9911796707
TMI Blog2016 (9) TMI 947X X X X Extracts X X X X X X X X Extracts X X X X ..... re activities and registered under section 12AA of the Act enjoying the benefit of Section 11 of the Act. ii) The learned Commissioner of Income Tax (Appeals) has erred in sustaining the order of the learned Assessing Officer in disallowing the carry forward of excess application of income of the earlier years for set off against the income of the relevant assessment year. 3. Brief facts of the case are that the assessee is a Trust registered under section 12AA of the Act on 01.06.1999 and is engaged in chartable activity related to health care, filed its returns of income for the assessment years 2008-09 & 2009- 10 on 27.01.2009 & 22.12.2009 admitting income of Rs. 11,89,46,491/- and Rs. 12,94,29,585/- respectively claiming exemption under section 11 of the Act. The case was taken up for scrutiny and the assessments were completed by the learned Assessing Officer under section 143(3) of the Act on 31.12.2010 & 01.11.2011 for the assessment years 2008-09 & 2009-10 respectively wherein the learned Assessing Officer disallowed the claim of depreciation and further denied to set off excess application of income during the earlier years in the relevant assessment years under consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... X-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 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 by the Board and the correct legal position is explained below. 2. Section 11(1) provides that 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 the word "income" used in section 11(1)(a), the same meaning as has been specifically ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 assessee to be carried forward for subsequent 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 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. With respect to disallowance of carry forward and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 forward and allowed in the subsequent year. The principles of set apart/accumulation of income arise only if it is real income. 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 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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" contemplated by the provisions of section 11 is the real income and not the income as assessed or assessable". Further, Hon'ble Apex High Court has 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 obtained by the Trust, then such funds which are applied cannot be said to be funds applied from the income of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of excess application of income does not arise. However the amount applied from the 'Loan' or 'Sundry Creditors' will be allowed as application of fund in the year in which such 'Loan' or 'Sundry Creditors' 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 the excess amount of Rs. 23,96,355/- is applied from the borrowed fund or from Sundry Creditors, the same shall be allowed as application in the year in which such Loan or Sundry Creditors are repaid from the income of the Trust as discussed herein above. Needless to mention that the income of the Trust refers to 'income derived from the property held under the Trust' and any 'voluntary contributions received by the Trust other than contributions made with specific directions that they shall ..... X X X X Extracts X X X X X X X X Extracts X X X X
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