TaxTMI 
TaxTMI 
2015 (11) TMI 634
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....o reach millions of poor people who lack access to basic financial services. The Assessee is not engaged in microfinance lending as such. However, the Assessee works with entities engaged in microfinance, to help them design and launch programs which have maximum social impact. The Assessee enjoys registration u/s.12AA of the Income Tax Act, 1961 (Act) and is entitled to claim exemption of its total income u/s.11 of the Act. 3. The Assessee filed return of income for AY 2009-10 declaring total income of nil. The following was the computation of total income filed by the Assessee :- Particulars Amount Rs. Amount Rs. Income: Gains/donations 4,18,00,000 Income from workshops, training and technical and management services 84,23,491 5,02,23,491 Less: Income applied for charitable purposes eligible for exemption u/s.11 Operating & other expenses 3,33,69,319 Interest expenses 51,52,306 Depreciation 13,49,000 Investment in fixed assets 3,25,411 (4,01,96,037) Less: Deficit brought forward ....
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....46 ITR 28 (Kar) has taken the view that where capital expenditure on acquisition of depreciable asset is considered as application of income for charitable purpose, allowing depreciation on the very same capital asset would not amount to double allowance. The assessee also pointed out that the decision of Escorts Ltd. (supra) will not be applicable as it was rendered on a different set of facts. 7. The AO 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. 8. On appeal by the Assessee, the CIT(A), held that the claim of the Assessee for depreciation has to be allowed but only on....
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.... the Hon'ble Court in the aforesaid decisions. 21. The issue raised by the revenue in the ground of appeal is thus no longer res integra and has been decided by the Hon'ble Punjab & Haryana High Court in the case of CIT v. Market Committee, Pipli, 330 ITR 16 (P&H). The Hon'ble Punjab & Haryana High Court after considering several decisions on that issue and also the decision of the Hon'ble Supreme 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 doubl....
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....ng Rs. 2,74,97,241 which comprises of brought forward deficit of Rs. 2,66,04,960 pertaining to AY 08-09 and Rs. 8,92,281 pertaining to brought forward deficit of AY 07- 08. The assessee sought setting off of excess expenditure over income in the earlier AYs as application of income in the subsequent assessment year i.e., in AY 2009-10. According to the AO there was no provision in the Act for carry forward of excess expenditure of earlier year to be adjusted against income of the subsequent year and he therefore denied the claim of the Assessee. 14. On appeal by the assessee, the CIT(A) directed the AO to allow claim of the assessee for set off in so far as it relates to deficit of AY 07-08 but denied the claim in so far as it relates to AY 08-09. The following were the reasons given by the CIT(A) in this regard:- "16. Ground No. 4 & 5 relate to claim of loss/deficit of earlier years against income of the current year: As per details filed by the Ld. AR, such deficit or excess expenditure over income related to AY 2007-08 (Rs.892,281/-) and AY 2008-09 (Rs. 26,604,960/-), which were to be carried forward and set off against current year's income. It has also been explained ....
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....The scheme contemplates a Computation of the total income by the ITO as the first step. Income applied for charitable purpose is thereafter made exempt. If there is a loss or deficit in the computation of the total income, that alone, therefore, can be carried forward. Where the deficit arises as a result of excess spending for charitable purposes, such excess would not form part of the total income or loss and the same, therefore, cannot be carried forward. The claim of the assessee that the advance received by it in regard to the sale of property was in the nature of income, had also to be rejected for the simple reason that such advance could not go into the computation of the total income. If would be so even if the income' of the trust for the purpose of the Act could not be regarded in a commercial sense. Thus, in the present case, there was no loss in the computation of the total income of the trust which was entitled to be carried forward. The deficit arose out of the application of sums not in the nature of income and such deficit was not capable of being carried forward. Accordingly, the order passed by the ITO in which he did not allow the carry forward of the deficit wa....
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....d 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 income of such subsequent year can be said to be applied for charitable or religious purposes in the year in which such adjustment takes place. In other words, the set-off of excess of expenditure incurred over the income of earlier years against the income of a later year will amount to application of income of such later year. The above is the position of law as held in the case of CIT Vs. Maharana of Mewar Charitable Foundation 164 ITR 439 (Raj), CIT Vs. Shri Plot Swetamber Murti Pujak Jain Mandal 211 ITR 293 (Guj.). In CIT Vs. Institute of Banking Personnel Selection 264 ITR 110 (Bom) it was held that in case of charitable trust whose income is exempt under s. 11, excess of expenditure in the earlier years can be ad....