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2023 (1) TMI 219 - AT - Income TaxAccumulation of Income as specified under section 11(1 )(a) of the Act on gross receipts of the Trust - CIT(A) has not given specific instruction to AO to compute the accumulation of income in accordance with provision of Section 11(1)(a) of the Act on gross receipts of the trust - HELD THAT:- We are of the view that in the case of trust there is no concept of net income but of gross receipts and application of funds. In our opinion, for the purpose of calculation of accumulation of income to the extent of 15% u/s 11(1)(a) the gross receipts are to be taken as basis and not the net income after deducting expenses which has been done by both the authorities below. The case of the assessee finds support from the decision of Bai Sonabai Hirji Agiary Trust [2004 (9) TMI 300 - ITAT BOMBAY-E] wherein the Co-ordinate Bench has taken a view for the purpose of accumulation of income, which is deemed to be derived for the purpose of charitable activities subject to the fulfillment of other condition in that section, is to be taken on the gross receipt of the trust before deducting any sum towards application of income. In other words, the application of income has to be taken into account from the said gross receipts for the purpose of accumulation u/s 11(1)(a) of the Act. The case of the assessee is squarely covered by the decision of Kanehialall Lohia Trust [2020 (1) TMI 501 - ITAT KOLKATA]. Accordingly we set aside the order of Ld. CIT(A) on this issue and direct the AO to compute the income to be accumulated u/s 11(1)(a) of the Act on the gross receipts. Accordingly ground no. 2 is allowed. Disallowing the provisions created for accrued and determined liability - CIT-A observing that the actual payment made by the assessee towards gratuity and leave encashment was rightly treated as application of income and dismissed the appeal of the assessee on this issue - HELD THAT:- In the present case, we note that the expenses charged to the income and expenditure account by the assessee trust has already crystallized and quantified but not paid and therefore we find merit in the arguments of assessee that once the expenses are charged to the income expenditure after being foreseen with certainly are not in the nature of contingent but certainly to be considered as application of income to be discharged in the subsequent year. We also note that these were, in fact, paid in the subsequent years. We also look at this issue from another angle where the assessee has not charged anything to the income expenditure account and resulting into surplus going up and the assessee availing the benefit of accumulation u/s 11(2) to be carried forwards for the subsequent years. But in the present case, the facts are quite different as the assessee has calculated and charged these expenses to Income and Expenditure account. We have also examined the explanation inserted after subsection As amendment by Finance Act, 2022 by inserting explanation is very clear and conspicuous that w.e.f AY 2023-24 any sum payable by any trust or institution shall be considered as application of income in the previous year in which sum is actually paid by it irrespective in which the liability to pay such sum was incurred by the trust/institution according to the method of accounting regularly employed by it. So we draw strength from the said explanation to section 11(7) that prior to AY 2023-24 the expenses were allowable to the trust as application of income even on accrual basis and thereafter specifically provided to be treated as application of income on the payment basis w.e.f. AY 2023-24. We have perused the provisions of section 11(1) of the Act which specifies only application of income and not the actual spending which has been amended to by Finance Act, 2022 w.e.f. 01.04.2023 as stated above. The case of the assessee finds support from the decision of Coordinate Bench of Kolkata in the case of Apeejay Education [2021 (7) TMI 906 - ITAT KOLKATA] - We are not in agreement with the Ld. CIT(A) on this issue and direct the AO to delete this disallowance. Computing the capital gain on sale of assets - According to the AO assessee was registered u/s 12AA and the entire expenditure incurred for acquisition of capital assets has been treated as application of income for charitable purposes in the year in which the acquisition was made, since the assessee has written off the cost of the capital asset fully in the year of acquisition and therefore there is no cost left to be taken as WDV or cost of acquisition as capital asset was fully written off in the year and accordingly the AO treated the entire sale consideration as capital gain - HELD THAT:- Once the trust or institution is registered u/s 12AA of the Act there is no dispute or controversy that whatever is purchased by the assesse even on capital account is treated as application of income. CIT(A) has observed that the assessee has been benefitted twice. Once by way of allowing cost of acquisition of application of income in the year of acquisition and secondly be allowing depreciation on the same. As perused the amendment brought in by Section 11 by inserting sub-section 6 by Finance (No. 2) Act, 2014 w.e.f. 1.4.2015 providing that the income of the trust is required to be applied or accumulated or set apart for application, then, for such purposes, the income shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of any asset, acquisition of which has been claimed as an application of income under this section in the same or any other previous year. Keeping in view the various judicial decisions passed by various judicial forums on the issue that the assessee is entitled to claim the application of income as well as depreciation on the cost of acquisition of the capital assets . In the present case, we note that the assessee has partly claimed the depreciation on this asset and when the asset was sold the remaining WDV which was determined by reducing the depreciation from the cost of acquisition claimed till date existed in the books of account. In our considered view to this extent we find merit in the contention of the A.R that whatever left in the books of account in the form of WDV has to be allowed while computing the capital gain till A.Y. 2015-16. In our considered view this has to be allowed till the AY 2014- 15 and accordingly we set aside the order of CIT(A) and direct the AO to accept the capital gain as calculated above. Accordingly ground no. 4 is allowed.
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