TMI Blog2015 (11) TMI 634X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 incurred by the trust, and the income from out of which that expenditure is incurred, would not be liable to tax. The expenditure, if incurred in an earlier year is adjusted against the income of a later year, it has to be held that the trust had incurred expenditure on religious and charitable purposes from the income of the subsequent year, even though the actual expenditure was in the earlier years, if in the books of account of the trust such earlier expenditure had been set off against the income of the subsequent year. The expenditure that can be so adjusted can only be expenditure on religious and charitable purposes and no other. Whether loan is repaid the Assessee would again claim deduction and hence the Assessee would get double deduction is withou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,02,23,491 Less: Income applied for charitable purposes eligible for exemption u/s.11 Operating other expenses 3,33,69,319 Interest expenses 51,52,306 Depreciation 13,49,000 Investment in fixed assets 3,25,411 (4,01,96,037) Less: Deficit brought forward 1,00,27,454 From AY 2008-09 (2,66,04,960) From AY 2007-08 (8,92,281) (2,74,97,241) (1,00,27,454) Total Income ----- 4. The AO computed total income of the Assessee by disallowing Depreciation, disallowing bad debts of ₹ 6,17,865 which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra) will not be applicable as it was rendered on a different set of facts. 7. The AO however, held that allowance of depreciation when the cost has already been recovered by way of exemption as application of income amounts to double deduction and double benefit on the same asset. The AO referred to the decision of the of Hon'ble High Court of Kerala in the case of DDIT(E) v. Lissie Medical Institutions, 348 ITR 344 (Ker) wherein it was held that allowing depreciation of a depreciable asset when the cost of acquisition of depreciable asset was allowed as application of income for charitable purpose amounts to double depreciation and therefore depreciation cannot be allowed. The AO also distinguished the cases cited by the Assessee. 8. On appeal by the Assessee, the CIT(A), held that the claim of the Assessee for depreciation has to be allowed but only on the opening WDV of the block of assets. The Assessee s claim was to allow depreciation on the closing WDV of the assets including the addition made to the block of assets during the previous year. 9. Aggrieved by the order of the CIT(A), the Revenue has preferred ground No.1 in its appeal and the Assessee has pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after considering several decisions on that issue and also the decision of the Hon ble Supreme Court in the case of Escorts Ltd. (supra), came to the conclusion that depreciation is allowable on capital assets on the income of the charitable trust for determining the quantum of funds which have to be applied for the purpose of trusts in terms of section 11 of the Act. The Hon ble Punjab Haryana High Court made a reference to the decision of the Hon ble Supreme Court in the case of Escorts Ltd. (supra) and observed that the Hon ble Supreme Court was dealing with a case of two deductions under different provisions of the Act, one u/s. 32 for depreciation and the other on account of expenditure of a capital nature incurred on scientific research u/s. 35(1)(iv) of the Act. The Hon ble Court thereafter held that a trust claiming depreciation cannot be equated with a claim for double deduction. The Hon ble Punjab Haryana High Court has also made a reference to the decision of the Hon'ble Karnataka High Court in the case of CIT v. Society of Sisters of Anne, 146 ITR 28 (Kar), wherein it was held that u/s. 11(1) of the Act, income has to be computed in normal commercial manner and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsequent assessment year i.e., in AY 2009-10. According to the AO there was no provision in the Act for carry forward of excess expenditure of earlier year to be adjusted against income of the subsequent year and he therefore denied the claim of the Assessee. 14. On appeal by the assessee, the CIT(A) directed the AO to allow claim of the assessee for set off in so far as it relates to deficit of AY 07-08 but denied the claim in so far as it relates to AY 08-09. The following were the reasons given by the CIT(A) in this regard:- 16. Ground No. 4 5 relate to claim of loss/deficit of earlier years against income of the current year: As per details filed by the Ld. AR, such deficit or excess expenditure over income related to AY 2007-08 (Rs.892,281/-) and AY 2008-09 (Rs. 26,604,960/-), which were to be carried forward and set off against current year s income. It has also been explained that the major source of income of the appellant is the donation received from parent company, and expenditure in AY 2007-08, and AY 2008-09 were met primarily from the bank loan guaranteed by the parent company and/or the share capital/application money, pending the FCRA approval and receip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a result of excess spending for charitable purposes, such excess would not form part of the total income or loss and the same, therefore, cannot be carried forward. The claim of the assessee that the advance received by it in regard to the sale of property was in the nature of income, had also to be rejected for the simple reason that such advance could not go into the computation of the total income. If would be so even if the income of the trust for the purpose of the Act could not be regarded in a commercial sense. Thus, in the present case, there was no loss in the computation of the total income of the trust which was entitled to be carried forward. The deficit arose out of the application of sums not in the nature of income and such deficit was not capable of being carried forward. Accordingly, the order passed by the ITO in which he did not allow the carry forward of the deficit was to be restored and that of the AAC was to be set aside. 16.4 Thus deficit arising from application of sums (loans/advances) which are not in the nature of income, or unpaid liabilities cannot be carried forward. They could be allowed in the year of payment or repayment. Similarly excess e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purposes. Hence, even if the expenses for such purposes have been incurred in the earlier years and the said expenses are adjusted against the income of a subsequent year, the income of such subsequent year can be said to be applied for charitable or religious purposes in the year in which such adjustment takes place. In other words, the set-off of excess of expenditure incurred over the income of earlier years against the income of a later year will amount to application of income of such later year. The above is the position of law as held in the case of CIT Vs. Maharana of Mewar Charitable Foundation 164 ITR 439 (Raj), CIT Vs. Shri Plot Swetamber Murti Pujak Jain Mandal 211 ITR 293 (Guj.) . In CIT Vs. Institute of Banking Personnel Selection 264 ITR 110 (Bom) it was held that in case of charitable trust whose income is exempt under s. 11, excess of expenditure in the earlier years can be adjusted against income of subsequent years and such adjustment would be application of income for subsequent years and that depreciation is allowable on the assets the cost of which has been fully allowed as application of income under s. 11 in past years. In Govindu Naicker Estate VS. ADI ..... X X X X Extracts X X X X X X X X Extracts X X X X
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