TaxTMI 
TaxTMI 
2015 (7) TMI 594
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....cer wherein the actual rent received is treated as the income from house property of the assessee and not computed in accordance with the provisions of U/s.23 & 24 of the Act. 3. The brief facts of the case are that the assessee-trust is engaged in the activity of organizing and running orphanage and educational institutions, registered u/s 12A(a) of the Act vide order of the Ld. CIT-III, Chennai in C.No.212(66)/70 dated 02.07.1975, filed its return of income for the assessment year 2009-10 on 30.09.2009. The case was taken up for scrutiny and assessment was completed U/s.143(3) of the Act on 14.12.2011 wherein the Ld. Assessing Officer allowed the claim of set off of excess application only to the extent of Rs. 23,96,355/- as against the claim of Rs. 1,00,70,474/- by the assessee, disallowed the claim of depreciation while computing the income of the assessee and adopted the rent received from house property as the income from house property instead of determining the same in accordance with the provisions of section 23 & 24 of the Act. 4.1. Ground No.(i) - Disallowance of the carry forward and set off of excess application of income. The assessee in its return of income had c....
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.... expenditure is to be carried forward and allowed in the subsequent year. The principles of set apart/accumulation of income arise only if it is real income. Otherwise, the investment U/s. 11(5) of the Act is not possible with deemed income. The intention of the legislature is to invest real income derived from property of the trust in specific assets when they are not utilized / applied. The very concept of exemption U/s. 11 of the Act is defeated if provisions of profits and gains of business or provision relating to carry forward and set-off is substituted for the "Income which do not from part of Total income" included under Chapter-III of the Income-tax Act." 4.3. Before us, the Ld. A.R. citing the decision of the Bombay Tribunal in ITA No.6129/Mum./2013 in the case of M/s.Maharashtra Industrial Development Corporation, Mumbai vide order dated 05.03.2015 argued that the assessee should be allowed to carry forward the excess application. The Ld. D.R on the other hand argued in support of the order of the Ld. CIT (A). 4.4 We have heard both the parties and carefully perused the materials available on record. Section-11(1)(a) of the Act provides that "income derived from proper....
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.... by way of loan, v) Sundry creditors, vi) "Income" derived from the "Property" held under the Trust. [Hon'ble Calcutta High Court has held in the case DCIT VS. Girdharilal Shewnarain Tantia Trust reported in [1993] 199 ITR 15(Cal.) that "The "income" contemplated by the provisions of section 11 is the real income and not the income as assessed or assessable". Further, Hon'ble Apex High Court has held in the case of J.K.Trust Vs. Ld. CIT /CEPT reported in [1957] 32 ITR 535(SC) that "Property" is a term of the widest import, and subject any limitation or qualification which the context might require, it signifies every possible interest which a person can acquire, hold and enjoy. Business would undoubtedly be property unless there is something to the contrary in the enactment. ] When the Trust applies its funds from its Corpus, accumulated fund, Sundry creditors or from the loan obtained by the Trust, then such funds which are applied cannot be said to be funds applied from the income of the Trust. Therefore, there cannot be a case where the trust can apply its income more than the income received by it for the purpose of Section-11(1)(a)&(b) of the Act. Thus excess application....
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....ry Creditors' are repaid. It is pertinent to mention that if the amount is applied from the 'Corpus fund' or 'accumulated fund' it will not be treated as application of fund because 'Corpus fund' and 'accumulate fund' are already exempt from the income of the Trust and once again if it is treated as application of fund it would amount to double deduction. Therefore the claim of the assessee to carry forward the excess application of fund cannot be entertained applying the commercial principles. However if the excess amount of Rs. 23,96,355/- is applied from the borrowed fund or from Sundry Creditors, the same shall be allowed as application in the year in which such Loan or Sundry Creditors are repaid from the income of the Trust as discussed herein above. Needless to mention that the income of the Trust refers to 'income derived from the property held under the Trust' and any 'voluntary contributions received by the Trust other than contributions made with specific directions that they shall form part of the corpus of the trust' i.e., item Nos.(ii) and (vi) mentioned hereinabove. This ground raised by the assessee is accordingly disposed off. 5.1 Ground No.(ii) - Disallowance of ....
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....f a business undertaking held under trust, its "income" will be the income as shown in the accounts of the undertaking. Under section 11(4), any income of the business undertaking determined by the Incometax Officer in accordance with the provisions of the Act, which is in excess of the income as shown in its accounts, is to be deemed to have been applied to purposes other than charitable or religious, and hence it will be charged to tax under sub-section (3). As only the income disclosed by the account will be eligible for exemption under section 11(1), the permitted accumulation of 25 per cent will also be calculated with reference to this income. 4. Where the trust derives income from house property, interest on securities, capital gains, or other sources, the word "income" should be understood in its commercial sense, i.e., book income, after adding back any appropriations or applications thereof towards the purposes of the trust or otherwise, and also after adding back any debits made for capital expenditure incurred for the purposes of the trust or otherwise. It should be noted, in this connection, that the amounts so added back will become chargeable to tax under section 11....
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....e provisions of U/s.23 & 24 of the Act. On perusing the return of income, the Ld. Assessing Officer observed that the assessee had computed its income from house property after claiming deduction U/s. 23 & 24 of the Act. Accordingly the actual rental income received by the assessee amounting to Rs. 3,54,60,534/- was substituted to Rs. 2,39,43,919/- as the income received from house property in the income and expenditure account of the assessee trust. The Ld. Assessing Officer was of the view that notional deductions U/s. 23 & 24 of the Act cannot be granted to the assessee Trust while computing the income of the assessee trust for granting benefit Under Section-11 of the Act, and accordingly the same was disallowed. On appeal, the Ld. CIT (A) confirmed the order of the Ld. Assessing Officer by observing as under:- "4. Regarding deduction claimed U/s. 23 & 24 of the Act to arrive at the income from house property, the gross receipts alone should be considered for calculating 85% for application and not the income after deduction U/s. 23 & 24 of the Act. As the income from house property held under trust is to be determined in normal commercial manner, there is no scope for computi....