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M/s Rama Naick Charitable Trust Versus The DDIT, Exemptions II, Chennai

2015 (9) TMI 277 - ITAT CHENNAI

Disallowance of depreciation - purchase of assets were allowed as application of income under Section 11 of assessee - allowing depreciation would amount to double depreciation as held by AO - Held that:- As decided in The Anjuman-E-Himayath- E-Islam v. ADIT [2015 (7) TMI 594 - ITAT CHENNAI ] this issue is elaborately discussed in the case of Lissie Medical Institution Vs. CIT reported in [2012 (4) TMI 115 - KERALA HIGH COURT] and held the issue against the assessee wherein held that after writi .....

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here 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 years for application for charitable purposes - Decided against assessee.

Excess application - Tthe assessee cannot claim excess application/expenditure as application of inc .....

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gainst assessee. - ITA No.2930/Mds/2014 - Dated:- 21-8-2015 - SHRI N.R.S. GANESAN, J For The Appellant : Sh. A. Kanagaraj, CA For The Respondent : Sh. P. Radhakrishnan, JCIT ORDER This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals)-VII, Chennai, dated 18.08.2014 and pertains to assessment year 2009-10. 2. Shri A. Kanagaraj, the Ld. representative for the assessee, submitted that the assessee, a charitable institution registered under Section 12AA .....

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Officer disallowed the claim of the assessee on the ground that allowing depreciation would amount to double depreciation, by placing reliance on the judgment of the Apex Court in Escorts Ltd. and Another v. Union of India and Others (1993) 199 ITR 43. The Ld. representative placed his reliance on the decision of his Bench of the Tribunal in DDIT(Exemptions) v. Sri Rangalatchumi Educational Trust in I.T.A. No.1930/Mds/2014 dated 31.10.2014 and submitted that on identical circumstances, this Tri .....

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on of income for the year under consideration. 4. I heard Sh. P. Radhakrishnan, the Ld. Departmental Representative also. Admittedly, the assessee is a charitable institution and the assessee is not doing any business. If the assessee engaged itself in business activity, then it would not be eligible for exemption under Section 11 of the Act. It is not the case of the assessee that any business undertaking was held under the assessee-Trust. In other words, the depreciation claimed by the assesse .....

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e, being intangible assets acquired on or after the 1st day of April, 1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession the following deductions shall be allowed- (i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed. (ii) in the case of any block of assets, such percentage on the written down value thereof as ma .....

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more years under an agreement entered into by the Central Government under section 42: Provided further that where any asset referred to in clause (i) 6or clause (ii) or clause (iia), as the case may be, is acquired by the assessee during the previous year and is put to use for the purposes of business or profession for a period of less than one hundred and eighty days in that previous year, the deduction under this sub-section in respect of such asset shall be restricted to fifty per cent. of .....

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thereof as may be prescribed. Explanation - For the purposes of this proviso,- (a) the expression commercial vehicle means heavy goods vehicle , heavy passenger motor vehicle , light motor vehicle , medium goods vehicle and medium passenger motor vehicle but does not include maxi cab , motor-cab , tractor and road-roller ; (b) the expressions heavy goods vehicle , heavy passenger motor vehicle , light motor vehicle , medium goods vehicle , medium passenger motor vehicle , maxi-cab , motor-cab , .....

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ed under this Act immediately before the commencement of the Taxation Laws (Amendment) Act, 1991. Provided also that the aggregate deduction, in respect of depreciation of buildings, machinery, plant or furniture, being tangible assets or know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets allowable to the predecessor and the successor in the case of succession referred to in clause (xiii), clause ( .....

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cessor, or the amalgamating company and the amalgamated company, or the demerged company and the resulting company, as the case may be, in the ratio of the number of days for which the assets were used by them. Explanation - 1. Where the business or profession of the assessee is carried on in a building not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purposes of the business or profess .....

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ection, 10the expressions assets shall mean- (a) tangible assets, being buildings, machinery, plant or furniture ; (b) intangible assets, being know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature. Explanation - 4. For the purposes of this sub-section, the expression know-how means any industrial information or technique likely to assist in the manufacture or processing of goods or in the working of a mine, oil-well or othe .....

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ch, 2005, by an assessee engaged in the business of manufacture or production of any article or thing, a further sum equal to twenty per cent. of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii) : Provided that no deduction shall be allowed in respect of-(A) any machinery or plant which, before its installation by the assessee, was used either within or outside India by any other person ; or(B) any machinery or plant installed in any office premises or a .....

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on is claimed and allowed under clause (i) and which is sold, discarded, demolished or destroyed in the previous year (other than the previous year in which it is first brought into use), the amount by which the moneys payable in respect of such building, machinery, plant or furniture, together with the amount of scrap value, if any, fall short of the written down value thereof : Provided that such deficiency is actually written off in the books of the assessee. Explanation - For the purposes of .....

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o be a sum which bears to the amount for which the motor car is sold or, as the case may be, the amount of any insurance, salvage or compensation moneys payable in respect thereof (including the amount of scrap value, if any) the same proportion as the amount of twentyfive thousand rupees bears to the actual cost of the motor car to the assessee as it would have been computed before applying the said proviso ; (2) sold includes a transfer by way of exchange or a compulsory acquisition under any .....

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Government under sub-section (7) of section 45 of that Act, of any asset by the banking company to the banking institution. (2) Where, in the assessment of the assessee, full effect cannot be given to any allowance under sub-section (1) in any previous year, owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of sub-section (2) of section 72 and subsection (3) of se .....

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usiness. Therefore, this Tribunal is of the considered opinion that Section 32 is not applicable if the assessee is not carrying on any business activity. In this case, it is not in dispute that the assessee is not carrying on any business activity. Therefore, Section 32 of the Act is not applicable. Apart from that, a Division Bench of this Tribunal in The Anjuman-EHimayath- E-Islam v. ADIT in I.T.A. No.2271/Mds/2014 by order dated 2nd July, 2015 considered this issue elaborately and observed a .....

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e trusts-Income required to be applied for charitable purpose-Instructions regarding. In Board s Circular No. 2-P(LXX-5) of 1963, dated the 15th May, 1963, it was explained that a religious or charitable trust claiming exemption under section 11(1) of the Income- tax Act, 1961, must spend at least 75 per cent of its total income, for religious or charitable purposes. In other words, it was not permitted to accumulate more than 25 per cent of its total income. The question has been reconsidered b .....

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ingly be incorrect to assign to the word income used in section 11(1)(a), the same meaning as has been specifically assigned to the expression total income vide section 2(45). 3. In the case of a business undertaking held under trust, its income will be the income as shown in the accounts of the undertaking. Under section 11(4), any income of the business undertaking determined by the Income-tax Officer in accordance with the provisions of the Act, which is in excess of the income as shown in it .....

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its commercial sense, i.e., book income, after adding back any appropriations or applications thereof towards the purposes of the trust or otherwise, and also after adding back any debits made for capital expenditure incurred for the purposes of the trust or otherwise. It should be noted, in this connection, that the amounts so added back will become chargeable to tax under section 11(3) to the extent that they represent outgoings for purposes other than those of the trust. The amounts spent or .....

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per cent thereof. The excess accumulation, if any, will become taxable under section 11(1). After considering the Circular, the Hon ble Kerala High Court held as follows:- 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 .....

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sequent years for application for charitable purposes. Further 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 contemplated by the provisions of section 11 is the real income and not the income as assessed or assessable. Respectfully following the decision of the Hon ble Kerala High Court and taking cue from the decision of the Hon ble Calcutta High Court, we do not find any hesitation to confirm th .....

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plication, an identical factual situation was considered by the Division Bench of this Tribunal in The Anjuman-E-Himayath-E-Islam (supra). This Tribunal found that excess application of income cannot be allowed since it is not the case of the assessee that the money was generated in the course of charitable activity. In fact, this Tribunal observed as follows:- 4.5. Application of fund by any charitable institution is possible only from the following sources:- i) Voluntary contributions received .....

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as held in the case of J. K. Trust Vs. Ld. CIT /CEPT reported in [1957] 32 ITR 535(SC) that Property is a term of the widest import, and subject any limitation or qualification which the context might require, 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 obtain .....

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undry Creditors. It can be logical to deduce that when funds are applied from borrowed funds or by way of Sundry creditors the same can be treated as application of fund in the year in which such Loan/Sundry 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 th .....

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t that carry forward of excess application of fund in the commercial principles cannot be allowed as per the provisions of the Act because it would result in notional application of income in the subsequent 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/- .....

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