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TMI Blog2015 (1) TMI 1113X X X X Extracts X X X X X X X X Extracts X X X X ..... 30.09.2008, admitting gross receipt of Rs. 51,07,87,543/- and income as 'Nil' after claiming exemption U/s. 11 of the Act. Subsequently the case was taken up for scrutiny and short fall in application of income was treated as Rs. 11,05,02,792/-. 3.1. During the course of assessment proceedings, it was noticed that the assessee had purchased 8.83 acres of land in Vanagram by means of three sales deeds for a total consideration of Rs. 74.15 crores. Apart from that the assessee had also made payment of Rs. 14 crores to M/s.Golden Homes Pvt. Ltd., for the purchase of the aforesaid land. The assessee had explained that the amount of Rs. 14 crores was paid in order to reimburse the cost of improvement & developing of the land and making the land suitable for sale. It was further explained by the assessee that the sellers of the land had incurred various kinds of cost including guarding of the larger extent of the land for several years. Thus, the aggregate cost of acquisition of land amounted to Rs. 88.15 crores. However the Ld. Assessing Officer opined that since the assessee had entered into unregistered sale agreements with the sellers of the land & the company, prior to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In other words loan obtained from bank is not income of the assessee. There is direct nexus between the bank loan received and paid for the purchase of the lands. Any amount spent out of loan obtained cannot be treated as application of income for the charitable activities of the trust. Therefore, the bank loan to the extent of Rs. 83,04,00,000 will not be allowed and the same amount will be reduced from the additions to fixed assets of Rs. 98,22,31,253 claimed as application of income in the return. The resultant balance will be Rs. 1,18,31,253 (Rs.98,22,31,253 -(Rs.14,00,00,000 + Rs. 83,04,00,000). Consequently, Rs. 1,18,31,253 alone will be treated as application of income towards additions to fixed assets claimed as application of income in the place of Rs. 98,22,31,253/-." 3.2. Thus, the Assessing Officer had:- (a) Disregarded the payment of Rs. 14 crores towards cost of acquisition of the land and consequently did not consider Rs. 14 crores for the purpose of application of income U/s.11(1)(a) of the Act. (b) Had disallowed to the extent of Rs. 83,04,00,000/- for the purpose of application of income U/s.11(1)(a) of the Act being payment made for purchase of land because ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 85% stipulation. If the trust spends more than the income, it should be either from corpus or from loan obtained. The application should always be from income derived or from income set apart or accumulated income. Therefore, the question of carry forward of excess expenditure and set off of the same subsequently does not arise at all in the case of trusts. Reliance is placed on the decision of ITAT Delhi Bench 'F' in the case of Pushpawati Singhania Research Institute for Liver, Renal & Digestive Diseases Vs. DDIT(E), Inv. Circle-II, New Delhi (2009) 29 SOT 316(Delhi). In the above decision, the Hon'ble ITAT analyzed all the decisions while are in favour of carry forward and set off and distinguished them and arrived at the correct decision as declared by the Income-tax Act. The Bombay High Court in the case of CIT Vs. Institute of Banking Personnel Selection (2003) 131 Taxman 386 observed that the income of the trust is to be computed on the basis of commercial principles. It is not in dispute that to arrive at the actual income, commercial principles are to be applied. This does not mean that the excess expenditure is to be carried forward and allowed in the subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or religious purposes in India. If the sum is spent for some other purpose, the same cannot be allowed as exempt. In this case, payment of Rs. 14 crores to M/s.Golden Homes Pvt. Ltd., not being the seller of the land cannot be considered as application of income in the purchase of asset. The purpose for which the amount was paid to the company was not disclosed by the appellant except saying that it is a compulsion by the seller. Therefore, I am of the considered view that the AO rightly disallowed the sum as non-application of income for charitable or religious purpose. Hence the addition is confirmed." 5. Before us, Ld. A.R admitted that the loan obtained for purchase of land cannot be considered as the income of the trust and the payment made from such loan received for the purchase of land cannot be treated as application of income, he however argued that the when such loan is repaid from the income of the trust then it should be treated as application of income. L.d. A.R further argued that excess application of earlier years should be set off against the shortfall of the later year. The Ld. A.R. relied on the decision of DIT (Exemption) Vs. Govindu Naicker Estate in 315 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough termed as development and improvement cost of land etc. Considering these facts, we hold that the payment of Rs. 14 crores made by the assessee to M/s.Golden Homes Pvt. Ltd., has to be treated as genuine purchase consideration towards purchase of land. 6.2. Further the Ld. Assessing Officer observed that the assessee had spent during the relevant assessment year Rs. 98,22,31,253/- towards addition of fixed assets. The Ld. Assessing Officer has also observed that the assessee had obtained bank loan of Rs. 83,04,00,000/- being one of the sources for the aforesaid investment. While computing the compliance U/s.11(1)(a) of the Act which provides for application of income of a specified amount from the income derived from the property held under trust, the Ld. Assessing Officer had rightly excluded the loan amount obtained from the Bank of Rs. 83,04,00,000/- from the income of the Trust and also from application of funds. However the Ld.A.O had erred by holding that Rs. 14 crores payment made by the assessee towards purchase of land is unnecessary and therefore cannot be treated as application of income for the purpose of the Trust. Moreover the decision of the Hon'ble Jurisdi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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