TaxTMI 
TaxTMI 
2011 (12) TMI 322
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..... That the CIT (Appeals) has grossly erred in law that the same income or funds are required to be applied which were accumulated after holding that application of FIFO method is not applicable. The findings of the CIT(A) are self-contradictory; 5. That on the facts and in the circumstances of the case, the ld. CIT (Appeals) has erred in law in upholding the action of the assessing officer in not allowing depreciation on fixed assets amounting to Rs. 16,03,236/-. " 3. The first issue for consideration relates to upholding the action of the assessing officer in treating Rs. 2,30,00,000/- as taxable income under section 11(3) of the Income Tax Act, 1961 [hereinafter referred to as the Act]. The facts of the case relating to this ground of appeal are that the assessee society is registered under section 12-A and filed return of income for assessment year under consideration disclosing NIL income. The case was selected for scrutiny. The assessing officer issued notice under section 142(1) of the Act asking the assessee to submit details of surplus/deficit of past ten years and utilization of the same in subsequent year. On perusal of the statement containing amo....
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.... made out of those funds. The quantum of deposit only went on increasing in subsequent years. The computation of income filed by the assessee for assessment years 2003-04, 2004-05 and 2005-06 never mentioned the particular year whose accumulation were utilized for purchase of assets. The assessee was required to establish the co-relation. However, no such explanation with documentary evidence was submitted. The assessing officer on the basis of the above facts noted that the assessee was accumulating funds under section 11(2) regularly. The funds accumulated earlier were utilized for expenditure. In the absence of documentary evidence to the contrary, which could only be made available by the assessee, the assessing officer noted that FIFO method was to be followed under which the earliest accumulation during the period of ten years was to be treated as utilized in subsequent years. The assessing officer further noted that the funds accumulated in earlier years were to be considered as funds utilized for purchase of fixed assets unless the assessee produced detailed documentary evidences identifying and co-relating the accumulated funds upto assessment year 2002-03 with the funds u....
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....pport the contention of the assessee. The ld. CIT (Appeals), therefore, upheld the addition of Rs. 2,30,00,000/- made by the assessing officer. 5. Before us the ld. AR of the assessee submitted that the assessee had accumulated income of Rs. 2,30,00,000/- under section 11(2) of the Act for a period of five years i.e. from 1/04/2002 to 31st March, 2007. Therefore, no addition can be made in assessment year 2007-08. Under section 11(3), if any income accumulated in section 11(2) is applied for the purpose other than charitable or religious purposes or ceased to be accumulate or set apart for application thereto or ceases to remain invested or deposited in any of the forms or modes specified under section 11(5) or is not utilized for the purpose for which it was so accumulated or set apart, the same shall be deem to be income of such person of the previous year in which it is so applied or ceased to be so accumulated or set apart or ceased to be so remain or deposited, as the case may be of the previous year immediately following the expiry of the period aforesaid. Therefore, it has been submitted that in a case where income is not applied for the objects of the trust, the income w....
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....directed to provide the full details i.e. form No. 10, the details of forms or modes of investment of the funds so accumulated, the period of accumulation and as to how the accumulated funds were to be utilized. In case the assessee does not give details, the assessing officer will be free to decide the issue on merits after affording the assessee a reasonable opportunity of being heard. 7. The next issue for consideration relates to upholding the action of the AO in not allowing depreciation on fixed assets amounting to Rs. 16,03,236/-. The assessing officer noted that the assessee had regularly claimed application of surplus funds for the purpose of capital expenditure in earlier years. Therefore, depreciation was not allowable on capital assets, which were acquired from the income of the assessee. 8. On appeal the ld. CIT (Appeals) observed that the assessee cannot claim double the amount of what it has actually applied towards charity as an application of income. He placed reliance on the decision of Hon'ble Supreme Court in the case of Escorts Ltd. v. Union of India [1993] 199 ITR 43/[1992] 65 Taxman 420 wherein it has been held that when deduction under section 35(2)(iv....
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....ontext of section 11 means the income is 'actually applied' for the charitable or religious purposes of the trust. In CIT v. Ramchandra Poddar Charitable Trust [1987] 164 ITR 666/[1986] 26 Taxman 512 (Cal.) the trust donated shares which were purchased in an earlier year out of accumulative profits. Hon'ble High Court held that such donation not related to income of the current year could not amount to application of income for the purposes of section 11. Therefore in view of decisions of Hon'ble Supreme Court and Calcutta High Court income of the current year 'actually applied' for charitable or religious purposes subject to fulfillment of other conditions will be exempt from Income Tax under section 11(1)(a) of the Act. It means the notional expenditure cannot be treated as application of income within the meaning of section 11 of the Act. 12. Further the only requirement under section 11(1)(a) is that the income of trust must be actually applied to the charitable or religious purposes for which the properties are held on the trust by trustees etc. It does not say that application of income should be such that it may necessarily results in revenue expenditure. The charitable p....
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....the case of Escorts Ltd. (supra) observed that there is a fundamental, though un-written, axiom that no Legislature could have at all intended a double deduction in regard to the same business out-going; and, if it is intended, it will be clearly expressed. In other words, in the absence of clear statutory indication to the contrary, the statute should not be read so as to permit an assessee two deductions - both under section 10(2)(vi) and section 10(2)(xiv) of the 1922 Act or under section 32(1)(ii) and section 35(2)(iv) of the Act qua the same expenditure. 13.2 Under section 11(1)(a) of the Act when income is applied for acquisition of capital asset which is treated as applied , the claim of depreciation on same income will amount to double deduction. Moreover, as held by Hon'ble Supreme Court that expression 'applied' means actual application. In other words in a particular year, if the income has actually been applied for the charitable or religious purposes to the extent of 85 per cent or is accumulated for specific purpose under section 11(2), the exemption of whole of the income will be allowable. In a case where capital asset was acquired in earlier year and depreciatio....