Application of income for charitable trusts includes loan repayment where the borrowed expenditure was not earlier claimed as application.

Repayment of borrowed funds by a charitable trust was treated as application of income where the corresponding loan-funded expenditure had not earlier been claimed as application. Applying Explanation 4 to section 11, the Tribunal accepted the trust's records showing that in the borrowing years it excluded the loan-funded expenditure from application and claimed application only on repayment, so there was no prior double deduction. The disallowance was therefore directed to be deleted.

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Issues: Whether repayment of loans taken by a charitable trust could be allowed as application of income when the borrowed amounts had not been claimed as application in the year of borrowing, and whether the impugned disallowance resulted in double deduction.

Analysis: Explanation 4 to section 11, as applied by the Tribunal, permits repayment of borrowed funds to be treated as application of income where the corresponding loan-funded expenditure was not earlier claimed as application. The assessee produced computations, returns, annual accounts and statements showing that in the years of borrowing it reduced the loan-funded expenditure from application of income and claimed application only on repayment. The record supported that the repayment claims were made only when the loans were repaid and not when the loans were received. The presumption of prior double claim was not supported by the material on record.

Conclusion: The assessee's repayment of the bank loans was held to be allowable as application of income, and the disallowance was directed to be deleted.

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