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M/s. Medical Trust of Seventh Day Adventist Versus The Income Tax Officer (OSD) (Exemptions) -III, Chennai

2016 (9) TMI 947 - ITAT CHENNAI

Depreciation claimed by the assessee charitable trust - assessee engaged in health care activities and registered under section 12AA enjoying the benefit of Section 11 of the Act - Held that:- In the case of the assessee which is a charitable trust registered under section 12AA of the Act and enjoying the benefit of section 11 of the Act, will not be entitled to claim the benefit of depreciation while computing the income of the trust and further there would be no scope arithmetically to set off .....

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Sahadevan, JCIT ORDER 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 a .....

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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 ₹ 11,89,46,491/- and ₹ 12,9 .....

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ideration. 4. On appeal, the learned Commissioner of Income Tax (Appeals) sustained the orders of the learned Assessing Officer by relying on the decisions of various higher judiciaries, against which the assessee is in appeal before us. 5. At the outset, the learned Departmental Representative submitted that both the issues are decided against the assessee by this Bench of the Tribunal in the case of The Anjuman-E-Himayath-E Islam Vs. ADIT in ITA No.2271/Mds/2014 dated 02.06.2015. It was theref .....

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al in the case of The Anjuman-E-Himayath-E Islam Vs. ADIT in ITA No.2271/Mds/2014 vide order dated 02.06.2015. The gist of the order is reproduced herein below for reference:- With respect to disallowance of depreciation: 5.1 Ground No.(ii) - Disallowance of the depreciation while computing the income of the assessee trust. The assessee Trust had claimed depreciation on the assets as application of income in the return of income. The Ld. Assessing Officer opined that the claim of depreciation by .....

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sed 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 pu .....

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ned 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 .....

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is in excess of the income as shown in its accounts, is to be deemed to have been applied to purposes other than charitable or religious, and hence it will be charged to tax under sub-section (3). As only the income disclosed by the account will be eligible for exemption under section 11(1), the permitted accumulation of 25 per cent will also be calculated with reference to this income. 4. Where the trust derives income from house property, interest on securities, capital gains, or other source .....

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es other than those of the trust. The amounts spent or applied for the purposes of the trust from out of the income computed in the aforesaid manner, should be not less than 75 per cent of the latter, if the trust is to get the 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 .....

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rplus 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 modify the assessment determining higher income and allow recomputed income with the depre .....

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e 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 set off of excess application of income in the relevant assessment year: 4.1. Ground No.(i) - Disallowance of the carry forward and set off of excess application of income. The assessee in its return of income had claimed Rs. 1,00,70,474/- as excess .....

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e Ld. CIT (A) denied the benefit of carry forward of excess application by observing as under:- Income derived from property held under trust means real income and not the income computed for assessment. The question of spending of 85% of income and accumulation of 15% of income arise only when there is real income. The income derived should be during the current year and accumulation is also from current year s income. If the trust is able to spend the entire income derived from trust, the whol .....

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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. .....

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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 .....

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Trust wholly for charitable or religious purpose shall not be included in the total income to the extent such income is applied for charitable or religious purpose in India. The Act also provides that upto 15% of such income is accumulated or set apart, then that shall also not be included in the total income. Further Section-11(1)(d) of the Act provides that income in the form of voluntary contribution made with specific direction that they shall form part of the corpus of the trust or institut .....

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pose 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 inc .....

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dry creditors of the Trust or accumulate fund of the Trust for claiming exemption U/s.11 (1) of the Act. 4.5. Application of fund by any charitable institution is possible 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 D .....

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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 the Trust. Therefore, there cannot be a case where the trust can apply its income more than the income received by it for the purpose of Section-11(1)(a)&am .....

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wever 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 the year in which it is received or such amount is set aside and therefore once again treating the same as application of fund will amount to double deduction. Similarly voluntary contribution received toward Corpus is exempt from income of the trust in the year .....

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mbai 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 , accumula .....

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