TMI Blog2005 (7) TMI 75X X X X Extracts X X X X X X X X Extracts X X X X ..... n as the chances of recovery were found to be remote and were transferred to the expenditure account and adjusted against the income of the year under consideration. Accordingly, the Tribunal has rightly held that the income was applied in the year under consideration, when the right of recovering loan was waived and the amount was adjusted against the income of that year - Tribunal was right in holding that the assessee is entitled to the benefit of section 11 - - - - - Dated:- 12-7-2005 - Judge(s) : D. A. MEHTA., MS. H. N. DEVANI. JUDGMENT The judgment of the court was delivered by Ms. H.N. Devani J.- The Income-tax Appellate Tribunal, Ahmedabad Bench "A", has referred the following question for the opinion of this court under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee-trust. The Assessing Officer held that the said amount had not been utilised for the purposes of the objects or against the current year's income. The Assessing Officer also found that the auditor's report indicated that the said amount had been written off; that, since the assessee was not carrying on any business, there was no question of setting off the said amount against the income of the current year. Accordingly, he disallowed the amount of Rs. 1,65,201 as an item of expenditure. The assessee carried the matter in appeal before the Deputy Commissioner of Income-tax, who by his order dated March 2, 1989, dismissed the appeal and confirmed the order of the Assessing Officer. The assessee preferred a second appeal before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te, hence, the same was written off and claimed as expenditure in the year under consideration. As can be seen from the orders of the Deputy Commissioner of Income-tax (Appeals) and the Tribunal it was the case of the assessee that the trust had applied its income towards loan under the self-housing scheme for residences for the poor and weaker sections of the public and that such amount was considered as aid to the loanees and claimed as an expenditure. That, the said expenditure was an allowable deduction as the said amount was "applied" within the meaning of section 11(1)(a) of the Act and that the said expenditure had been incurred in the fulfilment of the objects of the trust. It was the case of the assessee that the fact that the expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shows that the income derived from property held under trust wholly for charitable or religious purposes to the extent to which such income is applied to such purposes in India is to be excluded for the purposes of computing the income of the trust for the purpose of assessment. There are no words of limitation in this section providing that the income should have been applied for charitable or religious purposes only in the year in which the income had arisen. The word 'applied' means 'to put to use' or 'to turn to use' or 'to make use' or 'to put to practical use'. Having regard to the provisions of section 11 of the Act, it is clear that when the income of a trust is used or put to use to meet the expenses incurred for religious or chari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rposes of incurring expenses for charitable and religious purposes in a particular year and the said loan is repaid out of the income of the subsequent year, the said repayment would be entitled to exemption from tax under section 11(1)(a) of the Act in view of the circular abovereferred to. But, if the trust instead of taking a loan incurs expenses for charitable and religious purposes out of the corpus of the trust and seeks to reimburse the said amount out of the income of the subsequent year, the trust would not be entitled to claim exemption in respect of such reimbursement under section 11(1)(a) of the Act if the contention advanced by the Revenue is accepted. The construction which leads to such an anomaly has got to be avoided. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Sheth Manilal Ranchhoddas Vishram Bhavan Trust [1992] 198 ITR 598 and held as follows: "In view of the two decisions of this court abovereferred to, it is the well-settled position that income derived from the trust property has to be determined on commercial principles and if commercial principles for determining the income are applied, it is but natural that the adjustment of the expenses incurred by the trust for charitable and religious purposes in the earlier year against income earned by the trust in the subsequent year will have to be regarded as application of income of the trust for charitable and religious purposes in the subsequent year in which such adjustment has been made having regard to the benevolent provisions contain ..... X X X X Extracts X X X X X X X X Extracts X X X X
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