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M/s. St. Thomas Orthodox Syrian Cathedral Parish Trust Versus The Joint Commissioner Of Income Tax (OSD) , (Exemptions) -II, Chennai

Disallowing the depreciation - assessee is a trust - Held that:- As relying on the Anjuman-E-Himayath-E-Islam [2015 (7) TMI 594 - ITAT CHENNAI] the assessee will not be entitled to claim the benefit of depreciation while computing income for the purpose of Section-11 of the Act. However, if the benefit of section-11 is denied and when the income of the assessee trust is computed under the other heads of the Act, then of course the benefit of depreciation can be availed by the assessee in accorda .....

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e, there cannot be a case where the trust can apply its income more than the income received by it for the purpose of Section-11(1)(a)&(b) of the Act. Thus excess application of fund over and above the income of the Trust can arise only when funds are applied from the Corpus of the Trust, accumulated fund, Loan obtained by the Trust or goods and services received from Sundry Creditors. It can be logical to deduce that when funds are applied from borrowed funds or by way of Sundry creditors the s .....

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l amount to double deduction. Similarly voluntary contribution received toward Corpus is exempt from income of the trust in the year in which it is received and therefore when it is utilized for the objects of the Trust it cannot be considered as application of fund otherwise it will amount to double deduction. From the above factual and mathematical matrix it is evident that carry forward of excess application of fund in the commercial principles cannot be allowed as per the provisions of the A .....

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Mohan Alankamony, Accountant Member This appeal is filed by the Assessee, aggrieved by the order of the Learned Commissioner of Income Tax(A)-VII, Chennai dated ITA 2 No.165 /Mds/2015 09.09.2014 in ITA No.263/11-12passed under Sec.143(3) read with section 147 & 250 of the Act. 2. The Assessee has raised three elaborate grounds in its appeal, however the assessee has not pressed ground No.1 which relates to treating of revised return filed on 19.02.2008 as invalid and hence this ground is dis .....

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2007 for the assessment year 2006-07. Since the assessee had claimed depreciation in respect of the asset the cost of which has been already allowed as application of income, the Ld. Assessing Officer was of the belief that income has escaped assessment in the case of the assessee and therefore, notice U/s. 148 was issued on 13.09.2010 and the assessment was completed U/s. 143(3) of the Act wherein the Ld. Assessing Officer disallowed ₹ 16,61,341/- being the depreciation claimed by the ass .....

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t because the cost of the asset on which depreciation is claimed was already allowed as application of income. While doing so, the Ld. Assessing Officer observed as follows:- "The value of assets on which depreciation has been claimed, has been fully allowed as expenditure/application in the earlier years. Hence the represent claim is only a double deduction over and above the full value of the assets. Unless the Act specifically allows through an enactment, a weighted deduction or double d .....

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009 dated 26.10.10 4. Prakash Education Society in ITA No.4730 &4731/D/2007 ITAT Delhi bench In the case of Escorts Ltd and Another Vs. UOI and Others in 199 ITR 43(SC) the Apex Court observed that when deduction U/s. 35(2)(iv) was allowed in respect of capital expenditure on scientific research, no depreciation was to be allowed U/s. 32 on the same asset. The fundamental axiom is that double deduction is not intended unless there is a clear statutory indication to the contrary. The same pri .....

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its order dated March, 2014. It is a fact that the assets when purchased are claimed as application of income by the trusts. Again the depreciation on the same assets is claimed year after year while computing the income. This obviously amounts to double deduction. This vital aspect was not appreciated by some of the Courts/ITATs. These decisions derive substance from the decision of Bombay High Court in the case of CIT Vs. P K Badlani (1970) 76 ITR 369 . The decision was rendered before the int .....

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of Delhi High Court in the case of DIT(E) Vs. Charanjiv Charitable Trust (Date of order 18.03.2014) in confirming the order of the Assessing Officer. Therefore the claim of depreciation is also not allowed. Finance (No.2) Bill 2014 introduced sub-section (6) to Section.11 of the Act to deny depreciation in respect of any asset, acquisition of which has been claimed as an application of income U/s. 11 in the same or any other previous year. Though the amendment is prospective in nature and comes .....

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ion Vs. CIT reported in [2012] 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 .....

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hat subject to the provisions of sections 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 .....

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its accounts, is to be deemed to have 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 b .....

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mounts spent or applied for the purposes 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 n .....

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ssee, 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 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 a .....

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#39;ble Calcutta High Court, we do not find any hesitation to confirm the order 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." Therefore following the decision of the Tribunal cited hereinabove and agreeing with the reasoned orders of the Ld. CIT (A) and the Ld. Assessing Officer, we hereby hold that the assessee will not be entitled to claim the benefit of depreciation while computing income for the purpose of .....

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for the purpose of section-11 of the Act. The assessee has stated in its revised return of income that a sum of ₹ 5,79,100/- which was donated in the earlier year i.e. before 31.03.2005 was omitted to be included in the accounts of that year. Therefore, the same is included as application of fund in the relevant assessment year. The Ld. Assessing Officer denied the same to be treated as application of income for the relevant assessment year because the assessee had not filed the return of .....

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essee's plea is not acceptable because of the following discussion. Govindu Naicker Estate Vs. ADIT (1999) 105 Taxman 719 (Mad). The Hon'ble High Court observed as under: It is thus clear that the income of the trust has to be arrived at having due regard to the commercial principles, that section 11 is a benevolent provision, and that the expenditure incurred on religious or charitable purposes in earlier year or years can be adjusted against the income of the subsequent year. I am in r .....

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ous or charitable purposes, and the expenditure adjusted against the income of the trust in a subsequent year, would not amount to an incidence of loss of an earlier year being set off against the profit of a subsequent year. The object of the religious and charitable trust can only be achieved by incurring expenditure and in order to incur that expenditure, the trust should have an income. So long as the expenditure incurred is on religious or charitable purposes, it is the expenditure properly .....

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income of the subsequent year. The expenditure that can be so adjusted can only be expenditure on religious and charitable purposes and no other. As the impugned order has not been made in conformity with the law as set out above, the impugned order will have to be and is set aside, and the matter is remanded to the Director of Income-tax (Exemptions) for fresh consideration in accordance with law." The Bombay High Court in the case of CIT Vs. Institute of Banking Personnel Selection (2003 .....

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ade having regard to the benevolent provisions contained in section 11 of the Act and that such adjustment will have to be excluded from the income of the Trust under section 11(1)(a) of the Act." The Gujarat High Court in the case of CIT Vs. Maharana of Mewar Chairtable Foundation 164 ITR 439 and CIT Vs. Shri Plot Swetember Murti Pujak Jain Mandal 211 ITR 239 observed the similar views which are as under:- "In other words, even if expenses for charitable and religious purposes are adj .....

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contains the provisions of carry forward of losses of earlier year and set of such losses against the income of the current year. 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 to spend the ent .....

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ly 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( Delhi). In the above decision, the Hon'ble ITAT analysed all the decisions which are in favour of crry forward and set off and distinguished them and arrived at the correct decision as declared by the Income tax Act. The Bombay Hig .....

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vestment 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 form part of Total income" included under Chapter-III of the Income -tax A .....

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ance of the carry forward and set off of excess application of income. The assessee in its return of income had claimed ₹ 1,00,70,474/- as excess application of income to be carried forward as follows:- Gross receipts Rs.5,11,60,794 85% of the Gross receipts Rs.4,34,86,675 Application of income including Capital expenditure Rs.5,35,57,149 Excess Application of Rs.1,00,70,474 However, the Ld. Assessing Officer allowed the claim of excess application to be carry forward ₹ 23,96,355/- a .....

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e during the current year and accumulation is also from current year's income. If the trust is able to spend the entire income derived from trust, the whole expenditure is treated as application and exempted U/s. 11 of the Act. There is no provision U/s. 11 of the Act to carry forward the excess spending in excess 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 in .....

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of carry forward and set off and distinguished them and arrived at the correct decisions as declared by the Income-tax Act. The Bombay High Court in the case of Ld. 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 forwar .....

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rd and set-off is substituted for the "Income which do not from part of Total income" included under Chapter-III of the Income-tax Act." 4.3. Before us, the Ld. A.R. citing the decision of the Bombay Tribunal in ITA No.6129/Mum./2013 in the case of M/s.Maharashtra Industrial Development Corporation, Mumbai vide order dated 05.03.2015 argued that the assessee should be allowed to carry forward the excess application. The Ld. D.R on the other hand argued in support of the order of t .....

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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 shall form part of the corpus of the trust or institution" will also not be included in the total income. By virtue of Section-2(24) of the Act the definition of 'income' includes any "voluntary contribution received by the trust created wholly or partly of charitable or religious purposes". Further explanation to section .....

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ibutions 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 even if accumulated or set apart shall also not be included in the total income of the Trust. Therefore, what is provided under the Act is with respect to 'application of income' from the 'income derived from the property held under the Trust' and any ' .....

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nstitution 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. [Hon'ble Calcutta High Court has held in the case DCIT VS. Girdharilal Shewnarain Tantia Trust reported in [1993] 199 ITR 15(Cal.) that "The "income" contemp .....

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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 received by it for the purpose of Section-11(1)(a)&(b) of the Act. Thus excess application of fund over and above the income of th .....

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nnot 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 Corpus is exempt from income of the trust in the year in which it is received and therefore when it is utilized for the objects of the .....

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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 ₹ 23,96,355/- may have been taken out from the 'corpus funds', 'accumulated funds', 'loan' obtained by .....

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