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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 ..... efore, 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 the Act. Thus excess application of fund over and above the income of the Trust can arise only when funds are applied from the Corpus of the Trust, accumulated fund, Loan obtained by the Trust or goods and services received from Sundry Creditors. It can be logical to deduce that when funds are applied from borrowed funds or by way of Sundry creditors the same can be treated as application of fund in the year in which such Loan/Sundry creditors are repaid from the income of the Trust. However when amount is applied from the corpus fund or accumulated fund the same cannot be treated as application of fund for the purpose of Section 11 of the Act, because such fund have already been exempt from the income of the Trust in the year in which it is received or such amount is set aside and therefore once again treating the same as application of fund will amount to double deduction. Similarly voluntary contribution received toward Corpus is exempt from income of the trust in the year in which it is received and therefore when it is utilized for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to ₹ 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 ₹ 16,61,341/- During the relent assessment year, the assessee had claimed depreciation of ₹ 16,61,341/- in its income and expenditure account . The Ld. Assessing Officer denied the benefit of depreciation in the case of the assessee trust because the cost of the asset on which depreciation is claimed was already allowed as application of income. While doing so, the Ld. Assessing Officer observed as follows:- The value of assets on which depreciation has been claimed, has been fully allowed as expenditure/application in the earlier years. Hence the represent claim is only a double deduction over and above the full value of the assets. Unless the Act specifically allows through an enactment, a weighted deduction or double deduction is not permissible. Reliance is placed on the following decisions, where the Tribunal has held that where the capital expenditure has been treated to have been applied for the objects of the Trust allowance for depreciation on the same asset would amount to do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 clarificatory to put the issue at rest to deny double deduction to the assessee. 4.3 At the outset, we find that this issue has been elaborately considered and decided against the assessee in the case of The Anjuman-E-Himayath-E-Islam in I.T.A.No.2271/Mds./2014 vide order dated 02.06.2015, the relevant portion of the order is reproduced herein below for reference:- 5.2 We find this issue is elaborately discussed in the case of Lissie Medical Institution Vs. CIT reported in [2012] 348 ITR 344(Ker.) and held the issue against the assessee. While doing so, the Hon'ble Kerala High Court had considered the Circular No.5P(LLX-6) dated 19.06.1968 which has not been considered by the other decisions. The Circular No. 5P(LLX-6) is reproduced herein below for reference:- 1. Circular No. 5-P (LXX-6) of 1968, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 11(1). 5. To sum up, the business income of the trust as disclosed by the accounts plus its other income computed above, will be the income of the trust for purposes of section 11(1). Further, the trust must spend at least 75 per cent of this income and not accumulate more than 25 per cent thereof. The excess accumulation, if any, will become taxable under section 11(1). After considering the Circular, the Hon'ble Kerala High Court held as follows:- 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 outside the books of acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cause 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 the order is extracted herein below for reference:- 4.2. Regarding carry forward of excess application of earlier years, assessee's plea is not acceptable because of the following discussion. Govindu Naicker Estate Vs. ADIT (1999) 105 Taxman 719 (Mad). The Hon'ble High Court observed as under: It is thus clear that the income of the trust has to be arrived at having due regard to the commercial principles, that section 11 is a benevolent provision, and that the expenditure incurred on religious or charitable purposes in earlier year or years can be adjusted against the income of the subsequent year. I am in respectful agreement with the views of the learned Judges of the aforementioned High Courts with regard to these propositions. The High Court fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 purposes are adjusted against the income of a subsequent year, the income of that year can be said to have been applied for charitable and religious purposes in the year in which the expenses incurred for charitable and religious purposes had been adjusted. 4.3. There are no other significant findings except the above observations by any of the high Courts. The income of the trust is not computed as per sec.28 to 44 DB of the Act under the head profits and gains of business or profession which contains the provisions of carry forward of losses of earlier year and set of such losses against the income of the current year. Income derived from property held under trust means real income and not the income computed for assessment. The question of spendin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly. 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 ₹ 1,00,70,474/- as excess application of income to be carried forward as follows:- Gross receipts Rs.5,11,60,794 85% of the Gross receipts Rs.4,34,86,675 Application of income including Capital expenditure Rs.5,35,57,149 Excess Application of Rs.1,00,70,474 However, the Ld. Assessing Officer allowed the claim of excess application to be carry forward ₹ 23,96,355/- as worked out herein below:- S.No. A.Y Gross Receipts Application Excess Application 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions 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 charitable or religious purpose shall not be included in the total income to the extent such income is applied for charitable or religious purpose in India. The Act also provides that upto 15% of such income is accumulated or set apart, then that shall also not be included in the total income. Further Section-11(1)(d) of the Act provides that income in the form of voluntary contribution made with specific direction that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on'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 the Act. Thus excess application of fund over and above the income of the Trust can arise only when funds are applied from the Corpus of the Trust, accumulated fund, Loan obtained by the Trust or goods and services received from Sundry Creditors. It can be logical to deduce that when funds are applied from borrowed funds or by way of Sundry creditors the same can be treated as application of fund in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me 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. 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., item Nos.(ii) and (vi) mentioned hereinabove. This ground raised by the assessee is accordingly disposed off. 5.3. Following the above decision of the Tribunal supra and taking into consideration of the elaborate order of the Ld. CIT (A), we hereby hold that the claim of the assessee to carry forward the excess application of fund cannot be entertained applying the commer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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