TMI Blog2018 (11) TMI 1055X X X X Extracts X X X X X X X X Extracts X X X X ..... AKA HIGH COURT]wherein the cognate Bench of this court held that even the depreciation not involving any cash outflow is also in the character of expenditure and therefore such depreciation is nothing but decrease in the value of property through wear and tear, deterioration or obsolescence and the allowance made for that purpose in the books of account were deemed to be the application of funds for the purpose of section 11 of the Act. Allowing any expenditure of the earlier year which has been brought forward and set off in the year under consideration, is a justified finding of fact based on the correct interpretation of law and the judgment relied upon by it rendered by the cognate Bench. Therefore, the same does not call for interference. A similar view was also taken by the Division Bench of the Bombay High Court in CIT v. Institute of Banking [2003 (7) TMI 52 - BOMBAY HIGH COURT] wherein the Division Bench of the Bombay High Court held that the income derived from the trust property has also got to be computed on commercial principles and if commercial principles are applied, then adjustment of expenses incurred by the trust for charitable and religious purposes in the ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (lxx)-6 of 1968 when the assessing authority rightly disallowed the claim by holding that no such set of brought forward excess application of income/loss of income of earlier years are permitted under the pro visions of the Act in the case of educational institution ? (3) Whether on the facts and in the circumstances of the case, the Tribunal is right in setting aside the disallowance of accumulation of income made by the assessing authority by holding that the decision of this hon'ble court in the case of DIT (Exemptions) v. Envisions [2015] 378 ITR 483 (Karn) in I. T. A. No. 752 of 2009 dated March 13, 2015 when the assessing authority rightly rejected the claim by holding that the assessee has not stated specific reasons for accumulation ? 3. In our opinion, none of the suggested substantial questions of law, is a substantial question of law falling within the parameters of section 260A of the Income-tax Act, 1961 and the issues raised in the present appeals filed by the Revenue are covered issues decided by the cognate Bench of this court and also by the hon'ble Supreme Court and therefore we shall first discuss both the findings of fact rendered by the Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e income earned by it from the assessee-trust to tax in India. In the light of the abovementioned facts, it is clear that the activities of the assessee-trust were conducted in India in accordance with its objects. As regards the payments being made out of India, we concur with the view of the learned Commissioner of Income-tax (Appeals) that merely because the payments are made outside India, it cannot be said that the charitable activities were also conducted outside the country. In this regard, the judicial decisions of the Income-tax Appellate Tribunal, Mumbai and Delhi Benches, cited by the assessee, squarely apply to the case on hand. In the case of Gem and Jewellery Export Promotion Council v. Sixth ITO reported in [1999] 68 ITD 95 (Mum), the Mumbai Bench of the Tribunal at para 33 thereof held as under : '33. A bare reading of the section 11(1)(a) does not leave us in doubt that the requirement under section 11 is for application of income for purposes in India and it does not restrict the application of income within the territory of India. The charitable purpose for which the income should be applied for claiming exemption under section 11(1)(a) should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, it is not disputed that the trade delegation had been sent abroad for the benefit of the entire trade in India. The exports are made from India and the purpose for sending the delegation was to increase the possibilities of exports out of India. We accordingly hold that since the assessee has applied the income for charitable purposes in India, the mere fact that the expenditure has been incurred out of India, does not disqualify the expenditure from exemption under section 11(1)(a) '. . . We also do not concur with the Assessing Officer's view that a spe cific exemption is required from CBDT for making claim of application of income. This requirement has been specified only for those trusts that have as its objects, the promotion of international welfare. In the case of the assessee in the case on hand, the objects of charitable activities for imparting higher education in India, has already been approved by the Department while granting the assessee-trust regis tration. We are also unable to concur with the view of the Assessing Officer that mere credit entries in favour of Ohio University in the assessee's books of account cannot be taken by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 502 (SC) and other High Court judgments in CIT v. Trustees of H. E. H. the Nizam's Charitable Trust [1981] 131 ITR 497 (AP) ; [1981] 7 Taxman 178 (AP) and CIT v. Radhaswami Satsang Sabha [1954] 25 ITR 472 (All) are correct and justified the findings of fact. The learned Tribunal has rightly held that section 11(1)(a) of the Act does not employ the term spent but applied , which later term applied has wider connotation. 6. Depending upon the normal accounting practices adopted by the assessee in ordinary course of business, if a provision for an expenditure is made in a particular year and the amount in question is spent in the subsequent period, it cannot be said that the amount is not applied for the specified purpose in that relevant assessment year. In the present case, the Tribunal has found that the payment made to the professors of Ohio University, USA who visited the class rooms of the respondent-educational institution in Bangalore and imparted higher education to the students of the respondent-trust, the provision for such payments to the Ohio University was made in the relevant year and the remittances or payment was made in the next year itself, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (SC) and CIT v. Radhaswami Satsang Sabha [1954] 25 ITR 472 (All) and distinguishing the Madras High Court's view in the case of Nachimuthu Industrial Association v. CIT [1980] 123 ITR 611 (Mad) that it is not correct to equate the words applied for the words spent . If the Legislature intended that the amounts should actually be spent, in that very year, nothing prevented them from using that word in section 11 itself. On the facts, the court held that there cannot be any doubt that the money which was sanctioned was applied for a specific purpose as there was nothing else to be done except actual payment and the Tribunal was right in holding that the actual payment is irrelevant for the purpose of finding out whether there has been an application of the fund for the specific purpose or not. The relevant extract from the said judgment is quoted below for ready reference (page 501 of 131 ITR) : We agree with the Tribunal that it is not correct to equate the word 'applied' with the word 'spent'. If the Legislature intended that the amounts should actually be spent, there was nothing preventing it from using that word. There cannot be any doubt that the mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been applied for its purposes. Neither the word 'applied' nor the word 'institution' is of any importance in this case, as in our view, the case is governed by income from the property held under trust as laid down in section 4(3)(i) of the Indian Income-tax Act. 13. The decision of the hon'ble Madras High Court in the case of Nachimuthu Industrial Association v. CIT is distinguishable on the facts. In that case, the donor-a charitable trust under the Nachimuthu Industrial Association, though passed resolutions for donating certain amounts to the educational institutions, neither communicated such resolutions to the donee, who were running the Polytechnic Educational Institution, nor there were any corresponding entries in the books of account of that educational institutions and in the absence of any proof that such donations were actually made over to the donee-educational institutions, the Madras High Court held that the conditions of section 11(1) were not satisfied in that case. Instead of the provision made for such donation and shown as a liability in the balance-sheet of the assessee-trust, the said amounts were shown as a reserve for donation . Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses for our further consideration. 16. In so far as the second question proposed by the Revenue, quoted above is concerned also, we find that the Tribunal's findings in this regard do not give rise to any substantial question of law. The said findings are quoted below for ready reference (page 306 of 44 ITR (Trib)) : In the course of assessment proceedings, the Assessing Officer observed that the assessee had claimed application of income on account of expenditure of earlier years, which has been brought for ward and set off in the year under consideration. The Assessing Officer disallowed the same on the ground that there is no express provision in the Act permitting the adjustment of earlier years brought forward expenses as application of income in the current year. According to the Assessing Officer, the application of income for charitable purposes must be during the relevant previous year. Since the income of the trust is exempt from tax, the question of deficit does not arise and also the trust is required to utilize 85 per cent. of the income of the previous year for charitable purposes during the year. In this view of the matter and for the above reasons, the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtization of expenses. Consequently, Ground No. B (1 to 6) of the Revenue's appeal for the assessment year 2008-09 and Ground No. C for the assessment year 2009-10 are dismissed. 17. In our opinion, the matter is squarely covered by a decision of the cognate Bench of this court in the case of CIT v. Society of the Sisters of St. Anne [1984] 146 ITR 28 (Karn) ; [1984] 16 Taxman 400 (Karn), wherein the cognate Bench of this court held that even the depreciation not involving any cash outflow is also in the character of expenditure and therefore such depreciation is nothing but decrease in the value of property through wear and tear, deterioration or obsolescence and the allowance made for that purpose in the books of account were deemed to be the application of funds for the purpose of section 11 of the Act. The relevant portion of the said judgment is also quoted below for ready reference (page 32 of 146 ITR) : Mr. Srinivasan, however, urged that there are enough indications in section 11 to exclude the mercantile system of accounting. The learned counsel relied upon section 11(1)(a) and 11(4) in support of his contention. We do not think that there is anything in thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of law and the judgment relied upon by it rendered by the cognate Bench. Therefore, the same does not call for interference. A similar view was also taken by the Division Bench of the Bombay High Court in CIT v. Institute of Banking [2003] 264 ITR 110 (Bom), wherein the Division Bench of the Bombay High Court held that the income derived from the trust property has also got to be computed on commercial principles and if commercial principles are applied, then adjustment of expenses incurred by the trust for charitable and religious purposes in the earlier years against the 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. The relevant portion of the said judgment of the Bombay High Court is also quoted below for ready reference (headnote of 264 ITR 110 ) : . . . Normal depreciation can be considered as a legitimate deduc tion in computing the real income of the assessee on general prin ciples or under section 11(1)(a) of the Income-tax Act, 1961. Income of a charitable trust derived from building, plant and machinery and furniture is liable to be comput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, the decision favourable to the assessee should be followed. In the proceedings before us, the learned authorised representative for the assessee submitted that the hon'ble High Court of Karnataka, the jurisdictional High Court, has since decided the issue in the case of DIT (Exemptions) v. Envisions [2015] 378 ITR 483 (Karn) in I. T. A. No. 752 of 2009, dated March 13, 2015 is squarely on the subject. In the said decision, the hon'ble court at para 10 of its order has held as under (page 486 of 378 ITR) : 'In the present case, we find that the Revenue does not dispute the fact that all the three purposes specified by the assessee in Form 10 are for achieving the objects of the trust, and that the purposes as well as objects, are both charitable. Merely because more than one purpose has been specified and details about the plan of such expenditure has not been given, the same would not, in our view, be sufficient to deny the benefit under section 11(2) of the Act to the assessee. As long as the objects of the trust are charitable in character and as long as the purpose or purposes mentioned in Form 10 are for achieving the objects of the trust, merely becaus ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
