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2015 (7) TMI 594 - ITAT CHENNAI

2015 (7) TMI 594 - ITAT CHENNAI - TMI - Disallowance of the carry forward and set off of excess application of income - Held that:- Section-11(1)(a) of the Act provides that “income derived from property held under Trust wholly for charitable or religious purpose” shall not be included in the total income to the extent such income is applied for charitable or religious purpose in India. The Act also provides that upto 15% of such income is accumulated or set apart, then that shall also not be in .....

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from the ‘Corpus fund’ or ‘accumulated fund’ it will not be treated as application of fund because ‘Corpus fund’ and ‘accumulate fund’ are already exempt from the income of the Trust and once again if it is treated as application of fund it would amount to double deduction. Therefore the claim of the assessee to carry forward the excess application of fund cannot be entertained applying the commercial principles. However if the excess amount of ₹ 23,96,355/- is applied from the borrowed fu .....

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wherein held that after writing off the full value of the capital expenditure on acquisition of assets as application of income for charitable purposes and when the assessee again claimed the same amount in the form of depreciation, such notional claim became a cash surplus available with the assessee, which was outside the books of account of the trust unless it was written back which was not done by the assessee. It was not permissible for a charitable institution to generate income outside th .....

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ssessee OR computed in accordance with the provisions of U/s.23 & 24 - Held that:- While determining the “income” of the assessee trust and its “application of income” for the purpose of claiming exemption U/s.11(1)(a) of the Act, the provisions of Chapter-IV - Sections 22 to 27 of the Act which is applicable for computing the income chargeable to tax under the head ‘income from house property’ will not be attracted. However, provisions of section 22 to 27 of the Act will come into play when the .....

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to the rental income has to be allowed as deduction and the net income which is the real income, will be treated as the income of the Trust. From our above discussion the ground raised by the assessee on this issue will not survive and therefore, the order of the Revenue is upheld. - Decided against assessee. - I.T.A.No.2271/Mds./2014 - Dated:- 2-6-2015 - SHRI N.R.S.GANESAN AND SHRI A.MOHAN ALANKAMONY, JJ. For the Appellant : Mr.U.M.Khalilulliah, C.A For the Respondent : Mr.P.Radhakrishnan,JCIT, .....

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sessing Officer by disallowing the carry forward and set off of excess application of income. (ii) for having sustained the order of the Ld. Assessing Officer in disallowing the depreciation while computing the income of the assessee trust. (iii) for having sustained the order of the Ld. Assessing Officer wherein the actual rent received is treated as the income from house property of the assessee and not computed in accordance with the provisions of U/s.23 & 24 of the Act. 3. The brief fact .....

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on only to the extent of ₹ 23,96,355/- as against the claim of ₹ 1,00,70,474/- by the assessee, disallowed the claim of depreciation while computing the income of the assessee and adopted the rent received from house property as the income from house property instead of determining the same in accordance with the provisions of section 23 & 24 of the Act. 4.1. Ground No.(i) - Disallowance of the carry forward and set off of excess application of income. The assessee in its return .....

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11,60,794 5,35,57,149 Rs. 23,96,355 4.2. On appeal, the Ld. CIT (A) denied the benefit of carry forward of excess application by observing as under:- Income derived from property held under trust means real income and not the income computed for assessment. The question of spending of 85% of income and accumulation of 15% of income arise only when there is real income. The income derived should be during the current year and accumulation is also from current year s income. If the trust is able t .....

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et 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 analysed all the decisions which are in favour of carry forward and set off and distinguished them and arrived at the correct decisions as declared by the Income-tax .....

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e. Otherwise, the investment U/s. 11(5) of the Act is not possible with deemed income. The intention of the legislature is to invest real income derived from property of the trust in specific assets when they are not utilized / applied. The very concept of exemption U/s. 11 of the Act is defeated if provisions of profits and gains of business or provision relating to carry forward and set-off is substituted for the Income which do not from part of Total income included under Chapter-III of the I .....

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rovides that income derived from property held under Trust wholly for charitable or religious purpose shall not be included in the total income to the extent such income is applied for charitable or religious purpose in India. The Act also provides that upto 15% of such income is accumulated or set apart, then that shall also not be included in the total income. Further Section-11(1)(d) of the Act provides that income in the form of voluntary contribution made with specific direction that they s .....

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tution created wholly for charitable or religious purpose shall be deemed to be the income derived from property held under trust . From the above it is clear that, when the assessee trust applies 85% of its income received by way of voluntary contributions other than the voluntary contributions received with specific directions and the income derived from property held under trust , then such income shall not be included in the total income of the Trust. Further the balance 15% of such income e .....

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corpus of the trust, loan obtained by the Trust, Sundry creditors of the Trust or accumulate fund of the Trust for claiming exemption U/s.11 (1) of the Act. 4.5. Application of fund by any charitable institution is possible only from the following sources:- i) Voluntary contributions received by the Trust towards its corpus, ii) Other voluntary contributions, iii) Accumulated fund, iv) Amount received by way of loan, v) Sundry creditors, vi) Income derived from the Property held under the Trust .....

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, it signifies every possible interest which a person can acquire, hold and enjoy. Business would undoubtedly be property unless there is something to the contrary in the enactment. ] When the Trust applies its funds from its Corpus, accumulated fund, Sundry creditors or from the loan obtained by the Trust, then such funds which are applied cannot be said to be funds applied from the income of the Trust. Therefore, there cannot be a case where the trust can apply its income more than the income .....

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creditors are repaid from the income of the Trust. However when amount is applied from the corpus fund or accumulated fund the same cannot be treated as application of fund for the purpose of Section 11 of the Act, because such fund have already been exempt from the income of the Trust in the year in which it is received or such amount is set aside and therefore once again treating the same as application of fund will amount to double deduction. Similarly voluntary contribution received toward .....

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year. These aspects have not been considered by the Mumbai Bench of the Tribunal, and the unreported decision of the Hon ble Bombay High Court is also not placed before us. 4.6 Now analyzing the facts of the case before us, it appears that the assessee trust s gross receipts is ₹ 5,11,60,794/- and the assessee trust have spent ₹ 5,35,57,149/- which shows that the assessee trust has spent ₹ 23,96,355/- more than its income received during the relevant year. This amount of ₹ .....

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reditors are repaid. It is pertinent to mention that if the amount is applied from the Corpus fund or accumulated fund it will not be treated as application of fund because Corpus fund and accumulate fund are already exempt from the income of the Trust and once again if it is treated as application of fund it would amount to double deduction. Therefore the claim of the assessee to carry forward the excess application of fund cannot be entertained applying the commercial principles. However if th .....

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part of the corpus of the trust i.e., item Nos.(ii) and (vi) mentioned hereinabove. This ground raised by the assessee is accordingly disposed off. 5.1 Ground No.(ii) - Disallowance of the depreciation while computing the income of the assessee trust. The assessee Trust had claimed depreciation on the assets as application of income in the return of income. The Ld. Assessing Officer opined that the claim of depreciation by the assessee would amount to double deduction because the entire cost of .....

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348 ITR 344(Ker.) and held the issue against the assessee. While doing so, the Hon ble Kerala High Court had considered the Circular No.5P(LLX-6) dated 19.06.1968 which has not been considered by the other decisions. The Circular No. 5P(LLX-6) is reproduced herein below for reference:- 1. Circular No. 5-P (LXX-6) of 1968, dated 19-6-1968. Subject : Section 11-Charitable trusts-Income required to be applied for charitable purpose-Instructions regarding. In Board's Circular No. 2-P(LXX-5) of 1 .....

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ctions 60 to 63 "the following income shall not be included in the total income of the previous year . . . ". The reference in sub-section (a) is invariably to "income" and not to "total income". The expression "total income" has been specifically defined in section 2(45) of the Act as "the total amount of income . . . computed in the manner laid down in this Act". It would accordingly be incorrect to assign to the word "income" used in .....

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ave been applied to purposes other than charitable or religious, and hence it will be charged to tax under sub-section (3). As only the income disclosed by the account will be eligible for exemption under section 11(1), the permitted accumulation of 25 per cent will also be calculated with reference to this income. 4. Where the trust derives income from house property, interest on securities, capital gains, or other sources, the word "income" should be understood in its commercial sens .....

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poses of the trust from out of the income computed in the aforesaid manner, should be not less than 75 per cent of the latter, if the trust is to get the full benefit of the exemption under section 11(1). 5. To sum up, the business income of the trust as disclosed by the accounts plus its other income computed above, will be the "income" of the trust for purposes of section 11(1). Further, the trust must spend at least 75 per cent of this income and not accumulate more than 25 per cent .....

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of the trust unless it was written back which was not done by the assessee. It was not permissible for a charitable institution to generate income outside the books in this fashion and there would be violation of section 11(1)(a). It was for the assessee to write back the depreciation and if that was done, the Assessing Officer would modify the assessment determining higher income and allow recomputed income with the depreciation written back by the assessee to be carried forward for subsequent .....

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of the Ld. CIT(A) and also the views expressed by him in his order. Accordingly this appeal is held in favour of the Revenue. 6.1 Ground No.(iii) - Gross rent received is treated as the income from house property of the assessee and not computed in accordance with the provisions of U/s.23 & 24 of the Act. On perusing the return of income, the Ld. Assessing Officer observed that the assessee had computed its income from house property after claiming deduction U/s. 23 & 24 of the Act. Acco .....

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disallowed. On appeal, the Ld. CIT (A) confirmed the order of the Ld. Assessing Officer by observing as under:- 4. Regarding deduction claimed U/s. 23 & 24 of the Act to arrive at the income from house property, the gross receipts alone should be considered for calculating 85% for application and not the income after deduction U/s. 23 & 24 of the Act. As the income from house property held under trust is to be determined in normal commercial manner, there is no scope for computing incom .....

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the orders of the Revenue. 6.3 We have heard both the parties and carefully perused the materials available on record. Chapter-III refers to income which does not form part of total income . Section-11 of the Act placed under Chapter-III deals with income from property held for charitable or religious purpose . Section-11(1)(a) provides that income derived from the property held under trust wholly for charitable or religious purpose, to the extent to which such income is applied, shall not be in .....

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