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TMI Blog2015 (7) TMI 594X X X X Extracts X X X X X X X X Extracts X X X X ..... fund’ and ‘accumulate fund’ are already exempt from the income of the Trust and once again if it is treated as application of fund it would amount to double deduction. Therefore the claim of the assessee to carry forward the excess application of fund cannot be entertained applying the commercial principles. However if the excess amount of ₹ 23,96,355/- is applied from the borrowed fund or from Sundry Creditors, the same shall be allowed as application in the year in which such Loan or Sundry Creditors are repaid from the income of the Trust as discussed herein above. - Decided against assessee. Disallowance of the depreciation while computing the income of the assessee trust - Held that:- This issue is elaborately discussed in the case of Lissie Medical Institution Vs. CIT reported in [2012 (4) TMI 115 - KERALA HIGH COURT] and held the issue against the assessee wherein held that after writing off the full value of the capital expenditure on acquisition of assets as application of income for charitable purposes and when the assessee again claimed the same amount in the form of depreciation, such notional claim became a cash surplus available with the assessee, which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITA No.344/11-12 passed under Sec.143 (3) read with section Sec. 250 of the Act. 2. The Assessee has raised five elaborate grounds in its appeal, however the crux of the issue is that the Assessee is aggrieved by the order of the Ld. CIT (A):- (i) for having sustained and improved the order of the Ld. Assessing Officer by disallowing the carry forward and set off of excess application of income. (ii) for having sustained the order of the Ld. Assessing Officer in disallowing the depreciation while computing the income of the assessee trust. (iii) for having sustained the order of the Ld. Assessing Officer wherein the actual rent received is treated as the income from house property of the assessee and not computed in accordance with the provisions of U/s.23 24 of the Act. 3. The brief facts of the case are that the assessee-trust is engaged in the activity of organizing and running orphanage and educational institutions, registered u/s 12A(a) of the Act vide order of the Ld. CIT III, Chennai in C.No.212(66)/70 dated 02.07.1975, filed its return of income for the assessment year 2009-10 on 30.09.2009. The case was taken up for scrutiny and assessment was completed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apart or accumulated income. Therefore the question of carry forward of excess expenditure and set off of the same subsequently does not arise at all in the case of trusts. Reliance is placed on the decision of ITAT Delhi Bench F in the case of Pushpawati Singhania Research Institute for Liver, Renal Digestive Diseases Vs DDIT(E),Inv. Circle-II, New Delhi (2009) 29 SOT 316(Delhi). In the above decision, the Hon ble ITAT analysed all the decisions which are in favour of carry forward and set off and distinguished them and arrived at the correct decisions as declared by the Income-tax Act. The Bombay High Court in the case of Ld. CIT Vs. Institute of Banking Personnel Selection (2003) 131 Taxman 386 observed that the income of the trust is to be computed on the basis of commercial principles. It is not in dispute that to arrive at the actual income, commercial principles are to be applied. This does not mean that the excess expenditure is to be carried forward and allowed in the subsequent year. The principles of set apart/accumulation of income arise only if it is real income. Otherwise, the investment U/s. 11(5) of the Act is not possible with deemed income. The intention of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5% of such income even if accumulated or set apart shall also not be included in the total income of the Trust. Therefore, what is provided under the Act is with respect to application of income from the income derived from the property held under the Trust and any voluntary contributions received by the Trust other than contributions made with specific directions that they shall form part of the corpus of the trust . Thus, there is no reference in Section-11 of the Act with respect to application of fund from the corpus of the trust, loan obtained by the Trust, Sundry creditors of the Trust or accumulate fund of the Trust for claiming exemption U/s.11 (1) of the Act. 4.5. Application of fund by any charitable institution is possible only from the following sources:- i) Voluntary contributions received by the Trust towards its corpus, ii) Other voluntary contributions, iii) Accumulated fund, iv) Amount received by way of loan, v) Sundry creditors, vi) Income derived from the Property held under the Trust. [Hon ble Calcutta High Court has held in the case DCIT VS. Girdharilal Shewnarain Tantia Trust reported in [1993] 199 ITR 15(Cal.) that The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered by the Mumbai Bench of the Tribunal, and the unreported decision of the Hon ble Bombay High Court is also not placed before us. 4.6 Now analyzing the facts of the case before us, it appears that the assessee trust s gross receipts is ₹ 5,11,60,794/- and the assessee trust have spent ₹ 5,35,57,149/- which shows that the assessee trust has spent ₹ 23,96,355/- more than its income received during the relevant year. This amount of ₹ 23,96,355/- may have been taken out from the corpus funds , accumulated funds , loan obtained by the assessee trust or arising out of Sundry Creditors . Therefore it is obvious that there is no excess application of income over and above the income received by the trust, hence the question of carry forward of excess application of income does not arise. However the amount applied from the Loan or Sundry Creditors will be allowed as application of fund in the year in which such Loan or Sundry Creditors are repaid. It is pertinent to mention that if the amount is applied from the Corpus fund or accumulated fund it will not be treated as application of fund because Corpus fund and accumulate fund are alr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing exemption under section 11(1) of the Income- tax Act, 1961, must spend at least 75 per cent of its total income, for religious or charitable purposes. In other words, it was not permitted to accumulate more than 25 per cent of its total income. The question has been reconsidered by the Board and the correct legal position is explained below. 2. Section 11(1) provides that subject to the provisions of sections 60 to 63 the following income shall not be included in the total income of the previous year . . . . The reference in sub-section (a) is invariably to income and not to total income . The expression total income has been specifically defined in section 2(45) of the Act as the total amount of income . . . computed in the manner laid down in this Act . It would accordingly be incorrect to assign to the word income used in section 11(1)(a), the same meaning as has been specifically assigned to the expression total income vide section 2(45). 3. In the case of a business undertaking held under trust, its income will be the income as shown in the accounts of the undertaking. Under section 11(4), any income of the business undertaking determined by the Incomet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e depreciation and if that was done, the Assessing Officer would modify the assessment determining higher income and allow recomputed income with the depreciation written back by the assessee to be carried forward for subsequent years for application for charitable purposes. Further Hon ble Calcutta High Court has held in the case DCIT VS. Girdharilal Shewnarain Tantia Trust reported in [1993] 199 ITR 15(Cal.) that The income contemplated by the provisions of section 11 is the real income and not the income as assessed or assessable. Respectfully following the decision of the Hon ble Kerala High Court and taking cue from the decision of the Hon ble Calcutta High Court, we do not find any hesitation to confirm the order of the Ld. CIT(A) and also the views expressed by him in his order. Accordingly this appeal is held in favour of the Revenue. 6.1 Ground No.(iii) - Gross rent received is treated as the income from house property of the assessee and not computed in accordance with the provisions of U/s.23 24 of the Act. On perusing the return of income, the Ld. Assessing Officer observed that the assessee had computed its income from house property after claiming deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal income. It is not a case of computation of income chargeable to tax as per the provisions Chapter IV under the head C-Income from house property . Therefore while determining the income of the assessee trust and its application of income for the purpose of claiming exemption U/s.11(1)(a) of the Act, the provisions of Chapter-IV - Sections 22 to 27 of the Act which is applicable for computing the income chargeable to tax under the head income from house property will not be attracted. However, provisions of section 22 to 27 of the Act will come into play when the assessee is not entitled to the benefit of Section-11(1)(a) of the Act and when such income of the Trust is chargeable to tax under the head income from house property . It is pertinent to mention here that Hon ble Calcutta High Court supra has held that income contemplated by the provisions of section 11 is the real income and not the income as assessed or assessable. Accordingly, while arriving at the rental income of the assessee-trust any expenditure incurred whatsoever related to the rental income has to be allowed as deduction and the net income which is the real income, will be treated as the income ..... X X X X Extracts X X X X X X X X Extracts X X X X
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