TaxTMI 
TaxTMI 
2016 (2) TMI 188
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....lding that the corpus donation received by the assessee trust will become the income of the assessee trust since the assessee trust is not treated as a charitable institution. iii) The Ld. CIT(A) had erred by holding that the assessee trust would not be eligible to carry forward excess application of income of Rs. 6,22,83,776/-. iv) The Ld. CIT(A) had erred by not treating the loss on sale of assets for Rs. 14,31,181/- as application of income. v) The Ld. CIT(A) had erred by not allowing depreciation of Rs. 2,83,44,917/- as application of income. vi) The Ld. CIT(A) had erred by not allowing the claim of bad debts of Rs. 3,08,658/- as application of income. 4. The brief facts of the case are that the assessee-trust registered u/s 12AA of the Act, is engaged in the activity of running hospitals, filed its return of income for the assessment year 2010-11 on 01.10.2010 declaring 'Nil' income after claiming deduction U/s. 11 of the Act and depreciation on the assets. The case was taken up for scrutiny and assessment was completed U/s.143 (3) of the Act on 21.03.2013 wherein the ld. Assessing Officer disallowed the claim of depreciation, carried forward of excess application of ....
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....d clinics offer better discount than the assessee trust. The procedure to get discount are also cumbersome. xi) The assessee is running its hospital as a normal routine commercial hospital but in the grab of charitable institution. xii) The assessee has not distinguished its activities as to how it differs from other corporate hospitals/polyclinic/dispensaries run by individual doctors. xiii) The intention of the statute is to provide charitable medical relief, charitable education etc., and not for commercial operations. 5.2 Ld. A.R. submitted before us that even though there is surplus derived from providing medical relief, the benefit of Section-11 cannot be denied subject to the fulfillment of other conditions provided in the Act, because the provisions of section 2(15) specifically provides that any services in the nature of medical relief ought to be considered as charitable in nature. The Ld. A.R. further relied in the decision of Hon'ble Apex Court reported in 2015-TIOL-20-SC-II in the case of M/s.Queen's Educational society Vs. CIT vide order dated 16th March, 2015 wherein it was held that if the educational institution generates surplus, it will not cease to exist ....
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....icularly for widows and orphaned girls either as free or as paying inmates and by conducting schools for imparting religious, secular and industrial education and training in fine arts. A number of ancillary objects have been adverted therein including provision of libraries and gymnasiums, publication of books and by means of pecuniary and other help to students of the institution. A holistic reading of the object clause would establish beyond doubt that the sole purpose for the establishment of the petitioner was to further the cause of education amongst women belonging to a particular class, as stated therein. Though the objects clause contained varied objects including the management and development of movable and immovable properties, the statement of fact before the Court which is not disputed is that the only activity which has been carried out by the trust ever since its inception is the conduct of educational institutions. The Court, it must be emphasized, is not dealing with an institution which has sought approval for the first time or which has been set up in the proximate past. The trust has a history of over eighty years during the course of which the only activity is....
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....ve been made in the context of s. 10(22) would furnish a cogent answer to both the issues on which the applications for approval were rejected by the first respondent. Firstly, though the memorandum of association contains varied objects, so long as the record demonstrates that the assessee only conducts educational institutions, it must be regarded as existing solely for the purpose of education. No other activity is carried on. Secondly, the fact that a surplus may incidentally arise from the activities of the trust, after meeting the expenditure incurred for conducting educational activities would not disentitle the trust of the benefit of the provisions of s. 10(23C). Insofar the aspect of surplus is concerned, one must in addition, advert to the provision which has been made by Parliament in the third proviso to s. 10(23C). By the third proviso, it has been clarified that in the case inter alia of universities or other educational institutions which have applied its income or accumulated it for application wholly and exclusively to the objects for which it is established and in a case where fifteen per cent of income is accumulated on or after 1st April, 2002, the period of th....
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....the previous year in which such donation is received by the trust, as provided U/s.11 (1)(d) of the Act. Further we make it clear that the Ld.CIT(A) has powers to enhance an assessment and travel beyond the subject matter of the appeal as per Section 251(2) of the Act after providing an opportunity of being heard. 6.1 Ground No.(iii): Disallowance of the carry forward and set off of excess application of income. During the course of assessment proceedings, it was observed that the assessee had claimed Rs. 6,24,83,776/- as excess application of fund to be carried forward to the subsequent years. It was also observed that the excess application of fund claimed by the assessee trust was not from the income earned by the assessee trust during the previous year. Therefore it was clear that excess application of fund was either sourced from the loan obtained by the assessee trust or from the accumulation of funds during the earlier years. It was further observed that only Rs. 3,75,02,118/- was applied from the income derived during the relevant previous year and the balance amount of Rs. 3,07,92,656/- was actually spent from the accumulated funds of the earlier years. The excess appli....
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....n the voluntary contributions received with specific directions" and the "income derived from property held under trust", then such income shall not be included in the total income of the Trust. Further the balance 15% of such income even if accumulated or set apart shall also not be included in the total income of the Trust. Therefore, what is provided under the Act is with respect to 'application of income' from the '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'. Thus, there is no reference in Section-11 of the Act with respect to application of fund from the 'corpus' of the trust, 'loan' obtained by the Trust, 'Sundry creditors' of the Trust or 'accumulate fund' of the Trust for claiming exemption U/s.11 (1) of the Act. 4.5. Application of fund by any charitable institution is possible only from the following sources:- i) Voluntary contributions received by the Trust towards its corpus, ii) Other voluntary contributions, iii) Accumulated fund, iv) Amount received by way of loan, v) Sundry cr....
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....xcess application of fund in the commercial principles cannot be allowed as per the provisions of the Act because it would result in notional application of income in the subsequent year. These aspects have not been considered by the Mumbai Bench of the Tribunal, and the unreported decision of the Hon'ble Bombay High Court is also not placed before us. 4.6 Now analyzing the facts of the case before us, it appears that the assessee trust's gross receipts is Rs. 5,11,60,794/- and the assessee trust have spent Rs. 5,35,57,149/- which shows that the assessee trust has spent Rs. 23,96,355/- more than its income received during the relevant year. This amount of Rs. 23,96,355/- may have been taken out from the 'corpus funds', 'accumulated funds', 'loan' obtained by the assessee trust or arising out of 'Sundry Creditors'. Therefore it is obvious that there is no excess application of income over and above the income received by the trust, hence the question of carry forward of excess application of income does not arise. However the amount applied from the 'Loan' or 'Sundry Creditors' will be allowed as application of fund in the year in which such 'Loan' or 'Sundry Creditors' are repai....
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.... application of funds once again. It would amount to double deduction. Further the facts remain that the sale proceeds of Rs. 5,81,000/- is the income of the assessee because there is a cash inflow to that extend which has to be applied for the objects of the trust as provided under the provisions of the Act. Therefore the action of Ld. Assessing Officer is justified. It is ordered accordingly. 8.1 Ground No.(v): Disallowance of the depreciation while computing the income of the assessee trust. During the course of assessment proceedings, it was observed by the Ld. Assessing Officer that the assessee had claimed depreciation on the same assets the full cost of which was allowed as application of funds. The Ld. Assessing Officer disallowed the claim of depreciation made by the assessee because the cost of the asset was already allowed as application of fund and therefore such claim would amount to double deduction. On appeal, the Ld. CIT (A) having withdrawn the benefit of Section-11 of the Act to the assessee did not adjudicated this issue as it had become irrelevant. 8.2 At the outset we find that on the earlier occasion, the Chennai Bench of the Tribunal in the case of The An....
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....rect to assign to the word "income" used in section 11(1)(a), the same meaning as has been specifically assigned to the expression "total income" vide section 2(45). 3. In the case of 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 cap....