TaxTMI 
TaxTMI 
2008 (4) TMI 333
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....d its objects are religious and charitable in nature. The total income of the assessee is Rs. 35,60,82,101 which is comprised of income from 'house property' of Rs. 3,94,45,845, voluntarily contribution Rs. 31,60,13,264 and miscellaneous income Rs. 5,62,992. The assessee had applied for charitable and religious purposes amounting to Rs. 58,09,87,048 which is more than the total income. The assessee's claim of 25 per cent accumulation on the deficit was not allowed by the lower authorities. 4. The assessee preferred an appeal before the Tribunal with the submissions that while disallowing the claim of the assessee. the CIT(A) did not properly examine the relevant provisions of s. 11(1)(a) of the IT Act, 1961 (hereinafter referred to as the "Act") and the judgments referred to by the assessee. He further contended that as per s. 11 (1)(a) 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 25 per cent of the income from such property, the accumulated income shall not be included in the total income of the previous year. After the said accumulation the balance ....
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....total income of the previous year of the person in receipt of the income, meaning thereby that this clause deals with two types of deductions from the total income of the property held for charitable or religious purposes. First, category of deduction is the income of the property which is applied to the purposes of the trust in India and the second category is with regard to the income which is accumulated or set apart for application to the purposes or object of the trust in India, but to the extent of 25 per cent of the income from such property. Nowhere, it has been mentioned in this clause that first of all 25 per cent of the total income of the property is to be set apart or accumulated for its application for the purposes of the trust in succeeding year and thereafter remaining amount is to be applied for the purposes of trust and if application of money is more than the surplus income the deficit would be carried forward in succeeding year and would be set off against the income of the trust. This clause basically deals with the exemption of income of the trust if applied to the purposes of the trust. It is not the case of carry forward of losses of the trust for its set of....
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.... of exemption is 100 per cent of the income derived from the property. It has not been mentioned anywhere in this clause that first of all 25 per cent of the total income is to be accumulated or set apart for application to the purposes of the trust in India in succeeding year and then the remaining income is to be applied for such purposes and in case the application of income is more than the remaining income i.e. 75 per cent of the total income the deficit would be carried forward for its set off in succeeding year against the income of the trust. If this interpretation is to be accepted it would result into an exemption more than the income-derived. from the property held by the trust and this cannot be the intention of the legislature. These provisions are brought to the statute to encourage the trust to apply its income derived from property for the religious or charitable purposes of the trust in the same year and if not possible they can accumulate or set apart the income but it is restricted to 25 per cent of the total income for its application for the religious and charitable purposes of the trust. If entire income is applied for the purpose of the trust and nothing is l....
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....e Board by another Circular No. 5-P(LXX-6) of 1968, dt. 19th June, 1968. 11. In the case of Munisuvrat Jain the issue arose with regard to the allowability of depreciation under s. 32 of the Act and their Lordships of the Bombay High Court have held that in such type of cases, s. 32 of the Act providing for depreciation for computation of income derived from business or profession in respect of assets specified therein which are used for business or profession is not applicable. Nevertheless, the income of the trust must be computed under s. 11 of the Act after providing for allowance of normal depreciation and deduction thereof from the gross income of the trust. Similar view was again expressed by the Hon'ble Bombay High Court in the case of Institute of Banking. One more issue has been raised before the jurisdictional High Court with regard to the carry forward of the excess of the expenditure for its set off against the surplus of the subsequent years. The Hon'ble High Court has examined this issue in the light of the Revenue's argument that the expenditure incurred in earlier years cannot be met out of the income of the subsequent years and that utilization of such income f....
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.... purposes of the trust, over and above the remaining income i.e. 75 per cent of the total income for its set off against the income of the trust in succeeding year. The carving of the funds to the extent of 25 per cent of the total income is hypothetical situation and it was not envisaged by the legislature. The Hon'ble Bombay High Court in the case of Institute of Banking have examined the situation where the assessee has incurred or applied the expenditure more than the total income of the trust in a particular year and claimed carry forward of the excess expenditure to succeeding year for its set off against the income of the trust and their Lordships have held that the income derived from the trust property has also got to be computed on commercial principles and if the commercial principles are applied then the adjustments of expenses incurred by the trust for charitable and religious purposes in earlier years against the income earned by the trust in the subsequent year will have to be regarded as application of income of the trust for charitable and religious purposes in subsequent years in which the adjustments have been made having regard to the benevolent provisions conta....