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TMI Blog2019 (8) TMI 1194X X X X Extracts X X X X X X X X Extracts X X X X ..... educational institutions. In the course of assessment u/s. 143(3) of the Act for AY 2010-11 to 2012-13, the AO noticed from the details of depreciation claimed, that depreciation was claimed on assets, the cost of acquisition of the said assets had been claimed by the assessee as capital expenditure towards application of funds towards the objects of the trust and allowed as such. According to the AO, allowing such a claim would amount to allowing double deduction. On the facts of the present case, he was of the view that the decision of the Hon'ble Supreme Court in the case of Escorts Limited & another Vs. Union of India 199 ITR 43 is squarely applicable, wherein it has been categorically held that when deduction u/s 35(2)(iv) is allowed in respect of capital expenditure on scientific research, no depreciation is allowable u/s 32 on the same asset. 3. The assessee pointed out that Hon'ble High Court of Karnataka in the case of All Saints Church, 148 ITR 786 (Kar) and Society of Sisters of St. Ann, 146 ITR 28 (Kar) has taken the view that where capital expenditure on acquisition of depreciable asset is considered as application of income for charitable purpose, allowing deprec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome as it is nothing but a decrease in the value of property through wear, deterioration, or obsolescence. Since income for the purposes of section 11(1) has to be computed in normal commercial manner, the amount of depreciation debited in the books is deductible while computing such income. It was so held by the Hon'ble Karnataka High Court in the case of CIT Vs. Society of Sisters of St. Anne 146 ITR 28 (Kar). It was held in CIT vs. Tiny Tots Education Society (2011) 330 ITR 21 (P&H) , following CIT vs. Market Committee, Pipli (2011) 330 ITR 16 (P&H) : (2011) 238 CTR (P&H) 103 that depreciation can be claimed by a charitable institution in determining percentage of funds applied for the purpose of charitable objects. Claim for depreciation will not amount to double benefit. The decision of the Hon'ble Supreme Court in the case of Escorts Ltd. 199 ITR 43 (SC) have been referred to and distinguished by the Hon'ble Court in the aforesaid decisions. 21. The issue raised by the revenue in the ground of appeal is thus no longer res integra and has been decided by the Hon'ble Punjab & Haryana High Court in the case of CIT v. Market Committee, Pipli, 330 ITR 16 (P&H). The Hon'ble P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as an application of income under this section in the same or any other previous year." 9. As already stated, the aforesaid amendment is prospective and will apply only from A.Y. 2015-16. In view of the above legal position, we are of the view that the order of the CIT(A) has to be reversed. Consequently ground No.2 raised by the Assessee is allowed. 10. The second common issue that arises for consideration in the appeals by the Revenue which is projected by the Revenue in grounds of appeal No.2 (a) to (c) in all the appeals, is as to whether the CIT(Appeals) was justified in holding that assessee, a trust, is entitled to carry forward expenditure incurred in excess of its income for setting off against income of the succeeding years? The assessee is a trust registered u/s. 12A of the Act. The assessee filed a return of income claiming carry forward of excess application of income pertaining to current year and earlier years against the income of the future assessment years. The assessee sought to carry forward the excess application for setting off as application of income in the subsequent assessment years. According to the AO there was no provision in the Act for carry forw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure incurred on religious or charitable purposes in earlier year or years can be adjusted against the income of the subsequent year. The principle that the loss incurred under one head can only be set off against the income from the same head is not of any relevance, if the expenditure incurred was for religious or charitable purposes, and the expenditure adjusted against the income of the trust in a subsequent year, would not amount to an incidence of loss of an earlier year being set off against the profit of a subsequent year. The object of the religious and charitable trust can only be achieved by incurring expenditure and in order to incur that expenditure, 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of other conditions. While calculating the aforesaid 25 per cent, the important question which arose was as to whether for this purpose, the gross income earned by the assessee is relevant or the income as computed in accordance with the provisions of IT Act. In other words, whether outgoings from out of gross income which are in the nature of application of income, should be first deducted from the gross income and 25 per cent of only the remaining amount should be allowed to be accumulated or set apart. The Special Ben ch of the ITAT on the issue held as follows: "9. Coming to the merits of the issue, we are of the view that the same is clearly covered by the decision of the Hon'ble Supreme Court in the case of CIT vs. Programme for Community Organization (supra). In the decision, their Lordships, after taking note of provisions of s. 11(1)(a), have held as under : "Having regard to the plain language of the above provision, it is clear that a charitable or religious trust is entitled to accumulate twenty-five per cent of its income derived from property held under trust. For the present purposes, the donations the assessee received, in the sum of Rs. 2,57,376, would const ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urpose of accumulation is the income derived by the trust from property. If both the decisions are carefully read, it becomes evident that any expenditure which is in the shape of application of income is not to be taken into account. Having found that trust is entitled to exemption under s. 11(1), we are to go to the stage of income before application thereof and take into account 25 per cent of such income. Their Lordships have pointed that the same has to be taken on "commercial" basis and not "total income" as computed under the IT Act. Their Lordships in the decided case rejected the contention of the Revenue that the sum of Rs. 1,70,369 which was spent and applied by the assessee for charitable purposes was required to be excluded for purpose of taking amount to be accumulated. Having regard to the clear pronouncement of their Lordships of the Supreme Court, it is difficult to accept that outgoings which are in the nature of application of income are to be excluded. The income available to the assessee before it was applied is directed to be taken and the same in the present case is Rs. 3,42,174. Twenty five per cent of the above income is to be allowed as a deduction. Si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his application of income for charitable purpose also gave similar treatment for the capital expenditure incurred in asst. year 2010-11 and 2011-12 and treat repayment of loans as application for charitable purposes. We hold and direct accordingly. 25. As far as issue 1st is concerned the factual details are as follows. In asst. year 2010-11, the AO incurred expenditure of Rs. 40,62,059/- in foreign currency outside India. The details of which are as follows:- 26. It is not in dispute that the aforesaid expenses were incurred towards educational tour i.e visit by students to foreign universities for promotion of educational activities. According to the AO u/s 11(1)(a) of the Act income of charitable institution shall not be included in the total income only to the extent to which such income is applied to such purposes in India. According to the AO since the aforesaid expenditure was not incurred in India the assessee cannot claim the benefit of deduction of the aforesaid expenditure as an application of income. Accordingly the aforesaid sum was added to the total income of the assesee. Similar expenses incurred not in asst. year 2011-2 and 2012-13 were also disallowed for the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Revenue nor the fact of actual payment made in the subsequent or next year is also disputed. Therefore, in fact and in substance, the condition of 'application of the income' of the Charitable Trust for the specified purpose, namely of imparting higher education is satisfied and the exemption to the said Charitable Trust cannot he denied on the anvil of non-fulfillment of' the said conditions under Sec. 11(a) of the Act." 31. The Hon'ble High Court also held as follows:- "15. Thus, we are of the opinion that in view of the findings of fact recorded by the learned Tribunal that a provision was made to the Ohio University for charitable activity by way of education being imparted in India and the fact of the actual payment made to the Ohio University in the very next year and that too offered for taxation in India being undisputed, no such substantial question of law arises for our further consideration." 32. He also drew our attention to the decision of the Hon'ble Delhi High Court in the case of Institute of chartered Accountant of India Vs. DDIT wherein an identical issue Tribunal held as follows:- 17. It is quite clear from the above provisions that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . We are therefore of the view that in the light of the decision that Hon'ble Karnataka High Court the deduction claimed should be allowed. It cannot be said that the assessee has not applied the income for charitable purposes outside India as beneficiaries of the education imparted outside India where the assessee's students. Accordingly the relevant grounds of appeal for the assessee are allowed. 35. As far as second issue is concerned the question that arises for consideration is that when the assessee incurred capital expenditure for acquisition of capital assets but the payment for acquisition of the aforesaid capital assets were outstanding and were not paid, can it be regarded as application of income for charitable purpose. The AO was of the view that the deduction can be claimed only on the basis of actual payment and not on the basis of the outstanding liability shown in the balance sheet. The view of the AO was confirmed by the CIT(A) against which the assessee has preferred present appeal before the Tribunal. 36. The ld DR relied on the order of the CIT(A) on this issue and the CIT(A) in upholding the order of the AO came to the conclusion that unpaid paid liability w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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