TMI Blog2016 (9) TMI 947X X X X Extracts X X X X X X X X Extracts X X X X ..... Per A. Mohan Alankamony, AM: Both these appeals are filed by the assessee aggrieved by the common order of the learned Commissioner of Income Tax (Appeals)-VII, Chennai dated 13.10.2014 in ITA No.186/10-11 240/11-12 passed under section 143(3) r.w.s 250(6) of the Act. Since the issues involved in both the appeals are identical, they are heard together and disposed off by this common order for the sake of convenience. 2. The assessee has raised several grounds in its appeals, however, the cruxes of the issues are as follows:- i) The learned Commissioner of Income Tax (Appeals) has erred in sustaining the order of the learned Assessing Officer in disallowing the depreciation claimed by the assessee which is a charitable trust engaged in health care 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 asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ready been claimed as application of income in the year in which the assets were purchased. Thereafter, the Ld. Assessing Officer citing certain decisions held that the claim of depreciation cannot be considered as application of income. On appeal, the Ld. CIT (A) was also of the view of the Ld. Assessing Officer and therefore confirmed Ld. Assessing Officer s order. 5.2 We find this issue is elaborately discussed in the case of Lissie Medical Institution 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'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 it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 not accumulate more than 25 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 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 modif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lation 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 income set apart or accumulated income. Therefore the question of carry forward of excess expenditure and set off of the same subsequently 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 316(Delhi). In the above decision, the Hon ble ITAT analysed all the decisions which are in favour 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 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tution created wholly for charitable or religious purpose shall be deemed to be the income derived from property held under trust . From the above it is clear that, when the assessee trust applies 85% of its income received by way of voluntary contributions other than the voluntary contributions 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 Trus t and any voluntary contributions received by the Trust other than contributions made with specific directions that they shall form part of the corpus of the trus t . Thus, there is no reference in Section-11 of the Act with respect to application of fund from the corpus of the trust, loan obtained by the Trust, Sundry creditors of the Trust or accumulate fund of the Trust for claiming exemption U/s.11 (1) of the Act. 4.5. Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eived 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 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 Rs. 5,11,60,794/- and the assessee trust have spent Rs. 5,35,57,149/- which shows that the assessee trust has spent Rs. 23,96,355/- more than its income received during the relevant year. This amount of Rs. 23,96,355/- may have been taken out from the corpus funds , accumulated funds , loan obtained by the assessee trust or arising out of Sundry Creditors . Therefore it is obvious that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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