property held under trust due to excess application of income/funds. They contended that the normal computation of income under sections 15 to 59 and the provisions for set-off of losses under sections 70 to 79 are not applicable to charitable trusts.

The Tribunal noted that the issue was covered in favor of the assessee by the decision of the Coordinate Bench of the Tribunal for the assessment year 2013-14. The Tribunal referred to various judicial decisions, including the Hon’ble Delhi High Court's decision in the case of DIT Vs. Raghuvanshi Charitable Trust, which held that income derived from trust property should be computed on commercial principles. Therefore, the adjustment of expenses incurred by the trust for charitable purposes in earlier years against the income earned in subsequent years should be regarded as application of income for charitable purposes.

The Tribunal observed that the CIT(A) had followed the binding precedent of the jurisdictional High Court and allowed the set-off of carried forward deficit. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal on this ground.

2. Allowability of Depreciation on Fixed Assets:

The Revenue argued that allowing depreciation on fixed assets would result in double deduction since the application of investment in assets had already been allowed in earlier years. The Tribunal noted that the issue was covered in favor of the assessee by the decision of the Hon’ble Supreme Court in the case of Rajasthan and Gujarat Charitable Foundation Poona. The Tribunal also noted that section 11(6) of the Income Tax Act, which restricts the allowance of depreciation for trusts, was made effective from 01/04/2015 and was not applicable for the assessment year 2014-15.

The Tribunal referred to the CIT(A)'s detailed observations, which highlighted that charitable trusts are governed by sections 11, 12, 12A, 12AA, and 13, and there is no provision restricting depreciation. The CIT(A) relied on several judicial decisions, including the Hon’ble Delhi High Court's decision in the case of Indraprastha Cancer Society, which allowed depreciation for charitable institutions.

The Tribunal upheld the CIT(A)'s decision to allow depreciation as an application of income, dismissing the Revenue's appeal on this ground.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on both issues. The Tribunal found no error in the CIT(A)'s order allowing the carry forward and set-off of losses and the allowance of depreciation on fixed assets for the assessment year 2014-15. The Tribunal's decision was pronounced in the open court on 02.12.2021.

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