TMI Blog2013 (2) TMI 755X X X X Extracts X X X X X X X X Extracts X X X X ..... ee Held that:- Trust was entitled to set off the amount of excess application of income of prior years against deficiency of current year - claim of the assessee ought have been entertained if such claim was found factually correct - I.T.A. No. 2090/Mds/2012 & I.T.A. No. 2172/Mds/2012 - - - Dated:- 21-2-2013 - SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER For the Petitioner : Shri T. Banusekar, CA For the Respondent : : Dr. S. Moharana, CIT-DR ORDER PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : These are appeals filed by the assessee and Revenue respectively, directed against an order dated 22.8.2012 of Commissioner of Income Tax (Appeals)-XII, Chennai. 2. Assessee s appeal is delayed by one day. Assessee has filed a condonation petition. Reasonable cause has been shown in the said petition. Hence, delay is condoned and appeal of the assessee admitted. 3. Assessee has raised three issues in its appeal. First one is that capital expenditure incurred out of borrowed funds was held not to be an application of income. Second is that depreciation was not considered as application of income. Third one is that exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not impressed. According to him, loan obtained by the assessee could not be equated with income received from property held under Trust. He, therefore, held that purchase of asset for ₹ 12,85,43,524/- could not be considered as application of income. At this point, assessee raised an alternative contention that excess of application over income of the earlier years had to be allowed for set off against income of the current year. This plea also was not accepted by the Assessing Officer for a reason that it was not made through a revised return. According to him, a fresh claim could not be entertained in view of the decision of Hon'ble Apex Court in the case of Goetze (India) Ltd. v. CIT (284 ITR 323). He, therefore, computed the income of the assessee by taking revenue expenditure alone as application of income. Shortfall in application was considered as income of the assessee and taxed accordingly. 8. In its appeal before CIT(Appeals), argument of the assessee was that its income was totally applied for the objects and at least a part of the capital expenditure was not met out of borrowed funds. As per the assessee, a sum of ₹ 4 Crores out of borrowed funds, wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tisfied conditions set out in Section 11(1), ld. CIT(Appeals) chose not to decide on the claim of the assessee that excess expenditure of earlier years had to be brought forward and allowed for set off. Nevertheless, with regard to issue of depreciation, ld. CIT(Appeals) upheld the view taken by the A.O. 10. Now before us, learned A.R., strongly assailing the order of CIT(Appeals), submitted that even if fixed assets were acquired out of loan funds, the cost of acquisition could still be considered as application of income. According to him, loan funds were not directly used for acquisition of capital assets. Loan funds had gone out of a common kitty and it was from such common kitty, payments were made for acquiring capital assets. As per learned A.R., once the amounts had gone out of a common kitty, it could not be stated that loan funds alone were used for acquiring capital assets. On the other hand, the presumption that ought be taken is that assessee s own funds were first used for acquiring capital asset and loan funds were utilized for meeting the deficiency only. Once the sum of ₹ 4 Crores used for making security deposit was excluded, then it was obvious that loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of income of the Trust. According to him, this was the view taken by Hon ble Punjab Haryana High Court in the case of CIT v. Market Committee, Pipli (330 ITR 16), Hon ble Delhi High Court in the case of DIT v. Vishwa Jagriti Mission in ITA No.140/2012 dated 29th March, 2012, Hon ble Karnataka High Court in the case of CIT v. Society of the Sisters of St. Anne (146 ITR 28), Hon ble Calcutta High Court in the case of CIT v. Bhoruka Public Welfare Trust (240 ITR 513) and by Hon ble Gujarat High Court in the case of CIT v. Sheth Manilal Ranchhoddas Bishram Bhavan Trust (198 ITR 598). 13. Per contra, learned D.R. submitted that insofar as depreciation claim was concerned, Hon ble Kerala High Court in the case of Lissie Medical Institutions v. CIT (2012) 24 Taxmann 9 had held that once expenditure on acquisition of assets were considered as application of income, depreciation thereon could not again be considered as application for charitable purposes. Further, according to him, assessee had itself withdrawn the claim of depreciation before the Assessing Officer and could not now turn back. Learned D.R. further submitted that loan amounts were directly used for acquiring fixed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s schedule filed by the assessee along with its statement of total income, copy of which has been filed before us by learned A.R., clearly reflects acquisition of its assets to the tune of ₹ 12,85,43,524/-. Claim of the assessee is that loan raised had gone into a common kitty and therefore, cost of acquisition of assets had gone out of common kitty. In other words, according to assessee, once the payments were made out of common kitty, it could only be considered as utilization of income. Gross receipts of the assessee for the relevant previous year came to ₹ 6,82,56,876/-. Assessing Officer had started his computation therefrom. The whole of sum of gross receipts were fees and collections. Assessee had also started its computation from the sum of ₹ 6,82,56,876/-. However, assessee considered the sum of ` 12,85,43,524/- used for acquiring fixed assets, as a part of utilization of the above receipts, whereas, the A.O. did not accept this contention. Requirement for claiming exemption under Sections 11 and 12, is specified under Section 11(1)(a), which is reproduced hereunder:- 11 (1) Subject to the provisions of sections 60 to 63, the following income shall n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... still a substantial part of the loans stood expended during the relevant previous year. 17. Now taking a look at Circular No.100 dated 24th January, 1973 of CBDT, it reads as under:- Sec.11 of the I.T. Act requires 100 per cent of the income of a charitable and religious trust to be applied for religious and charitable purposes to be entitled to the exemption under the said section. Two questions have been considered regarding the application of income: (i) Where a trust incurs a debt for the purposes of the trust, whether the repayment of the debt would amount to an application of the income for the purposes of the trust? and (ii) Whether loans advanced by an educational trust to students for higher studies would be treated as application of income for charitable purposes? 2. Board has decided that repayment of the loan originally taken to fulfill one of the objects of the trust will amount to an application of the income for charitable and religious purposes. As regards the loans advanced for higher studies, if the only object of the trust is to give interest-bearing loans for higher studies, it will amount to carrying on of money-lending business. If, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n ble Punjab Haryana High Court in the case of Market Committee, Pipli (supra), that of Hon ble Karnataka High Court in the case of Society of the Sisters of St. Anne (supra), that of Hon ble Calcutta High Court in the case of Bhoruka Public Welfare Trust (supra) and that of Sheth Manilal Ranchhoddas Bishram Bhavan Trust (supra), are all in favour of the assessee. In these decisions, it was held that while computing the income of the Trust, commercial principle had to be followed and depreciation had to be allowed. No doubt, Hon ble Kerala High Court has taken different view in the case of Lissie Medical Institutions (supra). Nevertheless, till such time, Hon ble jurisdictional High Court has given its mind on the issue, assessee will be free to press its claim and we will have to follow those decisions in favour of assessee. Therefore, depreciation has to be considered as an application of income derived from property held under Trust. However, we hasten to add that all the above decisions require working out income of a Trust based on commercial principles, and this obviously imply that loans taken by an assessee cannot be considered as expenditure incurred in a revenue field, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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