Application of income under section 11: repayment of loan for charitable infrastructure treated as application; appeal dismissed.

Whether repayment of a loan taken and recorded as a receipt in an earlier year for construction of charitable educational infrastructure qualifies as an application of income under section 11 is the central issue. The analysis applies the binding effect of administrative circulars and relevant precedents to hold that repayment of borrowings used for charitable purposes constitutes application of income; the repayment is thus treated as application of income. The finding notes absence of double deduction on the facts and observes a later statutory amendment is prospective, leaving the operative effect unchanged for the year under consideration.

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Issues: Whether repayment of a loan originally taken and shown as receipt in an earlier year for construction of charitable infrastructure qualifies as an application of income under section 11 of the Income-tax Act, 1961 for the assessment year 2016-17.

Analysis: The Tribunal examined the facts that the trust availed a term loan in FY 2006-07 which was shown as receipt in that year and used for construction of school and hostel buildings, and that Rs. 2 crores of that loan was repaid in the year under consideration. The Tribunal considered the legal effect of CBDT Circular No. 100 dated 24-01-1973, the binding nature of CBDT circulars under section 119 of the Income-tax Act, 1961, relevant judicial precedents affirming that repayment of borrowings used for charitable purposes can amount to application of income, and the amendment by the Finance Act, 2021 which is prospective from 01.04.2022. The Tribunal addressed the assessing officer's concern about possible double deduction and found it misplaced on the facts because the borrowing was shown as receipt in the year of borrowing and no depreciation was claimed on the assets created from the borrowed funds.

Conclusion: The repayment of Rs. 2 crores of the loan taken for constructing educational infrastructure is to be treated as an application of income under section 11 of the Income-tax Act, 1961; the Revenue's appeal is dismissed and the order of the Commissioner of Income Tax (Appeals) is affirmed.

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