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TMI Blog2019 (8) TMI 1194X X X X Extracts X X X X X X X X Extracts X X X X ..... ing expenditure and in order to incur that expenditure, the trust should have an income. So long as the expenditure incurred is on religious or charitable purposes, it is the expenditure properly incurred by the trust, and the income from out of which that expenditure is incurred, would not be liable to tax. The expenditure, if incurred in an earlier year is adjusted against the income of a later year, it has to be held that the trust had incurred expenditure on religious and charitable purposes from the income of the subsequent year, even though the actual expenditure was in the earlier years, if in the books of account of the trust such earlier expenditure had been set off against the income of the subsequent year. The expenditure that can be so adjusted can only be expenditure on religious and charitable purposes and no other. The High Court relied on the decision in the case of CIT Vs. Society of Sisters of ST. Anne [ 1983 (8) TMI 44 - KARNATAKA HIGH COURT] - no merit in grounds raised by the revenue in this regard and the same is dismissed. Computing accumulation of income of 15% u/s 11(1)((a) - whether one has to take the gross receipts or gross receipts after expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view that in the light of the decision that Hon ble Karnataka High Court the deduction claimed should be allowed. It cannot be said that the assessee has not applied the income for charitable purposes outside India as beneficiaries of the education imparted outside India where the assessee s students. Accordingly the relevant grounds of appeal for the assessee are allowed. Allowability of capital expenditure as application - assessee incurred capital expenditure for acquisition of capital assets but the payment for acquisition of the aforesaid capital assets were outstanding and were not paid - HELD THAT:- Plea of the assessee deserves to be accepted. As the decision of the Hon ble Andhra Pradesh High Court in the case of Nizzam Trust [ 1981 (1) TMI 52 - ANDHRA PRADESH HIGH COURT] supports the plea of the assessee. The law is well settled that the income of a trust has to be computed keeping in mind commercial principles as per the accepted commercial principles amount due but not paid and should also to taken into consideration for determining income. - ITA Nos. 1514 And 1515/Bang/2016, ITA No. 137/Bang/2017, ITA Nos. 1730, 1731 & 1732 - - - Dated:- 21-8-2019 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... however, held that allowance of depreciation when the cost has already been recovered by way of exemption as application of income amounts to double deduction and double benefit on the same asset. The AO referred to the decision of the of Hon'ble High Court of Kerala in the case of DDIT(E) v. Lissie Medical Institutions, 348 ITR 344 (Ker) wherein it was held that allowing depreciation of a depreciable asset when the cost of acquisition of depreciable asset was allowed as application of income for charitable purpose amounts to double depreciation and therefore depreciation cannot be allowed. The AO also distinguished the cases cited by the Assessee. 5. On appeal by the Assessee, the CIT(A), deleted the addition made by the AO. 6. Aggrieved by the order of the CIT(A), the revenue has preferred the present appeal before the Tribunal. The relevant ground of appeal raised by the Assessee is ground No.1 (i) to (iv) in all the appeals relating to disallowance of depreciation. 7. We have heard the submissions of the ld. DR, who relied on the order of AO. The learned counsel for the Assessee relied on the order of the CIT(A). We have c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 the 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 cannot be equated with a claim for double deduction. The Hon ble Punjab Haryana High Court has also made a reference to the decision of the Hon'ble Karnataka High Court in the case of CIT v. Society of Sisters of Anne, 146 ITR 28 (Kar), wherein it was held that u/s. 11(1) of the Act, income has to be computed in normal commercial manner and the amount of depreciation debited in the books is deductible while computing such income. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be adjusted against income of the subsequent year and he therefore denied the claim of the Assessee. 11. On appeal by the assessee, the CIT(A) allowed the claim of the Assessee. Aggrieved by the order of CIT(A), the revenue is in appeal before the Tribunal. 12. The learned DR reiterated the stand of the AO that there is no provision in the Act to allow carry forward of excess application of income for set off as application of income in subsequent years. The ld. counsel for the Assessee relied on the order of the CIT(A). 14. We have considered his submission. Section 11(1)(a) does not contain any words of limitation to the effect that the income should have been applied for charitable or religious purpose only in the year in which the income has arisen. The application for charitable purposes as contemplated in section 11(1)(a) takes place in the year in which the income is adjusted to meet the expenses incurred for charitable or religious purposes. Hence, even if the expenses for such purposes have been incurred in the earlier years and the said expenses are adjusted against the income of a subsequent year, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e actual expenditure was in the earlier years, if in the books of account of the trust such earlier expenditure had been set off against the income of the subsequent year. The expenditure that can be so adjusted can only be expenditure on religious and charitable purposes and no other. The High Court relied on the decision in the case of CIT Vs. Society of Sisters of ST. Anne 146 ITR 28 (Kar.). 15. We are therefore of the view that there is no merit in grounds raised by the revenue in this regard and the same is dismissed. 16. The third issue that arises for consideration in ITA No.1515/Bang/2016 for AY 2011-12 is as to whether 15% accumulation for application in future has to be calculated on gross receipts or net receipts after deduction of revenue expenditure. The Assessee claimed accumulation of income for application for charitable purpose at 15% of the gross receipts. The AO was of the view that accumulation will be allowed only to the extent of 15% of the income after revenue expenditure. In other words income to be set apart u/s.11(1)(a) of the Act has to be computed at 15% of the net income i.e., gross receipts minus revenue expenditure an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under trust. For the present purposes, the donations the assessee received, in the sum of ₹ 2,57,376, 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 the decision of Kerala High Court in (1997) 141 CTR (Ker) 502 : (1997) 228 ITR 620 (Ker) (supra) wherein it is held as under : At the outset, the statutory language of s. 11(1)(a) of the IT Act, 1961, relates to the income derived by the trust from property. The trust is required to be wholly for charitable or religious purposes, and the income is expected to have relation to the extent to which such income is applied to such p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome 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 favour of the assessee. 19. The aforesaid decision clearly supports the plea of the Assessee. Following the same, we hold that the accumulation u/s.11(1)(a) of the Act should be allowed as claimed by the Assessee. The relevant ground of appeal of the revenue is accordingly dismissed. 20. In the result, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the total income only to the extent to which such income is applied to such purposes in India. According to the AO since the aforesaid expenditure was not incurred in India the assessee cannot claim the benefit of deduction of the aforesaid expenditure as an application of income. Accordingly the aforesaid sum was added to the total income of the assesee. Similar expenses incurred not in asst. year 2011-2 and 2012-13 were also disallowed for the same reason and added to the total income of the assessee. The details of the expenditure incurred in asst. year 2011-12 are as follows:- 27. The details of expenditure incurred in asst. year 2012-13 was sum of ₹ 24,50,195/-. The breakup of the aforesaid expenditure is not available in the order of assessment. 28. The action of the AO was confirmed by the CIT(A). 29. Aggrieved by the order of the CIT(A), the assessee has preferred the present appeal before the Tribunal. 30. We have heard the submissions of the ld counsel for the assessee and the ld DR relied on the order of the CIT(A). The ld counsel for the assessee brought to our notice that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned Tribunal that a provision was made to the Ohio University for charitable activity by way of education being imparted in India and the fact of the actual payment made to the Ohio University in the very next year and that too offered for taxation in India being undisputed, no such substantial question of law arises for our further consideration. 32. He also drew our attention to the decision of the Hon ble Delhi High Court in the case of Institute of chartered Accountant of India Vs. DDIT wherein an identical issue Tribunal held as follows:- 17. It is quite clear from the above provisions that there is no such condition as being stated by the DIT(Exemption) in Section 1O(23C)(iv). Furthermore, Section 11(l)(c) is applicable only with reference to those trusts which are claiming exemption u/s 11, and it is not applicable to exemption u/s 10(23C)(iv). Due clarification was given to the DIT(Exemption) during the course of proceedings u/s 263 as stated above. However, the objection raised by the DIT(Exemption) with regard to CBDT permission is applicable when any expenditure is incurred which tends to promote international welfa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat arises for consideration is that when the assessee incurred capital expenditure for acquisition of capital assets but the payment for acquisition of the aforesaid capital assets were outstanding and were not paid, can it be regarded as application of income for charitable purpose. The AO was of the view that the deduction can be claimed only on the basis of actual payment and not on the basis of the outstanding liability shown in the balance sheet. The view of the AO was confirmed by the CIT(A) against which the assessee has preferred present appeal before the Tribunal. 36. The ld DR relied on the order of the CIT(A) on this issue and the CIT(A) in upholding the order of the AO came to the conclusion that unpaid paid liability will not amount to application of income u/s 11(1)(a) of the Act. 37. Aggrieved by the order of the CIT(A) the assessee is in the appeal before the Tribunal. 38. The ld DR relied on the order of the CIT(A). The ld counsel for the assessee placed reliance on the decision of Hon ble Karnataka High Court in the case of CIT VS. Ohio University, Christ College (Supra) and also the decision of the Hon ble Andhr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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