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TMI Blog2013 (7) TMI 727X X X X Extracts X X X X X X X X Extracts X X X X ..... nt in the earlier years. 2.2. The Learned CIT(A) ought to have considered the depreciation on fixed Assets as application of income of the Appellant in the earlier years. 3. The Learned CIT(A) grossly erred in not considering the Depreciation on the fixed Assets as application of Income. 3.1 The Learned Commissioner of Income Tax (Appeals) erred in concluding that the some of the Appellate authorities ave decided that the income of the trusts to be computed as per ordinary commercial principles. 3.2. The Learned Commissioner of Income Tax (Appeals) grossly erred in relying on Esorts Ltd Vs. Union of India reported in (199 ITR 43) and denied the claim of depreciation on the Fixed Assets. 3.3. The Learned Commissioner of Income Tax (Appeals) erred in not appreciating the case laws relied by the Appellant on the issue of claim of depreciation of fixed assets. (a) CIT V Manav Mangal Society (2010) 328 ITR 421(P&H) at 423 (b) CIT V Market Committee Pipli (2011) 330 ITR 16(P& H). 3.4. The Learned Commissioner of Income Tax (Appeals) is not distinguishing the ratio on the order passed by the Chennai Bench of the ITAT in the case of GKR Charities v. Dy. DIT (Exemptions) [2012] ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs.3,38,06,218/- and interest of Rs.87,03,109/-. In the assessment order, the Assessing Officer accepted the pleas of the assessee regarding repayment of loan as well as revenue expenditure aforesaid. Qua other claims, (supra), he was of the view that the assessee had obtained term loans from banks of Rs.10,47,28,612/-, whose application would not come under the purview of sec.11(1)(a) of the Act since it would not be treated as income derived from the trust's property. Along with this, he rejected the assessee's plea regarding application of income of Rs.8,24,19,582/- qua purchase of fixed assets adopting the same reasoning. 7. Coming to the other head of investment (supra), the Assessing Officer held that the sum had been deposited in bank fixed deposits which could not be treated as expenses incurred for objects of the trust. Accordingly, the Assessing Officer computed 85% amount of the gross receipts of to Rs.8,56,05,633/-, as to Rs.7,27,64,788/-. Thereafter, he reduced the sum total of revenue expenditure and repayment of loan aforesaid resulting in short fall of Rs.93,75,462/- for the purpose of application of income. The same was treated as assessee's income resulting in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... representative, vide written submissions dated 30.01.2013, worked out the details of income of the trust, its application (excluding the depreciation) after adjusting the loans availed / repaid and the excess (deficit) application of income, if any, for all the assessment years starting from the inception of the trust. The details as submitted by the assessee in its letter dated 30.01.2013 are as under: The details of the income of the assessee trust and their applications in various assessment years and the computation of excess (deficit) application o{income, if any are as under: Note: 1. While considering the revenue + capital expenses as application of income, depreciation is not considered as application of income. 2. From the total expenses i.e. revenue+ capital expenses), loans availed during the year are reduced as the assets acquired out of the borrowed funds c:an. not. He considered as application of income. However, whenever there is repayment of loans, the same are considered as application of income. Thus, the total application of income (column 7) means- (Total (revenue + capital) expenses-depreciation) - net loans availed. Or [Total (revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act cannot exceed the income of the trust. However, there can be some exceptions like meeting the expenditure (both capital and revenue) with the borrowed funds. At the same time, the expenses met with the borrowed funds are separately dealt with and excluded from the application of income. Only the repayment of loans at later dates is treated as application of income, as it flows from the trust's income. In view of the above, there cannot be a situation of excess of application over and above 100% income or the trust. The above facts can also be presented in the following manner: Total income of the trust including donations for A.Ys 1999-2000 : Rs.3,893.12 lacs Total application of income in A.Ys 1999-00 to 08-09 : Total revenue+capital expenses(lessdepr): Rs.3808.43 lacs Less : Net loans availed(availed-repaid) : Rs. 133.62 lacs :Rs.3,674.18 lacs Deficit in applying 100% of income for the objects of the trust Rs.218.31lacs The position as on 31.3.2009 (ie. For the A.Y.2009-10) is as under : Total income of the trust including donations for A.Y. 1999-00 to 2009-10 (i.e. 3893.12 lacs + 856.05 lacs) :Rs.4749.17 lacs Total application of income in A.Ys.199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apter IV to VI B).If the conditions provided u ]s.11 to 13 or u] s.10(23C) are not fulfilled, then the provisions of Chapter IV to VIE will get attracted and the income has to be computed according to the said provisions. Thus, while computing the income of the Trust and its application to the extent of 85% of such income, any deductions/allowances provided from sec.14 to 80 VVA should not be considered. Further, as per section 11 of the I T Act, even the capital expenditure will also amount to application of the income of the Trust and accordingly, such capital expenditure will be treated as application in its entirety and therefore any further allowance by way of depreciation or otherwise, will amount to extra deduction or double deduction which is not permitted in the I T Act. Provision of depreciation ix] s.32 of the LT. Act is a specially permitted allowance while computing the income under the head 'Business or Profession', because in such a situation the capital expenditure cannot be allowed ~s a deduction. Under the provisions of section 11 of the I T Act, only the actual expenditure incurred/ spent, is considered as application. No notional expenditure or allowances are p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee, subject of course to any adjustment for expenses extraneous to the trust. If the expression "income" is so understood, then one has to take the accounts of the assessee with reference to the receipts and deduct there from the expenses necessary for earning or looking after that income. The net amount that remains would be available for distribution or application for charitable purpose. In applying the income for charitable purpose, even capital expenditure may be incurred. Therefore, the nature of the expenditure in the hands of the entity which receives the money .is not the criterion. So long as the assessee disburses the amount for capital or revenue purposes, whether the amounts are utilised for capital or revenue purposes by the charity concerned, the assessee uiouidhave complied with that part of the requirement of section ] 1, namely, application of the income for charitable purposes. The authorities will have to find out as to whether they are really charitable purposes or not. Subject to such examination, the application of the income for charitable purposes will have to be excluded and it is only the balance that would require examination for finding out whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation) any further allowance under any other section will amount to double deduction and accordingly not permitted. Further, if the views expressed by some of the appellate authorities that the income of the trusts is to be computed as per the ordinary commercial principles, wherein the claim of depreciation is to be allowed, is to be followed, is is not possible for the trusts to apply 85% of the income for the purposes of sec.ll(l) of the Act in some cases. This can be demonstrated by the following example: Example: Presume that a charitable trust is running a school. Its total receipt during the financial year (fees, etc) are Rs.1 00 lacs. Total expenses are Rs.98lacsincludinq depreciation claim of Rs.l0 lacs. There are no capital expenses incurred during the year. In this case, if the above views that income of the trust is to be understood in ordinary commercial principles by allouingdepreciation rttsn, then the following situation. will arise - Total receipts of the assessee during the year: : Rs.l00 lacs Less: 1. Total expenses (less depreciation) . 85 lacs 2. Depreciation as per IT rules . 10 lacs : Income of the trust in ordinary commercial principles : Rs. 95 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear ie. 2008-09 corpus donations totaling Rs.24,999,000/- have been taken as income. Thereafter, he has calculated total application of income which has resulted in short fall of Rs.2,18,31,054/-. At the same time, it is manifest from the latter portion that the corpus donations have been held as not part of the income. In our view, 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}. Further, it also transpires to us that in the assessment order, there is no discussion about the issue; whereas in the order of Commissioner of Income Tax (Appeals), it has been stated that the very issue had been raised by the assessee before the Assessing Officer. In this view of the matter, we are of the opinion that the issue requires a detailed adjudication at the hands of the Assessing Officer. Accordingly, we restore this issue back to the file of the Assessing Officer who shall pass a fresh order in accordance with law after adequately hearing the assessee. 11. Coming to the second issue of depreci ..... X X X X Extracts X X X X X X X X Extracts X X X X
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