TaxTMI 
TaxTMI 
2021 (3) TMI 225
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.... of brought forward excess application of funds to subsequent years. 2.2 The Id. CIT (A) erred in holding that the assessee is eligible to carry forward the same and set off against the shortfall in the subsequent years. 2.3 The Id. CIT (A) failed to observe that there is no provision in the Income Tax Act in respect of trusts which allows for determination of loss u/s. 11 and carry forward the same to subsequent year to be set oft against income of the subsequent year. 2.4 The Id. CIT (A) failed to observe that the setting off a against the spirit of the provisions of Section 11 and Section 12 and the intention of the Legislature. 2.5 The CIT(A) failed to consider the decisions in the cases of Ramjid Ras vs.C1T (1965) 58 ITR 181 AII) and Pushpawawati Singhania Research Institute of Liver Renal & Digestive Diseases vs. Dy.DIT (2009)29 SOT 316( Del) 2.6 The ld.CIT(A) failed to observe that the if there was excess expenditure it was deliberate and could not be carried forward being related to earlier year's income. 2.7 The ld.CIT(A) failed to observe that the excess application of funds in earlier year amounted to double benefit one being exempt income and the other....
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....ct, then the assessee's income and its application alone have to be examined irrespective of the other provisions contained in other sections of the Act, especially the sections provided from 14 to 8OVVA of the Act (i.e. Chapter IV to VI B). If the conditions provided uls.11 to 13 or u/s.l0(23C) are not fulfilled, then the provisions of Chapter IV to VIB will get attracted and he income has to be computed according to the said provisions. Thus, while computing the income of the Trust and its application to the extent of 35% of such income, any deductions /allowances provided from sec. 14 to 80 VVA should not be considered. Further, as per section 11 of the I T Act, even the capital expenditure will also amount to application of the income of the Trust and accordingly, such capital expenditure will be treated as application in its entirety and therefore any further allowance by way of depreciation or otherwise will amount to extra deduction or double deduction which is not permitted in the I T Act. Provision of depreciation u/s.32 of the I T Act is a specially permitted allowance white computing the income under the head 'Business or Profession', because in such a situation the c....
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.... Taking into account the purpose for which the conditions of section 11(1)(a) am imposed, it would be clear Mat one has to consider the income as arrived at in the context of what is available in the hands of the assessee. subject of course to any adjustment for expenses extraneous to the trust. If the expression 'income is so understood, then one has to take the accounts of the assessee with reference to the receipts and deduct therefrom the expenses necessary for earning or looking after that income. The net amount that remains would be available for distribution or application for charitable purpose. In applying the income for charitable purpose, even capital expenditure may be incurred Therefore, the nature of the expenditure in the hands of the entity which receives the money is not the criterion. So long as the assessee diburses the amount for capital or revenue purposes, whether the amounts am utilised for capital Or revenue purposes by the charity concerned, the assessee would have complied with that pan of the requirement of sect ion II, namely, application of the income for charitable purposes. The authorities will have to find out as to whether they are really charitable....
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....ction and accordingly not permitted. in any case, in the present situation provision of depreciation is outside the purview of section11 of the I T Act. The assessee, being a charitable organization, may prepare its income and expenditure account to determine the excess of income over expenditure, in which the assessee is entitled to debit the depreciation as per the provisions of chapter IV of the Act (i.e. sec.14 to sec.80VVA of the Act). In such income and expenditure account also the assessee is not permitted to debit the capital expenditure. Hence the claim of depreciation is disallowed. 5. The AR's justification for claiming Retirement Fund (Rs. 1240418/-) and Gratuity Fund (867296/-) as application of Income was considered. However, the same is not acceptable as these are only non-funded liability and no payment to any fund was actually made. There is no actual cash out flow therefore this claim of Retirement Fund and Gratuity Fund as application of income is not allowed. 6. The assessee had claimed Rs. 5,18,881/- as bad debt written off'. The AR's justification in this regard was considered. However, the claim of bad debts written off by the assessee is not accepta....
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....hat assessee has failed to file evidences to prove that findings recorded by Assessing Officer that there is no outflow of cash to consider the above expenditure as application of income. Aggrieved by the learned CIT(A) order, Revenue is in appeal before us. 6. The learned DR for the Revenue fairly accepted that issue is covered in favour of the assessee by the decision of Hon'ble Jurisdictional High Court, in the case of Medical Trust of the Seventh Day Adventists Vs. DIT, (supra). However, he strongly supported the order of Assessing Officer in light of decision of ITAT, Chennai Bench in the case of Anjuman-E-Himayth-EIslam vs. ADIT(Exemption) (2015) 154 ITD 755. 7. The learned AR for the assesse, on the other hand, submitted that issue of depreciation on fixed assets and carry forward of excess application of income is squarely covered in favour of assessee by the decision of Hon'ble Jurisdictional High Court in the case of Medical Trust of the Seventh Day Adventists Vs. DIT, (2017) 84 Taxmann.com 202, where it has been held that even though assessee has claimed purchase of fixed assets as application of income, assessee can claim depreciation on fixed assets. The Hon'ble High....
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....t of use. The object of providing for depreciation is to spread the expenditure incurred in acquiring the asset over its effective lifetime, and the amount of provision made in respect of an accounting period is extended to represent the proportion of such expenditure which has expired during that period. 21. The necessity of providing for depreciation emanates from the fact that once an asset ceases to be effective, it will have to be replaced. Providing for depreciation would ensure setting aside out of the revenue of an accounting period, the estimated amount by which the capital investment has expired during that period. This provision, incurred for the use of that asset for the purpose of earned profit should be charged against those profits as and when earned. Spicer. and Pegler at page 45, states as follows:- If depreciation is not provided for, the books will not contain a true record of revenue or capital. If the asset were hired instead of purchased, the hiring fee would be charged against the profits; having been purchased, the asset is in effect, then hired by capital to revenue, and the true profit cannot be ascertained until an analogous charge for the use of th....
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....and would not impact the issue being discussed in the present case. 26. We are supported in our view by a plethora of decisions of various High Courts the Bombay High Court in the case of CIT v. Munisuvrat Jain (1994 Tax Law Reporter 1084) and CIT Vs. Framjee Cawasjee Institute (109 CTR 463); Karnataka High Court in CIT Vs Society of the Sisters & St-Anne (146 JTR 28); Madhya Pradesh High Court in CIT Vs Raipur Pallottine Society (180 JTR 579); Gujarat High Court in CIT Vs. Sheth Manilal rachhnoddasVishram Bhavan Trust 198 ITR 598; Punjab and Haryana High court in CIT Vs. Market Committee Pipli (330 ITR 16) and CIT Vs. Tiny Tots Education society (330 ITR 21); Madhyapradesh High Court in CIT Vs. Devi Sakuntala Tharal Charitable Foundation (358 ITR 452) and the Calcutta High Court in CIT Vs. Siliuguri Regulated Market Committee (358 ITR 51). In addition the Delhi High Court in DIT Vs. Vishwa Jagriti Mission 262 CTR 558 and the Karnataka High Court in DIT (Exem) Vs Al Ameen Charitable Fund Trust (2016) 67 taxmann.com 160 have accepted the claim of the assessee distinguishing both the judgement of the Supreme Court in Escorts as well as that of the Kerala High Court. 27. In view....
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....arana of Mewar Charitable Foundation (1987)164 ITR 439 and CIT v. Shri Plot Swetamber Murti Pujak Jain Mandal (1995 211 ITR 239), respectively, both the Rajasthan High Court and the Gujarat High Court have -answered the questions in favour of the assessee and against the revenue. 6. Following the aforesaid decisions of the Rajasthan and Gujarat High Courts. We answer the second question referred to us in favour of the assessee and against the revenue. This view was further reinforced in the case of DIT vs Medical Trust of the Seventh day Adventist (supra) wherein the rationale of the decision in Matriseva Trust (supra) was approved. The Honble High Court of Rajasthan in the case of CIT Vs. Maharana of Mewar Charitable Foundation (supra) observed that there is nothing in the language of Section 11(1)(a) to indicate that the expenditure incurred in the earlier year cannot be met out of the income of the subsequent year and utilisation of such income for meeting the expenditure of the earlier year would not amount to such income being applied for charitable purposes, Further elaborating on this, the Hon'ble High Court of Madhya Pradesh in the case of CIT Vs. Gujrati Samaj (213 T....