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TMI Blog2015 (7) TMI 615X X X X Extracts X X X X X X X X Extracts X X X X ..... y not allowing the 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 of the Act. 3. The brief facts of the case is that the assessee is a trust, filed its return of income on 31.10.2007 for the assessment year 2006-07. Since the assessee had claimed depreciation in respect of the asset the cost of which has been already allowed as application of income, the Ld. Assessing Officer was of the belief that income has escaped assessment in the case of the assessee and therefore, notice U/s. 148 was issued on 13.09.2010 and the assessment was completed U/s. 143(3) of the Act wherein the Ld. Assessing Officer disallowed Rs. 16,61,341/- being the depreciation claimed by the assessee and also denied the excess application of income amounting to Rs. 5,79,100/- of the earlier year to be taken into account as application of income in the relevant assessment year. 4.1 Ground No.1 - Disallowing the depreciation of Rs. 16,61,341/- During the relent assessment year, the assessee had claimed depreciation of Rs. 16,61,341/- in its "income and expenditure account". The Ld. Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cisions derive substance from the decision of Bombay High Court in the case of CIT Vs. P K Badlani (1970) 76 ITR 369 . The decision was rendered before the introduction of section 11(1)(d) of the Act w.e.f 01.04.1989. The section 11(1)(d) was not properly appreciated by the Courts/ITATs while passing orders allowing depreciation. The decisions relied on by the Assessing Officer appreciated the issues clearly and decided that allowing depreciation again will amount to double deduction and lead to anomalous situation. Therefore, I am of the opinion that the Assessing Officer is correct in disallowing depreciation. Moreover I rely on the latest decision of Delhi High Court in the case of DIT(E) Vs. Charanjiv Charitable Trust (Date of order 18.03.2014) in confirming the order of the Assessing Officer. Therefore the claim of depreciation is also not allowed. Finance (No.2) Bill 2014 introduced sub-section (6) to Section.11 of the Act to deny depreciation in respect of any asset, acquisition of which has been claimed as an application of income U/s. 11 in the same or any other previous year. Though the amendment is prospective in nature and comes into force from 01.04.2014, it is clarif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deemed to have been applied to purposes other than charitable or religious, and hence it will be charged to tax under sub-section (3). As only the income disclosed by the account will be eligible for exemption under section 11(1), the permitted accumulation of 25 per cent will also be calculated with reference to this income. 4. Where the trust derives income from house property, interest on securities, capital gains, or other sources, the word "income" should be understood in its commercial sense, i.e., book income, after adding back any appropriations or applications thereof towards the purposes of the trust or otherwise, and also after adding back any debits made for capital expenditure incurred for the purposes of the trust or otherwise. It should be noted, in this connection, that the amounts so added back will become chargeable to tax under section 11(3) to the extent that they represent outgoings for purposes other than those of the trust. The amounts spent or applied for the purposes of the trust from out of the income computed in the aforesaid manner, should be not less than 75 per cent of the latter, if the trust is to get the full benefit of the exemption under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... course the benefit of depreciation can be availed by the assessee in accordance with relevant provisions of the Act. Thus, this issue is decided against the assessee. 5.1. Ground No.2 - Not allowing the 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 of the Act. The assessee has stated in its revised return of income that a sum of Rs. 5,79,100/- which was donated in the earlier year i.e. before 31.03.2005 was omitted to be included in the accounts of that year. Therefore, the same is included as application of fund in the relevant assessment year. The Ld. Assessing Officer denied the same to be treated as application of income for the relevant assessment year because the assessee had not filed the return of income within the time limit prescribed U/s.139(1) of the Act and the revised return does not qualify for allowability U/s.139(5) of the Act. The Ld. Assessing Officer relied on various decisions of the higher judiciary while holding so. On appeal the Ld. CIT (A) elaborately considered the merits of the matter and decided against the assessee. The relevant portion of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s set aside, and the matter is remanded to the Director of Income-tax (Exemptions) for fresh consideration in accordance with law." The Bombay High Court in the case of CIT Vs. Institute of Banking Personnel Selection (2003) 131 Taxman 386 observed as under. "Income derived from the trust property has also got to be computed on commercial principles and if commercial principles are applied then adjustment of expenses incurred by the Trust for charitable and religious purposes in the earlier years against the income earned by the Trust in the subsequent year will have to be regarded as application of income of the Trust for charitable and religious purposes in the subsequent year in which adjustment has been made having regard to the benevolent provisions contained in section 11 of the Act and that such adjustment will have to be excluded from the income of the Trust under section 11(1)(a) of the Act." The Gujarat High Court in the case of CIT Vs. Maharana of Mewar Chairtable Foundation 164 ITR 439 and CIT Vs. Shri Plot Swetember Murti Pujak Jain Mandal 211 ITR 239 observed the similar views which are as under:- "In other words, even if expenses for charitable and religious purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ples of set apart / accumulation of income arises 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 the legislature is to invest real income derived from property of the trust in specific assets when they are not utilized/applied. The very concept of exemption u/s.11 of the Act is defeated if provisions of profits and gains of business or provision relating to carry forward and set off is substituted for the "Income which do not form part of Total income" included under Chapter-III of the Income -tax Act. Therefore all the contentions of the assessee are rejected in toto. The assessment order passed by the A.O for the A.Y 2006-07 requires no interference and confirmed fully." 5.2. At the outset we find the Chennai Bench of the Tribunal in the case of The Anjuman-E-Himayath-E-Islam, in ITA No. 2271/Mds./2014 vide order dated 02.06.2015 has decided the issue against the assessee. The relevant portion of the order is extracted herein below for reference:- "4.1. Ground No.(i) - Disallowance of the carry forward and set off of excess application of income. The assessee in its return of income had claimed Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the legislature is to invest real income derived from property of the trust in specific assets when they are not utilized / applied. The very concept of exemption U/s. 11 of the Act is defeated if provisions of profits and gains of business or provision relating to carry forward and set-off is substituted for the "Income which do not from part of Total income" included under Chapter-III of the Income-tax Act." 4.3. Before us, the Ld. A.R. citing the decision of the Bombay Tribunal in ITA No.6129/Mum./2013 in the case of M/s.Maharashtra Industrial Development Corporation, Mumbai vide order dated 05.03.2015 argued that the assessee should be allowed to carry forward the excess application. The Ld. D.R on the other hand argued in support of the order of the Ld. CIT (A). 4.4 We have heard both the parties and carefully perused the materials available on record. Section-11(1)(a) of the Act provides that "income derived from property held under Trust wholly for charita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, 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 "income" contemplated by the provisions of section 11 is the real income and not the income as assessed or assessable". Further, Hon'ble Apex High Court has held in the case of J.K.Trust Vs. Ld. CIT /CEPT reported in [1957] 32 ITR 535 (SC) that "Property" is a term of the widest import, and subject any limitation or qualification which the context might require, it signifies every possible interest which a person can acquire, hold and enjoy. Business would undoubtedly be property unless there is something to the contrary in the enactment. ] 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39; 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 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 Rs. 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. Needless to mention that the income of the Trust refers to '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' i.e., ..... X X X X Extracts X X X X X X X X Extracts X X X X
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