TMI Blog2013 (7) TMI 727X X X X Extracts X X X X X X X X Extracts X X X X ..... .Act,1961 – Held that:- Since the main issue has been restored to the Assessing Officer, this claim of the assessee would also be decided afresh after taking into consideration the case law cited – Also, in case it turns out that the assessee is carrying on any business, then only, while computing business income, it would be entitled for depreciation on assets used in the business. - I.T.A. No.757/Mds/2013 - - - Dated:- 17-7-2013 - Shri N. S. Saini And Shri S. S. Godara,JJ. For the Petitioner : Shri R. Viswanath, CA For the Respondent : Shri S. Dasgupta, JCIT ORDER Per S. S. Godara, Judicial Member :- This appeal filed by the Assessee is directed against the order of the Commissioner of Income Tax (Appeals)-XII, Chennai, dated 13.02.2012, in case Appeal No.291/2011-12 for assessment year 2009-10, in proceedings under sec.143(3) of the Income Tax Act, 1961 (in short the Act). 2. The grounds raised by the assessee read as follows:- "1. The order dated 13.02.2013 of the Learned CIT(A) -XII, Chennai in ITA No.291/2011-12 for the Assessment year is contrary to facts, opposed to law and untenable. 2. The Learned Commissioner of Income Tax (Appeals) erred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w of CIT v. Manav Mangal Society (2010) 328 ITR 421 (P H); (2003) 264 itr 110 CIT v. Institute of Banking Personnel Selection; (2011) 330 ITR 16 CIT v. Market Committee Pipli (P H); Chennai Tribunal in GKR Charities v. Dy.DIT(Exemptions) (2012) Taxman.com 45; and Tuticorin Port Trust v. Dept. of Income Tax in ITA No.1060/Mds/2012 dated 8.1.2013. In light thereof, he prays for acceptance of the appeal. 4. In reply, the Revenue strongly supports the order of Commissioner of Income Tax (Appeals) on both issues and prays for upholding the impugned findings. 5. Facts apropos are that since 11.2.2000 the assessee is a registered 'trust' u/s.12AA of the Act. It runs educational institution. For the impugned assessment year, the assessee had filed its return on 30.9.2009. The gross receipts therein read Rs.8,56,05,633/-. It had declared Rs.Nil income by claiming exemption under sec.11 of the Act. The same was 'summarily' processed on 28.2.2011. 6. As the assessment order dated 14.12.2011 suggests, in the course of 'scrutiny' the assessee chose to file a 'revised' computation claiming to have 'applied' its income under the head 'repayment of loan'; 'increase in net current asset' as w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee's claim on the ground that most of the capital expenditures were out of the borrowed funds and hence there are no excess application of income in the earlier years. Perusal of the returns of income filed by the assessee for the assessment years 1999-2000 to 2008-09 showed that there was no real excess application of income. Further, the assessee has claimed the excess application of income of earlier years based on the amount spent in excess of 85% of income of the trust. This is not correct. The correct calculation should be based on the amount applied over and above the 100% income of the trust. The assesses are supposed to apply the entire income of the financial year, for their objects. However, the provisions of the Sec.l1 (1) of the Act stipulate that the trustees should apply a minimum of 85% of income for the objects during the year. The assesses are free to apply or to carry forward the balance of 15% of income without any restrictions. Any application of income from this latter portion of 15% should not be considered as excess applications. Excess application of income means excess of application over and above the 100% income of the trust. Hence the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than the total income of the trust of the respective years. Further, the cumulative or net of the total incomes and the applications of all the years also showed net deficit application of income at Rs.2, 18,31,054 j -. It is also important to mention here that there was a deficit application of income in the immediate preceding AYs. Of 2008-09 and 2007-08, which will off set the earlier years excess application of income, if any. Therefore, the assessee's claim of excess application of income from the earlier years, is not correct and hence not allowed. Normally, in the trusts the situation of excess application of income (application over and above 100% income) will not arise. One can expend (apply) only what he has earned. The exception can be from the borrowed funds, but, again, such application from borrowed funds is to be excluded from the application of income. The trusts have two types of incomes i.e. corpus donations and the regular income (including normal donations). The corpus donations me not part of income of the trust and are received for a specific purpose. Hence any utilization of corpus donations should not be considered as application of income ujs.11 (1) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e are no excess application of income brought forward from the earlier years. Hence, the Assessing Officer rightly held that there are no excess applications in the earlier years. The action of the Assessing Officer is justified and confirmed. b) Claim of depreciation: The Assessing Officer in his order has not allowed the assessee's claim of depreciation in computing the application uf85% income for the objects of the trust. The assessee before the undersigned submitted that depreciation on the fixed assets is to be allowed as application of income for the purpose of sec.ll(l) of the Act. As per the assessee, sec.32 of the 1 T Act has been specifically provided for depreciation and hence the assessee is entitled for depreciation. Hence the assessee claimed that it is eligible for claiming depreciation of the fixed assets while working the 85% application of income for the purposes of the objects of the assessee u/s11(I)(a) of the Act. As far as the assessments of charitable organizations are concerned there are two sets of provisions provided in the I.T Act. Firstly, the assessee's eligibility for exemption of its income u U/S.11 to 13 of the I T Act, is to be examined. If t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the judgement is under:- "The provision of section 11 uses two expressions: (1) "total income" and (2) "income- derived from property held under trust". Total income is an expression defined in the Act in section 2(45) as meaning the total amount of income referred to in section 5, computed in the manner laid clown in the Act. However, there is no definition of "income". The words "income" is an expression of elastic ambit and the courts have always qualified their description by saying# that it is not exhaustive. In. the absence of any definition of income" one has to proceecl on the basis of it as a concept, as understood in general parlance. Income would ordinarily exclude a receipt by way of capital. Mere gross receipt cannot also be taxed as income. It may be broadly stated that what is taxed is not also any gross receipt. The receipt must be revenue in ,w.tllre and is to be taxed after excluding the necessary outgoings. Section 11 contemplates an application of the income from charitable purposes. The charity can accumulate 25 per cent of the income. The application as well as the accumulation has necessarily to be the income as accounted for in the accounts, and not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t would have to be arrived at in the normal commercial manner without reference to the provisions which are attracted by section 14. Twenty-five per cent thereof will have to be ascertained and if the assessee had accumulated more than twenty five per cent then the consequences contemplated by section 11 will follow.(underscores added) Thus, from the above it is clear that the provisions of sec.11 are categorically an. clearly different from those of sec.14to 80VVA of the Act. The deductions or allowances that are provided in chapter IV (i.e. sec. 14 to sec.59) are not relevant applicable while determining the income for the purpose of sec.1l of the Act. The Court also held that only the actual out goings while earning the income of the Trust are to be taken into account while determining the income of the Trust u/s.ll of the Act. Therefore, items like depreciation which are not the actual out goings but a notional expenditure provided ujs.32 of the Act (Chapter IV), cannot form part of the allowable application while computing the income of the Trust for the purposes of sec.11 of the Act. In view of the clear finding of the jurisdictional High Court (135 ITR 435) and also th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present situation provision of depreciation is outside the purview of section 11 of the I T Act. The assessee, being a charitable organization, may prepare its income arid 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.80VV A of the Act). In such income and expenditure account also the assessee is not permitted to debit the capital expenditure. In view of the above discussions, the assessee is not entitled to claim depreciation as application of income for the purpose of sec..11(1) of the Act.The Assessing Officer rightly excluded the depreciation claim while computing the application of 85% of the income of the assessee Trust. In result, the assessee's appeal is dismissed. It is in this backdrop of facts that the assessee is aggrieved. Its grievance is two folded (i) issue of excess application of income in the preceding assessment year has not been considered in correct perspective; and depreciation pertaining to fixed assets has been wrongly denied by holding it; inter alia, as double deduction 10. We have heard both ..... X X X X Extracts X X X X X X X X Extracts X X X X
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