TMI Blog2021 (3) TMI 225X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of ITAT., Chennai Bench in the case of Anjuman-E-Himayth-E-Islam vs. ADIT(Exemption) [ 2015 (7) TMI 594 - ITAT CHENNAI] we find that Hon ble Jurisdictional High Court has considered the above issue and by following number of decisions of other High Courts has held that depreciation on fixed assets is allowable, even though trust claimed amount incurred for purchase / acquisition of capital asset as application of income. Similarly, Hon ble High Court has further held that excess application of income of charitable trust can be carried forward and trust is entitled for set off of excess application of income in the earlier year against income of the trust in subsequent years. Therefore, we are of the considered view that there is no error in the findings recorded by learned CIT(A) and hence, we are inclined to uphold findings of CIT(A) and reject ground taken by Revenue. - Decided against revenue. - I.T.A. Nos. 1589 & 1590/Chny/2018 - - - Dated:- 3-3-2021 - SHRI V.DURGA RAO, JUDICIAL MEMBER AND SHRI G.MANJUNATHA, ACCOUNTANT MEMBER Appellant by : Mr. Suresh Periasamy, JCIT Respondent by : Mr. R. M. Narayanan, FCA ORDER PER G. MANJUNATHA , AM : Thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer may be restored. 3. Brief facts are that assessee is a trust registered u/s.12AA of the Act filed its return of income for assessment year 2010-11 on 29.09.2010 admitting Nil total income after claiming exemption u/s. 11 of the Act. The case was taken up for scrutiny and assessment has been completed u/s. 143(3) of the Act on 25.03.2013 by making additions towards disallowance of depreciation on fixed assets on the ground that when assessee has claimed purchase / acquisition of capital asset as application of income u/s.11 of the Act, then further deduction of depreciation on said assets amounts to double deduction and hence, same cannot be allowed as deduction. To support his stand, the Assessing Officer has relied upon the decision of Hon ble Supreme Court in the case of M/s.Escorts Ltd. Vs. UOI., 199 ITR 43 . Further, the Assessing Officer has disallowed retirement fund, gratuity fund, inventories written off, bad debts written off, employees medical insurance global basic life insurance on the ground that above payments are non-funded liability, but there is no actual outflow of cash and hence, same cannot be considered as application of income u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the capital expenditure on scientific research, i e. both under section 10(2)(vi) and section 10(2)(xiv) under 1922 Act or under sections 32(1)(ii) and 35(2)(iv) of 1961 Act. Even in the case of ClT vs. Rao Bahadur Calavala Cuanan Chetty Ctrarittes (135 ITR 485), the Honbe High Court of Madras cIearLY held that while computing the income of the trust u/s. 11 for the purposes of application of income, the word incomes has to be understood in normal parlance without looking into or invoking the provisions of sec. 14 of the IT Act. The Court also held that all the out goings are to be considered while determining he income of the trust u/s.11 of the Act. The relevant extract of the judgment is under: The provision of section 14 uses two expressions (1) total income and (2) income derived from property held under trust total income is an expression, defined in the Act in section 2(45) as meaning the total amount of income referred to in section 5, computed the manner laid down in the Act. However there is no definition of income The words income is an expression of elastic ambit and the courts have always qualified their description by saying that it is not exhaustive. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the expression income from property held under trust . Section 14 occurs in the chapter computation of total income . It provides that all income for the purposes of charge of income-tax, and computation of total income be classified under certain heads. Therefore, the computation under the different categories or heads arises only of the purposes of ascertaining the total income for the purposes of charge. Those provisions cannot be introduced to find out what the income derived from the property held under trust to be excluded from the total income is. for the purpose of the exemptions under chapter lII. The income from the properties held under trust would have to be arrived at iii the normal commercial manner without reference to the provisions which am attracted by section 14. Twenty-five per cent thereof will have to be ascertained and if the assessee had accumulated more than twenty-five percent, then the consequences contemplated by section 11 will follow: Thus, from the above, it is clear that the provisions of sec. 11 are categorically and clearly different from those of sec. 14 of the Act. The deductions or allowances that are provided in chapter IV (i.e. s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t flow and therefore cannot be claimed as application of income. 7. The claim of ₹ 1,52,402/- as Employees Medical Self Insurance is also not acceptable as application of income as this is only a provision to that fund and no actual expenditure was incurred. Since there is no actual payment, the same cannot be claimed as application of income arid therefore the claim of ₹ 1,52,402/- as Employees Medical Self insurance is disallowed. 8. The assessee had claimed ₹ 30,224/- as GIobal Basic Life Insurance . This claim is also not allowable as it is only a provision to that fund and no actual payment is involved. Therefore, the same cannot be claimed as application. Hence, the claim of ₹ 30,224/- as GIobal Basic Life Insurance is disallowed. 5. Being aggrieved by assessment order, assessee preferred an appeal before learned CIT(A). Before, learned CIT(A), assessee has challenged additions made by Assessing Officer towards disallowance of depreciation and denial of carry forward of excess application of income to subsequent years in light of certain judicial precedents, including decision of Hon ble Jurisdictional High Court in the case Medic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed depreciation claimed on fixed assets and carry forward of excess application of income for charitable purposes to subsequent years by following decision of Hon ble Jurisdictional High Court in the case of Medical Trust of the Seventh Day Adventists Vs. DIT (supra). The relevant findings of learned CIT(A) are as under:- 4. Decision: I have considered the observations of the Assessing Officer and the submissions made by the appellant. The first issue is with regard to disallowance of depreciation on assets claimed as application of income by the appellant. It is the view of the Assessing Officer that the expenditure in connection with Fixed Assets was allowed in its entirety at the time of acquisition of these assets and further allowance under any other section of the Income Tax Act will amount to double deduction and therefore not permissible. The Assessing Officer also observed that depreciation allowance is a notional expenditure that cannot be treated as part of application of income for the purposes of section 11 of the Income Tax Act. During the appellate proceedings, the AR furnished written submissions and put forth his arguments to leverage the contention that the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s thus part of standard accounting practice which is required for fair presentation of a company s l1nancials. The computation of income in the case of an entity to which section ii is plicable would be in two stages. Firstly, the determination of the profit arrived at, which would be the total receipts net of expenditure and depreciation incurred in earning the receipts, and secondly the stage of application to Charitable /Religious objects. The two stages are distinct and are required to be complied with consecutively in order to determine the correct income and its application. 23. The question before the Supreme Court in the matter of Escorts related to dual claims under section 35 of the Act in relation to the same asset the first weighted deduction and the second, depreciation. Thus, two benefits were extended in respect of the very same asset- We are faced with an entirely different and distinct position in the present batch of appeals one that involves a claim for exemption in respect of income earned from property held for charitable or religious purposes- We see no double benefit that is extended to the assessee in this regard. 24. Truth to tell, this Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to assessment year 2015-16 and subsequent assessment years. Reliance was placed on the judgment of the Supreme Court in CIT Vs. Alom Extrusions Ltd. (2009) and CIT vs. Vatika Township (367 ITR 466) for the proposition that an amendment that increases the liability of an assessee is liable to be applied only prospectively. Mr. Narayanaswamy would object stating that the amendment had been inserted to correct an existing anomaly and thus was clearly clarificatory, and consequently retrospective in operation. 36. We do not agree with the Revenue. The amendment, inserted specifically with effect from Assessment Year 2015- 2015 seeks to disturb a vested right that has accrued to the assessee. The amendment does not purport to be clarificatory, on the other hand, the Explanatory Memorandum makes it applicable only w.e.f. A.Y. 2015-16 and application of the amendment retrospectively would certainly lead to a great deal of hardship to the assessee. We are thus of the view that the provisions of section 11(6) of the Act inserted with effect from 1.4.2015 shall operate prospectively with respect to assessment year 2015-16 only. Respectfully abiding by the decision of the Jurisdic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e I have no hesitation in holding that the Assessing Officer erred in denying the benefit of sec. 11 12 for the adjustment of excess application made in the earlier assessment years. The appellant succeeds on this ground. 9. We further noted that above findings of learned CIT(A) is further supported by decision of Hon ble Supreme Court in the case of CIT Vs. Subros Educational Society (2018) 96 Taxman 652 (SC), where Hon ble Supreme Court held that any excess expenditure incurred by trust / charitable institution in earlier assessment year could be allowed to be set off against income of subsequent years by invoking section 11 of the Act. We further noted that Hon ble Bombay High Court in the case of CIT Vs. Institute of Banking Personnel Selection (2003) 131 Tamann.com 386 had considered an identical issue and held that excess application of income for charitable purposes can be carried forward to subsequent year and trust is entitled to set off amount of excess application of the last year against income derived from property held under the trust. The above finding recorded by learned CIT(A) is uncontroverted by Revenue. Although, learned DR hassupported the order of Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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