TaxTMI 
TaxTMI 
2013 (2) TMI 755
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.... of earlier years were not allowed for set off against income of the impugned assessment year. There is one other ground which is against levy of interest under Section 234B of Income-tax Act, 1961 (in short 'the Act'). On the other hand, Revenue in its cross-appeal is aggrieved on the directions of the CIT(Appeals) to consider investment of Rs. 4 Crores by way of security with University of Health Sciences, as an application of income. As per the Revenue, fresh evidence were admitted by the CIT(Appeals) on this issue without granting the Assessing Officer an opportunity to offer his comments. 4. Facts apropos are that assessee is a Trust registered under Section 12AA of the Act. It had filed its return for the impugned assessment year admitting NIL income against gross receipts of ` 6,82,56,876/-, which was claimed as exempt under Section 11 of the Act. Assessee had claimed acquisition of fixed assets to be application of income. Nevertheless, assessee during the course of assessment proceedings withdrew its claim for depreciation on fixed assets. 5. Assessing Officer found that assessee had taken a loan of ` 11,76,70,801/- from M/s Apollo Hospitals Enterprises Ltd. ....
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.... was given as security to University of Health Sciences for opening new colleges. With regard to the disallowance of depreciation, claim of the assessee was that depreciation on fixed assets had to be considered while working out the application of income, in view of the decision of Hon'ble jurisdictional High Court in the case of CIT v. Rao Bahadur Calavala Cunnan Chetty Charities (135 ITR 485), that of Hon'ble Gujarat High Court in the case of CIT v. Sheth Manilal Ranchondas (198 ITR 598) and that of Hon'ble Karnataka High Court in the case of CIT v. Society of the Sisters of St. Anne (146 ITR 28). A ground was also raised by the assessee with regard to disallowance of claim of set off of excess expenditure of earlier years. 9. Ld. CIT(Appeals), after considering the submission of the assessee held that Rs. 4 Crores, out of borrowed funds of ` 11,76,70,801/- was straight away used for giving security deposit to University of Health Sciences. As per ld. CIT(Appeals), such amount was therefore not used for any capital expenditure. He, therefore, held that the said sum could be considered as application of income for the impugned assessment year, being not in the nature of ca....
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....of Rs. 1,81,72,723/- used for acquiring fixed assets came out of the receipts of the impugned assessment year, and therefore, was a part of application. 11. Continuing his arguments, learned A.R. submitted that whether money which was utilized had come out of borrowed or own funds was irrelevant. Only relevant question was whether utilization was for the purpose of objectives of the Trust. None of the authorities below had disputed this. Acquisition of fixed assets was only for the purpose of Trust. In any case, according to him, the deficit of earlier years ought have been allowed for set off with current year's income, if any. For his argument that loan funds utilized for acquiring fixed assets could also be considered for working out application of income, learned A.R. relied on the decision of Hon'ble Gujarat High Court in the case of Satya Vijay Patel Hindu Dharamshala Trust (supra). According to him, in the said case, there was an expenditure of Rs. 61,141.53 for constructing a new Dharmasala, which was met out of an interest-free loan of Rs. 17,000/-, surplus income of ` 31,541.26, realization of outstanding loan of Rs. 8000/-, recovery of some outstanding rent and a ....
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....evious year. 14. In support of Revenue's cross-appeal, learned D.R. submitted that ld. CIT(Appeals) had accepted the treatment of Rs. 4 Crores utilized for placing security deposit, as application of income, considering fresh evidence without putting it to the Assessing Officer. Assessee had not placed such evidence before the Assessing Officer at all. Further, according to him, CIT(Appeals) fell in error when he considered such outgo to be Revenue in nature, when admittedly it was only a fixed deposit given as security. In any case, according to him, once assessee had expended large sums out of loans taken, that too for acquiring fixed assets, the same amounts could not again be considered as application of income of the assessee. Reliance was placed on Circular No.100 dated 24th January, 1973 of CBDT which, according to him, considered repayment of loans as application of income. If repayment of loan were application of income, then, according to him, deployment of loan also could not be taken as application of income. As for the claim of assessee that earlier year's excess expenditure ought have been allowed for setting off, learned D.R. submitted that no revised return was f....
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....- (a) Income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of fifteen per cent of the income from such property;" 16. Income derived from property held under trust is exempt only to the extent it is applied for the avowed purposes or set apart for such purposes within a limit of 15% of such income. It is very clear from the above that if the income derived from property held under trust is to be exempt or is not to be included in the total income, then such income has to be applied for the purposes of the trust. Loan raised from a bank or any person for that matter, is never income derived from the property held under trust. Utilization of such loan will also be not an application of income derived from property held under trust. Utilization of loan will be application of loan raised and not application of income of the trust. It might be true that loan of Rs. 15,03,70,801/- raised had g....
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....s only one of the activities carried on for the fulfilment of the objectives of the trust, granting of loans, even interest-bearing, will amount to application of income for charitable purposes. As and when the loan is returned to the trust, it will be treated as income of that year." The circular clearly stated that repayment of loan can be considered as utilization for application for religious and charitable purposes. Hence, if we allow the loan amount utilized for acquiring fixed assets also as utilization of income derived from property held under Trust, then the result will be double allowance of the same amount. First, when the loan is utilized for acquiring the capital asset and second, when the loan itself is repaid. This will give rise to piquant situation, whereby same amount is considered as utilized twice, and such an illogical interpretation, in our opinion, cannot be given. 18. Now, we have to consider the argument of the assessee that out of the loans of Rs. 15,03,70,801/-, a sum of Rs. 4 Crores was directly used for placing deposits offered as security with University of Health Sciences. If that be so, without doubt, said sum of Rs. 4 Crores was not used in a....
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....excess expenditure of earlier years had to be allowed for carry forward and set off, we are of the opinion that the decision of Hon'ble Gujarat High Court in the case of Sheth Manilal Ranchhoddas Bishram Bhavan Trust (supra) is clearly in its favour. It was held by their Lordship that a Trust was entitled to set off the amount of excess application of income of prior years against deficiency of current year. The same view was taken by their Lordship in the case of Govindu Naicker Estate (supra) also. No doubt, assessee did not make such a claim before Assessing Officer in the return of income. However, in our opinion, Assessing Officer was duty bound to consider such a claim even without a revised return for the simple reason that assessee had no occasion to make such a claim in the original return, since it was under a bonafide impression that its income would be exempt under Sections 11 and 12 of the Act, even without such a set off. In other words, in computation of assessee, there was no surplus left for effecting a set off. As held by Hon'ble Apex Court in Goetze (India) Ltd. (supra), appellate authorities are having the power to consider such a claim even if it was raised....