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TMI Blog2018 (2) TMI 161X X X X Extracts X X X X X X X X Extracts X X X X ..... ld CIT(A) in directing the AO to allow the assessee’s claim for carry forward of surplus application of income for set off as application against income of subsequent years - ITA No. 884/Bang/2016 - - - Dated:- 4-10-2017 - Shri Sunil Kumar Yadav, Judicial Member And Shri Jason P Boaz, Accountant Member For the Appellant : Smt. Padmameenakshhi, JCIT For the Respondent : Shri R.T Balasubramanyam, C.A ORDER PER SHRI JASON P BOAZ, ACCOUNTANT MEMBER : This appeal by Revenue is directed against the order of the CIT(A)-14, LTU, Bangalore dated 22.02.2016 for Assessment Year 2011-12. 2. Briefly stated, the facts of the case are as under:- 2.1 The assessee is a trust registered u/s. 12A of the Income Tax Act, 1961 (in short the Act ) vide order dated 22.10.2000 and running an educational institution in the name of Indian Institute of Journalism New Media, providing one year PG Diploma in print and web journalism. For Assessment Year 2011-12, the assessee filed its return of income on 24.02.2012 declaring Nil income. The case was taken up for scrutiny and the assessment was completed u/s. 143(3) of the Act vide order dated 11.03.2014; wherein the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss receipts, the assessee will not be in a position to invest higher amount/more than net surplus in the modes specified u/s 11(5). iv) Whether, in the given facts and circumstances, the CIT(A) is correct in law in not considering the fact that if the gross receipts are considered as income within the meaning of Section 11(1)(a), then in the event of assessee losing the exemption due to violation of conditions stipulated u/s 13, then the entire gross receipts being the income is liable to be taxed, which is grossly unjustified and unviable and beyond the purview of Section 11(i)(a). On the other hand, it is not the case of the assessee to argue that for the purpose of claiming 15% of income set-apart/accumulation, income to be reckoned on the basis of gross receipts, but in the event of assessee losing the exemption, the income will be recognized on the basis of net surplus/book profits rather than gross receipts. Disallowance of depreciation: (i). The CIT(A) has failed to appreciate the fact that the Hon'ble Kerala High Court in the case of Lissie Medical Intuitions Vs. CIT (348 ITR 344) has held that depreciation cannot be allowed on assets, where cost of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gious trust or institution on the value of assets which has already been allowed as application of income u/s 11(1) by inserting subsection (6) of Section 11, w.e.f 01.04.2015, such amendment cannot be construed as effective prospectively inasmuch as in accordance with the ratio laid down by the Hon'ble Supreme Court in the case of Escorts Ltd. another Vs. Union of India (Supra), the amendment only set out more clearly and categorically what the legislature had intended and conveyed u/s 11(1) even earlier to the said amendment. As such, the amendment shall be considered as clarificatory in nature making it clear that the assessee is not entitled to claim double deduction in respect of same expenditure u/s 11(1) as application of income and also depreciation simultaneously. Carry forward of excess application: i). Whether, in the given facts and circumstances, the ClT(A) is correct without appreciating the fact that the normal computation of income under respective heads as envisaged u/s 15 to 59 are not applicable to the computation of income in respect of charitable trust/institution for the purpose of claiming exemption under section 11, 12 and 13 and, therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Mary Immaculate Society v DDIT(Exemptions), Bangalore in its order in ITA Nos. 240 241/Bang/2015 dated 23.06.2015 and the decision rendered therein on this issue is squarely covered in favour of assessee and against revenue. 4.3.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements referred to. The issue for adjudication before us is whether the ld. CIT(A) was right in directing the AO to allow the assessee accumulation of income for application to the extent of 15% of gross receipts u/s. 11(1)(a) of the Act. 4.3.2 The assessee claimed accumulation of income for application for charitable purposes u/s. 11(1)(a) of the Act at 15% of gross receipts for the year under consideration. The Assessing Officer ( AO ) however, was of the view that accumulation will be allowed only to the extent of 15% of the net receipts i.e.; gross receipts less revenue expenditure and not on the gross receipts as claimed by the assessee. On appeal, the ld. CIT(A) allowed the assessee s claim that it is to be allowed accumulation of income for application for charitable purposes to the extent of 15% of gross receipt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue, we are of the view that the same is clearly covered by the decision of the Hon ble Supreme Court in the case of CIT vs. Programme for Community Organization (supra). In the decision, their Lordships, after taking note of provisions of s. 11(1)(a), have held as under: Having regard to the plain language of the above provision, it is clear that a charitable or religious trust is entitled to accumulate twenty-five per cent of its income derived from property held under trust. For the present purposes, the donations the assessee received, in the sum of ₹ 2,57,346/- would constitute its property and it is entitled to accumulate twenty-five per cent thereout. It is unclear on what basis the Revenue contended that it was entitled to accumulate only twenty five per cent of ₹ 87,010. For the aforesaid reasons, the civil appeal is dismissed. It is clear from the above that deduction of twenty-five per cent was held to be allowable not on total income as computed under the IT Act. Any amount or expenditure, which was application of income, is not to be considered for determining twenty five per cent to be accumulated. Their Lordships, as noted earlier affirmed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ejected the contention of the Revenue that the sum of ₹ 1,70,369 which was spent and applied by the assessee for charitable purposes was required to be excluded for purpose of taking amount to be accumulated. Having regard to the clear pronouncement of their Lordships of the Supreme Court, it is difficult to accept that outgoings which are in the nature of application of income are to be excluded. The income available to the assessee before it was applied is directed to be taken and the same in the present case is ₹ 3,42,174. Twenty five per cent of the above income is to be allowed as a deduction. Similar view has also been taken by the Hon ble Madhya Pradesh High Court in Parsi Zorastrian Anjuman Trust vs. CIT (supra). No reason whatsoever has been given by the Revenue authorities for deducting ₹ 2,17,126 in this case for purposes of s. 11(1)(a). The decision cited on behalf of the Revenue did not take into account the decision of the Supreme Court referred to above. The circular of CBDT has also been considered by the Hon ble Kerala High Court in its decision referred to above. Accordingly the question referred to is answered in the affirmative and in favo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1224/Bang/2015 dated 13/7/2016; (ii) ITO Exemption Vs. Sharaddha Trust in ITA No.899/Bang/2016 dated 7/4/2017, (iii) Jyothi Charitable Trust Vs. DCIT (Exemption) in ITA No.622/Bang/2015 dated 14/8/2015. 5.3.2 It was submitted that the issue in dispute i.e claim of depreciation on fixed assets is also covered by the above orders of the various Co-ordinate benches of this Tribunal. 5.4.1 We have heard the rival contentions and perused and carefully considered the material on record, including the judicial pronouncements cited. We find that the issue of claim of depreciation by a charitable trust u/s 11 of the Act has been considered and held in favour of the assessee by various Co-ordinate benches of this Tribunal as cited (Supra) and also by the Hon ble Karnataka High Court, in the case of DIT(Exemption) Vs. Al-Ameen Charitable Fund Trust Others (383 ITR 517) (Kar). In the case of Moogambigai Charitable and Education Trust Vs. ADIT (Exemption), the Co-ordinate bench in its order in ITA No.1224/Bang/2015 dated 13/7/2016 at para 11 thereof has held as under:- 11. We have considered the rival submissions as well as the relevant material on record. At the outset, we n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Court in the aforesaid decisions. 21. The issue raised by the revenue in the ground of appeal is thus no longer res Integra and has been decided by the Hon'ble Punjab Haryana High Court in the case of CIT Vs. Market Committee, Pipli, 330 ITR 16 (P H). The Hon'ble Punjab Haryana High Court after considering several decisions on that issue and also the decision of the Hon'ble Supreme Court in the case of Escorts Ltd. (supra), came to the conclusion that depreciation is allowable on capital assets on the income of the charitable trust for determining the quantum of funds which have to be applied for the purpose of trusts in terms of section 11 of the Act. The Hon'ble Punjab Haryana High Court made a reference to the decision of me Hon'ble Supreme Court in the case of Escorts Ltd. (supra) and observed that the Hon'ble Supreme Court was dealing with a case of two deductions under different provisions of the Act, one u/s. 32 for depreciation and the other on account of expenditure of a capital nature incurred on scientific research u/s. 35(1)(iv) of the Act. The Hon'ble Court thereafter held that a trust claiming depreciation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under consideration. Following the earlier decisions of this Tribunal, we decide this issue in favour of the assessee and against the revenue. 5.4.2 Respectfully following the decision of the Hon ble Karnataka High Court in the case of Al-Ameen Charitable Fund Trust Others (383 ITR 517), wherein the Hon ble High Court has distinguished the decision of the Hon ble Kerala High Court in Lissie Medical Institutions (Supra) and also following the decision of the co-ordinate Bench in the case of M/s Moogambigai Charitable Educational Trust, in ITA No.1224/Bang/2015 dated 13/7/2016, we find no merit in the ground raised by Revenue on this issue and consequently uphold the order of the ld CIT(A) in directing the AO to allow the assessee s claim for depreciation. 6. Carry forward of excess application of income for set off as application against income of subsequent years 6.1 The ld DR for Revenue was heard in support of the ground raised (Supra) and submitted that carry forward of surplus funds for application against income in subsequent years is not permissible since there is no specific provision in this regard in either sections 11 and 13 of the Act which are in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which such adjustment takes place. In other words, the setoff of excess of expenditure incurred over the income of earlier years against the income of a later year will amount to application of income of such later sear. The above is the position of law as held in the case of CIT v. Maharana of Mewar Charitable Foundation [1987] 164 ITR 439/[1986] 29 Taxman 476 (Raj) and CIT Vs. Plot Sweatamber Murli Pujak Jain Mandal [1995[ 211 ITR 293 (Guj.). In CIT v, Institute of Banking Personnel Selection [2003] 264 ITR 110/131 Taxman 386 (Bom.) it was held that in case of charitable trust whose income is exempt under s. 11, excess of expenditure in the earlier years can be adjusted against income at subsequent years and such adjustment Would tie application of income for subsequent years and that depreciation is allowable on the assets the cost of which has been fully allowed as application of income under s. II in past years. In Govindu Naicker Estate Vs. Asst. DIT [2001] 248 ITR 368/[1999] 105 Taxman 719 (Mad.), the Hon ble Madras High Court held that the income of the trust has to be arrived at having due regard to the commercial principles, that s. Ii is a benevolent provision, and that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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