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TMI Blog2016 (2) TMI 188X X X X Extracts X X X X X X X X Extracts X X X X ..... orward and set off of excess application of income - Held that:- The claim of the assessee for carry forward of excess application of fund to subsequent years is not permissible as per the provisions of the Act. See case of The Anjuman-E-Himayath-E-Islam [2015 (7) TMI 594 - ITAT CHENNAI] - Decided against assessee Denial of treating the loss on sale of assets as application of income - Held that:- We are in agreement with the view taken by the Ld. Assessing Officer. The purchase cost of these assets would have been already allowed as application of funds in the year in which the assets were purchased. Therefore, the loss on sale of these assets cannot be treated as application of funds once again. It would amount to double deduction. Further the facts remain that the sale proceeds of ₹ 5,81,000/- is the income of the assessee because there is a cash inflow to that extend which has to be applied for the objects of the trust as provided under the provisions of the Act. Therefore the action of Ld. Assessing Officer is justified - Decided against assessee Disallowance of the depreciation while computing the income of the assessee trust - Held that:- The claim of depreciatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 3,08,658/- as application of income. 4. The brief facts of the case are that the assessee-trust registered u/s 12AA of the Act, is engaged in the activity of running hospitals, filed its return of income for the assessment year 2010-11 on 01.10.2010 declaring Nil income after claiming deduction U/s. 11 of the Act and depreciation on the assets. The case was taken up for scrutiny and assessment was completed U/s.143 (3) of the Act on 21.03.2013 wherein the ld. Assessing Officer disallowed the claim of depreciation, carried forward of excess application of funds, bad debts written off as application of fund, and loss on transfer of assets as application of income. While doing so, the Ld. Assessing Officer allowed the benefit of Section-11 of the Act to the assessee trust. On appeal, the Ld. CIT (A) went a step forward and disallowed the benefit of Section-11 of the Act by denying to treating the assessee trust as a charitable institution. 5.1 Ground Nos.(i) (ii): Denial of the benefit of Section-11 of the Act and thereby taxing the corpus donation received. The Ld. CIT (A) was of the opinion that the assessee trust is not carrying out charitable activities and therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om providing medical relief, the benefit of Section-11 cannot be denied subject to the fulfillment of other conditions provided in the Act, because the provisions of section 2(15) specifically provides that any services in the nature of medical relief ought to be considered as charitable in nature. The Ld. A.R. further relied in the decision of Hon ble Apex Court reported in 2015-TIOL-20-SC-II in the case of M/s.Queen s Educational society Vs. CIT vide order dated 16th March, 2015 wherein it was held that if the educational institution generates surplus, it will not cease to exist solely for educational purpose and considered as profit making enterprise. Ld. D.R on the other hand argued in support of the orders of the Revenue. 5.3 We have heard the rival submissions and carefully perused the materials available on record. Section-2(15) of the Act clearly provides that any activity in the nature of providing medical relief would be considered as a charitable activity. Further the proviso clarifies that only activities that are in the nature of advancement of any other object of general public utility shall not be considered to be for charitable purpose if it involves in carryin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed therein. Though the objects clause contained varied objects including the management and development of movable and immovable properties, the statement of fact before the Court which is not disputed is that the only activity which has been carried out by the trust ever since its inception is the conduct of educational institutions. The Court, it must be emphasized, is not dealing with an institution which has sought approval for the first time or which has been set up in the proximate past. The trust has a history of over eighty years during the course of which the only activity is of conducting educational institutions. The fact that the trust exists solely for educational purposes is evidenced from the assessment orders for asst. yrs. 2000-01 and 2006-07, copies of which form a part of the record before the Court. Both these orders which have been made under s. 143(3) of the Act, contain a statement to the effect that the assessee is running schools with Gujarati and English as media of instruction at the primary and secondary stages and that the assessee also conducts a college for girls with the sole intent of imparting education. The record of these proceedings also contain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot disentitle the trust of the benefit of the provisions of s. 10(23C). Insofar the aspect of surplus is concerned, one must in addition, advert to the provision which has been made by Parliament in the third proviso to s. 10(23C). By the third proviso, it has been clarified that in the case inter alia of universities or other educational institutions which have applied its income or accumulated it for application wholly and exclusively to the objects for which it is established and in a case where fifteen per cent of income is accumulated on or after 1st April, 2002, the period of the accumulation of the amount exceeding fifteen per cent, shall in no case exceed five years. This provision would establish that Parliament did not regard the accumulation of income by a university or educational institution governed by sub-cl. (vi) as a disabling factor, so long as the purpose of accumulation is the application of the income wholly and exclusively to the objects for which the institution has been established. Parliament has, however, prescribed that where more than fifteen per cent of the income is accumulated after 1st April, 2002, the amount exceeding fifteen per cent shall not be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent years. It was also observed that the excess application of fund claimed by the assessee trust was not from the income earned by the assessee trust during the previous year. Therefore it was clear that excess application of fund was either sourced from the loan obtained by the assessee trust or from the accumulation of funds during the earlier years. It was further observed that only ₹ 3,75,02,118/- was applied from the income derived during the relevant previous year and the balance amount of ₹ 3,07,92,656/- was actually spent from the accumulated funds of the earlier years. The excess application of fund claimed by the assessee trust also included the claim of depreciation for the assessment years 2008-09, 2009-10 2010-11 of ₹ 2,04,59,791/-, ₹ 2,24,88,139/-, ₹ 2,83,44,917/- respectively, which have been disallowed during the assessment proceedings as double deductions since the entire cost of the asset was already allowed as application of funds. For the above reasons the Ld. Assessing Officer disallowed the claim of carry forward of excess application of funds for ₹ 6,24,83,776/-. On appeal, since the Ld. CIT (A) withdrew the benefit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee trust. During the course of assessment proceedings, it was observed by the Ld. Assessing Officer that the assessee had claimed depreciation on the same assets the full cost of which was allowed as application of funds. The Ld. Assessing Officer disallowed the claim of depreciation made by the assessee because the cost of the asset was already allowed as application of fund and therefore such claim would amount to double deduction. On appeal, the Ld. CIT (A) having withdrawn the benefit of Section-11 of the Act to the assessee did not adjudicated this issue as it had become irrelevant. 8.2 At the outset we find that on the earlier occasion, the Chennai Bench of the Tribunal in the case of The Anjuman-E-Himayath-EIslam for the assessment year 2009-10 in I.T.A.No.2271/Mds./2014 vide order dated 02.06.2015 had adjudicated the issue in favour of the Revenue. The relevant portion of the order is reproduced herein below for reference:- 5.1 The assessee Trust had claimed depreciation on the assets as application of income in the return of income. The Ld. Assessing Officer opined that the claim of depreciation by the assessee would amount to double deduction becaus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess of the income as shown in its accounts, is to be 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 3,08,658/- in its income expenditure statement. The Ld. Assessing Officer did not allow it to be treated as application of fund because there was no actual cash outflow but it was merely a book adjustment. The view of the Ld. Assessing Officer was that the claim of bad debt is only notional expenditure and therefore cannot be construed as application of income. Since the Ld. CIT (A) withdrew the benefit of Section-11 to the assessee, this issue was not adjudicated as it was irrelevant. On this issue we are of the view that if the receivables on which such claim of bad debts is made was earlier treated as the income of the assessee trust for the purpose of Section-11(1) of the Act, by applying the accruing concept and following the mercantile system of accounting, then the same should be allowed as application of fund when such receivables have become bad and written off in the books of accounts during the relevant assessment year. It is ordered accordingly. 10. Since we have decided the appeal of the assessee, the stay petition filed by the assessee has become infructuous and accordingly it is dismissed. 11. In the result, the appeal of assessee is partly allowed as indic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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