TMI Blog2017 (5) TMI 977X X X X Extracts X X X X X X X X Extracts X X X X ..... r, 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. Also see Deputy Director of Income-tax (E) , Circle -17 (1) , Bangalore Versus Karnataka Food and Civil Supplies Ltd [2016 (1) TMI 396 - ITAT BANGALORE] - Decided against revenue - I.T. A. No.890/Bang/2016, And C.O. No.29/Bang/2017 - - - Dated:- 19-5-2017 - SHRI VIJAY PAL RAO, JUDICIAL MEMBER, AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER For The Assessee : C.O. By : Shri B.T. Shetty, C.A. For The Revenue : Shri G. Kamaladhar, D.R. ORDER Per Shri Vijay Pal Rao, J.M This appeal by the assessee is directed against the order dt.22.02.2016 of Commissioner of Income Tax (Appeals) - 14, LTU, Bangalore for the Assessment Year 2011 - 12. 3 2. The revenue has raised the following grounds : Disallowance of depreciation: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to taxation of charitable] religious trust or institution ufs 11, 12 and 13 oi the LT. Act. {ivl. Thouh the Finance Act, 2014 has amended the income Tan Act, 1961 with regard to non-allowance of depreciation to charitable] religious trust or institution on the value oi assets which has already been allowed as application of income u/s 11(1) by inserting sub-section (6] of SectiOn 11, we! 01.04.2015. such amendment cannot be construed as effective prospectively inasmuch as in accordance with the ratio laid down by the l-lon bie Supreme Court in the case oi Escorts Ltd. another Vs. Union of indie (Supra). the amendment only set out more clearly and categorically what the legislature had intended and conveyed u/s 11i1l even earlier to the said amendment. As such. the amendment shall be considered as clarificatory in nature maltin it clear that the assessee Is not entitled to claim double deduction in respect at same expenditure u/s 11(1) as application of income and also depreciation simultaneously. Carry forward of excess application: i). Whether. in the given facts and circumstances, the CIT (A) is correct without appreciating the fact that the normal co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... donations or 15% of income set apart over a period of time. However, expenditure incurred out of the above sources cannot be termed as application of funds out of the income earned in a particular assessment year inasmuch as loan borrowed does not fall under the category of income earned by the assessee, corpus fund donation does not come under income by virtue of section 11(1)(di and 15% of income set apart in earlier assessment year cannot be construed as income of the current year and 15% set apart out of the current year income is also excluded from income available for application. As such, the concept of application is only to show that the income is fully utilized rather than claiming excess expenditure either revenue or capital over and above the income so as to claim excess application or deficit/loss to be carried forward to subsequent assessment years. Even in the case of excess application by virtue of borrowed funds/corpus fund donations/15% set apart of earlier years, the income of the assessee cannot be cdnverted to loss but at best it can be made Nil. Hence, the carry forward of excess application of income as claimed by the assessee cannot be allowed. 3. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e have no reason to take a divergent view from the view taken by the co-ordinate bench of this Tribunal in case of Shri Adichunchunagiri Shikshana Trust (Supra) as well as in case of City Hospital Charitable Trust (Supra), wherein the co-ordinate bench of this Tribunal has decided an identical issue in para-7 to 9 as under; 7. We have heard the submissions of the ld. DR, who relied on the order of AO. We have considered the order of the AO. Identical issue ITA No.676/Bang/2014 Page 4 of 11 came up for consideration before ITAT Bangalore Bench in the case of DDIT(E) v. Cutchi Memon Union (2013) 60 SOT 260 Bangalore ITAT, wherein similar issue has been dealt with by this Tribunal. In the aforesaid case, the assessee claimed depreciation and the AO denied depreciation on the ground that at the time of acquiring the relevant capital asset, cost of acquisition was considered as application of income in the year of its acquisition. The AO took the view that allowing depreciation would amount to allowing double deduction and placed reliance on the decision of Hon'ble Supreme Court in Escorts Ltd. (supra). The CIT(A), however, allowed the claim of assessee. On further appeal by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction. 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 the amount of depreciation debited in the books is deductible while computing such income. In view of the aforesaid decision on the issue, we are of the view that the order of the CIT(A) on the above issue does not call for any interference. 22. Consequently, ground No.5 raised by the revenue is dismissed. 8. We may also add that the legal position has since been amended by a prospective amendment by the Finance (No.2) Act, 2014 w.e.f. 1.4.2015 by insertion of sub-section (6) to section 11 of the Act, which reads as under:- (6) In this section where any income is required to be applied or accumulated or set apart for application, then, for such purposes the income shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of any asset, acquisition of which has been claimed as an application of income under this section in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... haritable or religious 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 ITA No.676/Bang/2014 Page 9 of 11 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cordingly, in view of the decision of Hon'ble jurisdictional High Court as well as co-ordinate bench of this Tribunal (supra), we do not find any reason to interfere with the impugned order of the CIT (Appeals) qua this issue. 5. The next issue raised by the revenue is carry forward of excess application of income under Section 11(1)(a) of the Income Tax Act, 1961 (in short 'the Act'). 6. We have heard the learned Departmental Representative as well as learned Authorised Representative and considered the relevant material on record. The CIT (Appeals) has decided this issue by following the decisions of this Tribunal including the decision in the case of CIT Vs. Manipal Academy of Higher Education (2015) 44 ITR (Trib) 18 (Bang). The co-ordinate bench of this Tribunal in the case of CIT Vs. Karnataka Food and Civil Supplies Ltd vide order dt.20.10.2015 in ITA No.124/Bang/2014 has held in paras 8 9 as under : 8. We are of the view that pendency of an appeal before the Hon'ble High Court of Karnataka cannot be the basis not to follow the decision on the issue already rendered in identical cases. Section 11(1)(a) does not contain any words of limitation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure, 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. The High Court relied on the decision in the case of CIT Vs. Society of Sisters of ST. Anne 146 ITR 28 (Kar). 9.. We find that the above decision has considered the judgment of Hon ble Madras High Court in the case of Govindu Naicker Estate (supra), relied on by the Ld. DR before us. In so far as the argument of the Ld. DR that only the deficit of immediately preceding assessment year can be con ..... X X X X Extracts X X X X X X X X Extracts X X X X
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