A.Shama Rao Foundation , Mangalore V. The Assistant Commissioner of Income Tax (Exemptions) Circle-1 , Mangalore

ITA 1165/BANG/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 8245 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 9 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-01-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 21-01-2020
• Assessment Year: 2013-2014
• Appeal Filed On: 09-04-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Charitable institution; Benefit of exemption; Capital expenditure; Set aside; Capital Gains
• Section: 143(3); 12A; 12AA; 143(1); 13; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V VASUDEVAN, VICE PRESIDNET AND SHRI B.R BASKARAN, ACCOUNTANT MEMBER ITA NOS.1165, 1166 & 1167/BANG/2018 ASSESSMENT YEARS : 2013-14, 2014-15, 2015-16 A SHAMA RAO FOUNDATION, 13-2-116, HOTEL SRINIVAS BUILDING, G.H.S ROAD, MANGALURU-575 001. PAN AAATA 1629 B VS. THE ASST. COMMISSIONER OF INCOME-TAX (EXEMPTIONS), CIRCLE-1, MANGALURU. APPELLANT RESPONDENT ASSESSEE BY : SHRI BALRAM R RAO, ADVOCATE REVENUE BY : SHRI PRADEEP KUMAR, CIT (DR) ITA NOS.1405, 1406 & 1464/BANG/2018 ASSESSMENT YEARS : 2013-14, 2014-15, 2015-16 THE ASST. COMMISSIONER OF INCOME-TAX (EXEMPTIONS), CIRCLE-1, MANGALURU VS. A SHAMA RAO FOUNDATION, 13-2-116, HOTEL SRINIVAS BUILDING, G.H.S ROAD, MANGALURU-575 001. PAN AAATA 1629 B APPELLANT RESPONDENT ASSESSEE BY : SHRI BALRAM R RAO, ADVOCATE REVENUE BY : SHRI PRADEEP KUMAR, CIT (DR) ITA NOS.1165, 1166, 1167, 1405, 1406 & 1464/BANG/20 18 ITA NO.2820/BANG/2017 PAGE 2 OF 18 ITA NO.2820/BANG/2017 ASSESSMENT YEAR : 2012-13 A SHAMA RAO FOUNDATION, 13-2-116, HOTEL SRINIVAS BUILDING, G.H.S ROAD, MANGALURU-575 001. PAN AAATA 1629 B VS. THE ASST. COMMISSIONER OF INCOME-TAX (EXEMPTIONS), CIRCLE-1, MANGALURU. APPELLANT RESPONDENT ASSESSEE BY : SMT. SHEETAL BORKAR, ADVOCATE REVENUE BY : SMT. HARITHA, ADDL. CIT (DR) DATE OF HEARING : 21.01.2020 DATE OF PRONOUNCEMENT : .01.2020 O R D E R PER B.R BASKARAN, ACCOUNTANT MEMBER : THE ASSESSEE HAS FILED APPEALS FOR ASSESSMENT YEA RS 2012-13 TO 2015-16. THE REVENUE HAS FILED APPEALS FOR ASSESSMENT YEARS 2013-14 TO 2015-16. ALL THESE APPEALS ARE DI RECTED AGAINST THE ORDERS PASSED BY LD CIT(A)- MANGALURU. SINCE I DENTICAL ISSUES ARE CONTESTED IN THESE APPEALS, THEY WERE HEARD TOG ETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER, FOR THE SAK E OF CONVENIENCE. 2. THE ASSESSEE IS A CHARITABLE TRUST REGISTERE D U/S 12AA OF THE ACT. IN ALL THESE YEARS, IT CLAIMED EXEMPTION U/S 11 OF THE ACT. ITA NOS.1165, 1166, 1167, 1405, 1406 & 1464/BANG/20 18 ITA NO.2820/BANG/2017 PAGE 3 OF 18 3. WE SHALL FIRST TAKE UP THE APPEALS FILED BY THE ASSESSEE. THE FIRST COMMON ISSUE URGED BY THE ASSESSEE IN AY 2012 -13 AND 2013- 14 RELATE TO THE DISALLOWANCE OF AMOUNT UTILIZED FO R ACQUISITION OF ASSETS AS APPLICATION OF INCOME U/S11 OF THE ACT. THE SECOND COMMON ISSUE URGED IN ALL THE FOUR YEARS (AY 2012-1 3 TO 2015-16) RELATE TO THE DISALLOWANCE OF CLAIM OF REPAYMENT OF LOAN AS APPLICATION OF INCOME U/S 11 OF THE ACT. SINCE BOT H THESE ISSUES ARE INTERCONNECTED, BOTH OF THEM ARE ADJUDICATED TO GETHER. 4. THE FACTS RELATING TO THE ABOVE SAID ISSUE ARE THAT THE ASSESSEE CLAIMED COST OF PURCHASE/CONSTRUCTION OF A SSETS AS APPLICATION OF INCOME. THE AO NOTICED THAT THE ASS ESSEE HAS USED LOAN FUNDS FOR THE ABOVE SAID PURCHASE/CONSTRUCTI ON OF ASSETS. ACCORDINGLY, HE REJECTED THE CLAIM OF APPLICATION OF INCOME TO THE EXTENT OF USAGE OF LOAN FUNDS. THE LD CIT(A) CONF IRMED THE DISALLOWANCE BY FOLLOWING THE DECISION RENDERED BY THE CO-ORDINATE BENCH IN THE CASE OF DCIT VS. M/S PEOPLES EDUCATION SOCIETY (ITA NO.1074/BANG/2016 DATED 09-06-2017). 5. IN ALL THE FIVE YEARS, THE ASSESSEE HAS CLAI MED REPAYMENT OF LOANS AS APPLICATION OF INCOME BY PLACING RELIANCE ON THE DECISION RENDERED BY HON'BLE KARNATAKA HIGH COURT IN THE CAS E OF CIT VS. JANMABHUMI PRESS TRUST (2000)(242 ITR 457). THE AO EXPRESSED THE VIEW THAT THE ASSESSEE HAD UTILIZED THE LOAN FU NDS IN THE EARLIER YEARS FOR PURCHASE OF ASSETS AND IT HAS ALREADY CLA IMED THE VALUE OF THOSE ASSETS AS APPLICATION OF INCOME. ACCORDING LY, THE AO TOOK THE VIEW THAT THE ASSESSEE CANNOT CLAIM THE REPAYM ENT OF SAID ITA NOS.1165, 1166, 1167, 1405, 1406 & 1464/BANG/20 18 ITA NO.2820/BANG/2017 PAGE 4 OF 18 LOANS AGAIN AS APPLICATION OF INCOME, AS IT WILL RESULT IN DOUBLE DEDUCTION OF SAME AMOUNT. BEFORE LD CIT(A), THE AS SESSEE DID NOT SUBMIT ANY WORKING TO DISPROVE THE VIEW EXPRESSED B Y THE AO. ACCORDINGLY, THE LD CIT(A) CONFIRMED THE DISALLOWAN CE OF CLAIM OF REPAYMENT OF LOAN AS APPLICATION OF INCOME. 6. WE NOTICE THAT IDENTICAL ISSUES CAME FOR THE CONSIDERATION OF CO-ORDINATE BENCH IN THE CASE OF ITO VS. M/S MEDICA L RELIEF SOCIETY OF SOUTH KANARA (ITA NO.160, 161 & 737/BANG/2018 DA TED 01-10- 2019) AND THE BENCH ADJUDICATED THESE ISSUES AS UND ER:- 2. THE ASSESSEE HEREIN IS A PUBLIC CHARITABLE T RUST REGISTERED U/S 12A OF THE ACT AS WELL AS U/S 10(23C)(VIA) OF THE ACT. THE RETURNS OF INCOME FI LED FOR AY 2008-09 AND 2009-10 WERE PROCESSED U/S 143(1) OF THE ACT. THE ASSESSMENT FOR ASSESSMENT YEAR 2010-1 1 WAS COMPLETED U/S 143(3) OF THE ACT ON 27-12-2012. THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED REPAYMENT OF LOANS MADE DURING THE YEAR AS APPLICATION OF INCOME IN ALL THE ABOVE SAID THREE Y EARS. THE AO NOTICED THAT THE LOAN TAKEN BY THE ASSESSEE WAS NOT SHOWN AS RECEIPTS OF THE TRUST NOR THE SAME IS REDUCED FROM THE OPERATING EXPENSES OR CAPITAL EXPENDITURE. ACCORDINGLY THE AO TOOK THE VIEW THAT THE ABOVE SAID CLAIM OF THE ASSESSEE WAS WRONG AND THE SAME HAS RESULTED IN ESCAPEMENT OF INCOME. ITA NOS.1165, 1166, 1167, 1405, 1406 & 1464/BANG/20 18 ITA NO.2820/BANG/2017 PAGE 5 OF 18 ACCORDINGLY, THE AO REOPENED THE ASSESSMENT OF ALL THE THREE YEARS UNDER CONSIDERATION. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS OF AY 2008-09 AND 2010-11, THE AO ALSO NOTICED THAT TH E ASSESSEE HAS SOLD CERTAIN CAPITAL ASSETS AND THE SURPLUS ARISING ON THE SALE OF ASSETS HAS BEEN DIRE CTLY TAKEN TO CAPITAL FUND. THE AO TOOK THE VIEW THAT THE GROSS SALE CONSIDERATION ARISING ON SALE OF ASSET SHOULD BE ASSESSED AS INCOME OF THE ASSESSEE, SINCE THE ORIGINAL COST OF ASSET WAS ALLOWED IN THE EARLI ER YEARS AS APPLICATION OF INCOME. 4. WITH REGARD TO THE CLAIM OF REPAYMENT OF LO AN AS APPLICATION OF INCOME, THE AO TOOK THE VIEW THAT TH E SAME WOULD AMOUNT TO DOUBLE DEDUCTION, SINCE THE ORIGINAL COST OF ASSET (WHICH WAS PURCHASED BY USIN G LOAN PROCEEDS) WAS ALLOWED AS APPLICATION OF INCOME IN THE EARLIER YEARS. 5. ACCORDINGLY, THE AO COMPLETED THE ASSESSME NTS BY DISALLOWING THE CLAIMS OF REPAYMENT OF LOAN AS APPLICATION OF INCOME IN ALL THE THREE YEARS AND AL SO BY ASSESSING THE SALE CONSIDERATION ARISING ON SALE OF CAPITAL ASSETS IN AY 2008-09 AND 2010-11 AS INCOME OF THE ASSESSEE. ITA NOS.1165, 1166, 1167, 1405, 1406 & 1464/BANG/20 18 ITA NO.2820/BANG/2017 PAGE 6 OF 18 6. IN THE APPELLATE PROCEEDINGS, THE LD CIT(A) DIRECTED THE AO TO ALLOW THE CLAIM OF REPAYMENT OF LOAN AS APPLICATION OF INCOME U/S 11 OF THE ACT. WITH R EGARD TO THE SALE CONSIDERATION ARISING ON SALE OF CAPITA L ASSETS, THE LD CIT(A) DIRECTED THE AO TO DELETE THE ADDITION MADE AND SUBSTITUTE THE SAME WITH THE FIGU RE OF CAPITAL GAINS AS COMPUTED U/S 45 TO 55A. FOR TH IS PURPOSE, THE LD CIT(A) RELIED UPON THE DECISION RENDERED BY THE CO-ORDINATE BENCH IN THE CASE OF AL - AMEEN EDUCATIONAL SOCIETY (ITA NO.575 (B)/2011). 7. THE FIRST ISSUE RELATES TO THE CLAIM OF RE PAYMENT OF LOAN AS APPLICATION OF INCOME. THE LD D.R SUBMI TTED THAT THE ASSESSEE HAD ALREADY CLAIMED THE COST OF CAPITAL ASSETS PURCHASED OUT OF LOAN PROCEEDS AS APPLICATION OF INCOME IN THE EARLIER YEARS, WHEN THE SAID ASSETS WERE PURCHASED. HENCE THE REPAYMENT OF LOAN TAKEN FOR ACQUIRING VERY SAME ASSET WOULD RESU LT IN DOUBLE DEDUCTION OF SAME ITEM. HE SUBMITTED THA T THE VARIOUS CASE LAWS RELIED UPON BY LD CIT(A) WOUL D BE APPLICABLE ONLY IN CASES, WHERE THE COST OF CAPI TAL ASSET WAS NOT ALLOWED AS APPLICATION OF INCOME. HE SUBMITTED THAT THE CONCEPT OF DEDUCTION WHEN THE LO AN WAS TAKEN FOR PURCHASING THE ASSET HAS BEEN EXPLAIN ED BY THE CO-ORDINATE BENCH IN THE CASE OF DCIT VS. M /S PEOPLES EDUCATION SOCIETY (ITA NO.1074/BANG/2016 DATED 09-06-2017). IN THE ABOVE SAID CASE, THE ITA NOS.1165, 1166, 1167, 1405, 1406 & 1464/BANG/20 18 ITA NO.2820/BANG/2017 PAGE 7 OF 18 TRIBUNAL HAD EXPRESSED THE VIEW THAT BENEFIT OF EXEMPTION U/S 11 CANNOT BE EXTENDED TO THE ASSETS ACQUIRED OUT OF BORROWED FUNDS, SINCE BORROWED FUND S IS NOT INCOME IN THE HANDS OF TRUST. IT WAS FURTHE R HELD THAT THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 11 ONCE ON ACQUISITION OF ASSET AND AGAIN ON REPAYMENT OF LOAN TAKEN WOULD RESULT IN DOUBLE BENEFIT, WHICH CANNOT BE THE INTENTION OF THE STATUTE. ACCORDINGL Y, THE LD D.R SUBMITTED THAT THE LD CIT(A) WAS NOT JUSTIFI ED IN ALLOWING THE CLAIM OF THE ASSESSEE. 8. ON THE CONTRARY, THE LD A.R SUBMITTED THA T THE REPAYMENT OF LOAN IS HELD TO BE APPLICATION OF IN COME BY HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. JANMABHUMI PRESS TRUST (2000)(242 ITR 457). 9. WE HAVE HEARD RIVAL CONTENTIONS ON THIS ISS UE AND PERUSED THE RECORD. THE ASSESSEE IS REGISTERED U/S 12AA OF THE ACT AS WELL AS U/S 10(23C)(VI) OF T HE ACT. HENCE THE ASSESSEE IS ELIGIBLE FOR EXEMPTION BOTH U/S 11 AND SEC. 10(23C)(VIA) OF THE ACT. FROM THE ASSESSMENT ORDERS, WE NOTICE THAT THE ASSESSEE HAS CLAIMED EXEMPTION U/S 10(23C)(VIA) OF THE ACT IN AL L THE THREE YEARS UNDER CONSIDERATION. ITA NOS.1165, 1166, 1167, 1405, 1406 & 1464/BANG/20 18 ITA NO.2820/BANG/2017 PAGE 8 OF 18 10. WE NOTICE THAT THE THIRD PROVISO TO SEC.10(23C)(VIA) IS AKIN TO SEC. 11(1) OF THE ACT. THE THIRD PROVISO, REFERRED ABOVE, READS AS UNDER:- PROVIDED ALSO THAT THE FUND OR TRUST OR INSTITUTIO N OR ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION OR ANY HOSPITAL OR OTHER MEDICAL INSTITUTION REFERRED TO I N SUB- CLAUSE (IV) OR SUB-CLAUSE (V) OR SUB-CLAUSE (VI) OR SUB- CLAUSE (VIA) (A) APPLIES ITS INCOME, OR ACCUMULATES IT FOR APPLICATI ON, WHOLLY AND EXCLUSIVELY TO THE OBJECTS FOR WHICH IT IS ESTABLISHED AND IN A CASE WHERE MORE THAN FIFTEEN P ER CENT OF ITS INCOME IS ACCUMULATED ON OR AFTER THE 1 ST DAY OF APRIL, 2002, THE PERIOD OF THE ACCUMULATION OF T HE AMOUNT EXCEEDING FIFTEEN PER CENT OF ITS INCOME SHA LL IN NO CASE EXCEED FIVE YEARS; AND (B) .. THE PROVISIONS OF SECTION 11(1) ALSO REQUIRES THAT THE INCOME DERIVED FROM PROPERTY HELD UNDER TRUST WHOLL Y FOR CHARITABLE OR RELIGIOUS PURPOSES TO THE EXTENT TO WHICH SUCH INCOME IS APPLIED TO SUCH PURPOSES IN INDIA, AND WHERE ANY SUCH INCOME IS ACCUMULATED OR SET APART FOR APPLICATION FOR SUCH PURPOSES IN INDI A, TO THE EXTENT TO WHICH THE INCOME SO ACCUMULATED OR SE T APART IS NOT IN EXCESS OF FIFTEEN PER CENT OF THE I NCOME FROM SUCH PROPERTY. ITA NOS.1165, 1166, 1167, 1405, 1406 & 1464/BANG/20 18 ITA NO.2820/BANG/2017 PAGE 9 OF 18 11. IT CAN BE NOTICED THAT BOTH THE THIRD PROVI SO TO SEC. 10(23C) AS WELL AS SECTION 11(1) OF THE ACT AL LOWS EXEMPTION OF INCOME APPLIED TO OBJECTS OF THE TRUS T. THE PROVISIONS OF SEC.11(1) WAS INTERPRETED BY THE CO- ORDINATE BENCH IN THE CASE OF M/S PEOPLES EDUCATION SOCIETY (SUPRA). IT IS PERTINENT TO NOTE THAT THE HON'BLE KARNATAKA HIGH COURT HAS HELD IN THE CASE OF JANMABHUMI PRESS TRUST (SUPRA) THAT THE REPAYMENT OF LOAN IS APPLICATION OF INCOME WITHIN THE MEANIN G OF SEC.11(1) OF THE ACT. HENCE THE CO-ORDINATE BENCH HELD AS UNDER IN THE CASE OF M/S PEOPLES EDUCATION SOCIE TY (SUPRA):- 19. IN OUR VIEW, SECTION 11 ONLY CONTEMPLATES T HE APPLICATION OF INCOME AND IF THE SAID INCOME IS APP LIED FOR THE AIMS AND OBJECTIVES OF THE TRUST, THEN THE TRUST IS ENTITLED FOR EXEMPTION UNDER THE PROVISION. THE SA ID ANALOGY CANNOT BE EXTENDED TO ACQUISITION OF ASSETS FROM THE BORROWED FUNDS. IF WE HOLD SO, THEN WE WO ULD BE EQUATING THE BORROWED FUND WITH THE INCOME OF TH E TRUST. UNDER THE LAW, IT IS THE APPLICATION OF INC OME AND NOT OF THE FUND THAT IS REQUIRED TO BE SEEN FOR THE PURPOSE OF GRANTING THE EXEMPTION. IN FACT, THE ASSESSEE WOULD BE ENTITLED TO EXEMPTION IN VIEW OF THE JUDGEMENT OOF HON'BLE JURISDICTIONAL HIGH COURT IN THE MATTER OF JANMABHOOMI TRUST (SUPRA), AS AND WHEN TH E LOAN IS REPAID TO THE FINANCIAL INSTITUTIONS. IN V IEW THEREOF, IF THE CLAIM OF THE ASSESSEE THAT THE BORR OWED ITA NOS.1165, 1166, 1167, 1405, 1406 & 1464/BANG/20 18 ITA NO.2820/BANG/2017 PAGE 10 OF 18 FUNDS WERE UTILIZED FOR THE OBJECTS OF THE TRUST, I S ENTERTAINED AND ACCEPTED AT THIS STAGE, IT WOULD TANTAMOUNT TO DOUBLE BENEFIT WHICH CANNOT BE THE INTENTION OF THE STATUTE. IN VIEW THEREOF, WE FIND THAT THE CIT(A) ERRED IN ALLOWING THE CLAIM FOR ACQUISIT ION OF CAPITAL ASSETS FROM THE BORROWED FUNDS. 12. IN THE CASE BEFORE THE CO-ORDINATE BENCH, T HE ASSESSEE SOUGHT EXEMPTION OF COST OF ASSETS ACQUIRE D OUT OF BORROWED FUNDS. THE SAID CLAIM WAS REJECTED ON THE FOLLOWING REASONS:- (A) THE ASSETS WERE NOT ACQUIRED OUT OF INCOME DER IVED FROM THE PROPERTY HELD UNDER THE TRUST AND (B) THE REPAYMENT OF LOAN WAS HELD TO BE APPLICAT ION OF INCOME WITHIN THE MEANING OF SEC.11(1) BY HON'B LE KARNATAKA HIGH COURT IN THE CASE OF JANMABHUMI PRESS TRUST (SUPRA). THE RATIO OF THE ABOVE SAID DECISION IS THAT THE ASSESSEE WOULD BE ENTITLED TO DEDUCTION ONLY ONCE. 13. THE LD D.R SUBMITTED THAT THE CLAIM OF THE ASSESSEE TO TREAT REPAYMENT OF LOAN AS APPLICATION OF INCOME WOULD RESULT IN DOUBLE EXEMPTION OF SAME AMOUNT. WE FIND FORCE IN THE SAID SUBMISSIONS. WE MAY GIVE AN ILLUSTRATION TO EXPLAIN THIS POSITION. (A) LET US ASSUME THAT TRUST A ACQUIRES A PROPERTY FOR RS.10.00 LAKHS OUT OF ITS OWN INCOME. IT SHALL BE CLAIMING EXEMPTION OF THE ABOVE SAID AMOUN T ITA NOS.1165, 1166, 1167, 1405, 1406 & 1464/BANG/20 18 ITA NO.2820/BANG/2017 PAGE 11 OF 18 OF RS.10.00 LAKHS U/S 11(1) OF THE ACT IN THE YEAR IN WHICH THE ASSET WAS ACQUIRED. (B) LET US TAKE ANOTHER EXAMPLE. LET US ASSUME THAT TRUST B ACQUIRES A PROPERTY FOR RS.10.00 LAK HS BY AVAILING LOAN OF RS.10.00 LAKHS. THE ASSESSEE M AY CLAIM EXEMPTION AS UNDER:- (I) IN THE FIRST INSTANCE, IT WILL CLAIM EXEMPTION OF RS.10.00 LAKHS, WHEN THE ASSET WAS ACQUIRED AND (II) IN THE SECOND INSTANCE, IT WILL CLAIM EXEMPTION OF RS.10.00 LAKHS, WHEN THE LOAN IS REPAI D. IT CAN BE SEEN THAT TRUST B WOULD BE GETTING EXEMPTION TWICE FOR THE SAME ASSET, I.E., ONCE AT T HE TIME OF PURCHASE OF ASSET AND AGAIN ON REPAYMENT OF LOAN. AS OBSERVED BY THE CO-ORDINATE BENCH, IT COU LD NOT BE INTENTION OF THE STATUTE. 14. IN THE INSTANT APPEALS, IT IS THE CASE OF THE AO THAT THE COST OF ASSETS ACQUIRED OUT OF LOAN FUNDS HAVE BEEN CLAIMED BY THE ASSESSEE AS APPLICATION OF INCO ME IN THE YEARS IN WHICH THOSE ASSETS WERE ACQUIRED. IN THAT CASE, IF THE ASSESSEE IS ALLOWED TO CLAIM EXEM PTION AGAIN ON REPAYMENT OF LOAN TAKEN FOR ACQUIRING THE VERY SAME ASSET, THEN THE SAME WOULD RESULT IN DOUB LE EXEMPTION FOR THE VERY SAME AMOUNT, WHICH CANNOT BE THE INTENTION OF THE STATUTE. SINCE THE ASSESSEE H AS ALREADY CLAIMED EXEMPTION TOWARDS THE COST OF ASSET AS APPLICATION OF INCOME, IN OUR VIEW, THE ASSESSEE ITA NOS.1165, 1166, 1167, 1405, 1406 & 1464/BANG/20 18 ITA NO.2820/BANG/2017 PAGE 12 OF 18 CANNOT TAKE SUPPORT OF THE DECISION RENDERED BY HON'BLE KARNATAKA HIGH COURT IN THE CASE OF JANMABHUMI PRESS TRUST (SUPRA) TO CLAIM EXEMPTION O N ACCOUNT OF REPAYMENT OF LOAN TAKEN FOR ACQUIRING TH E ABOVE SAID ASSET. WE NOTICE THAT THE LD CIT(A) HAS OMITTED TO CONSIDER ABOVE SAID FACTUAL ASPECTS AND HENCE WE CANNOT SUSTAIN HIS ORDER PASSED ON THIS ISSUE. ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY LD CIT(A) IN ALL THE THREE YEARS ON THIS ISSUE AND RESTORE THE ADDITION MADE BY THE AO IN ALL THE THRE E YEARS. 7. THE CO-ORDINATE BENCH HAS TAKEN THE VIEW T HAT THE ASSESSEE CANNOT CLAIM THE VALUE OF ASSET AS APPLICATION OF I NCOME, IF IT HAD BEEN PURCHASED BY UTILIZING LOAN FUNDS. HOWEVER, T HE REPAYMENT OF LOAN CAN BE CONSIDERED AS APPLICATION OF INCOME, IF THE RELEVANT ASSETS WERE NOT CLAIMED AS APPLICATION OF INCOME. H OWEVER, IF IN ANY OF THE EARLIER YEARS, THE ASSETS PURCHASED OUT OF L OAN FUNDS HAVE BEEN ALLOWED AS APPLICATION OF INCOME, THEN THE REP AYMENT OF LOANS SHOULD NOT BE CONSIDERED AS APPLICATION OF INCOME. TO CLARIFY FURTHER, IF ANY OF THE ASSETS WERE PURCHASED OUT OF LOAN FUNDS AND IF THE VALUE OF THOSE ASSETS HAVE NOT BEEN ALLOWED AS APPLICATION OF FUND, THEN ONLY THE REPAYMENT OF LOANS SHALL QUALIF Y FOR DEDUCTION AS APPLICATION OF INCOME. 7. THE LD COUNSELS FOR THE ASSESSEE SUBMITTED T HAT THE TAX AUTHORITIES HAVE PRESUMED THAT THE LOAN FUNDS HAVE BEEN UTILIZED ITA NOS.1165, 1166, 1167, 1405, 1406 & 1464/BANG/20 18 ITA NO.2820/BANG/2017 PAGE 13 OF 18 FOR PURCHASE OF ASSETS IN THE CURRENT YEARS AS WELL AS IN THE EARLIER YEARS, I.E., THE NEXUS BETWEEN THE LOAN FUNDS AND P URCHASE OF ASSETS HAS NOT BEEN PROVED. THE LD COUNSELS SUBMITT ED THAT IT IS NOT THE CASE THAT THE ASSESSEE HAS ALWAYS USED THE LOAN FUNDS FOR PURCHASE OF ASSETS. IT WAS SUBMITTED THAT THE LOAN FUNDS MIGHT HAVE BEEN UTILIZED FOR SOME OTHER PURPOSES. SIMILA RLY, THE SURPLUS FUNDS OF THE ASSESSEE MIGHT HAVE BEEN UTILIZED FOR PURCHASE OF ASSETS. ACCORDINGLY THE LD COUNSELS SUBMITTED THAT THE NEXUS OF LOAN FUNDS AND UTILIZATION SHOULD BE EXAMINED TO FI ND OUT EXACT POSITION. ACCORDINGLY, THE LD COUNSELS SUBMITTED T HAT THE ASSESSEE MAY BE PROVIDED WITH AN OPPORTUNITY TO FURNISH THE DETAILS OF UTILIZATION OF LOANS, SO THAT THE CORRECT AMOUNT OF APPLICATION OF INCOME COULD BE QUANTIFIED IN TERMS OF THE RATIO LA ID DOWN IN THE ABOVE SAID DECISION. 8. THE LD. D.R ALSO AGREED TO THE PLEA PUT FORT H BY THE LD COUNSELS FOR THE ASSESSEES. ACCORDINGLY, WE SET AS IDE THE ORDERS PASSED BY LD CIT(A) IN RESPECT OF ABOVE SAID TWO IS SUES IN ALL THE YEARS AND RESTORE THEM TO THE FILE OF THE AO WITH T HE DIRECTION TO EXAMINE THESE ISSUES AFRESH IN THE LIGHT OF ABOVE S AID DECISION OF THE TRIBUNAL BY DULY CONSIDERING THE INFORMATION PR OVIDED BY THE ASSESSEE WITH REGARD TO UTILIZATION OF LOAN FUNDS. THE ASSESSEE SHOULD BE PROVIDED WITH ADEQUATE OPPORTUNITY OF BEI NG HEARD. 9. THE NEXT COMMON ISSUE URGED IN ALL THE APP EALS RELATE TO REJECTION OF CLAIM OF CARRY FORWARD OF CURRENT YEAR S DEFICIT (EXCESS AMOUNT OF APPLICATION OF INCOME) TO SUBSEQUENT YEAR S AND ALSO ITA NOS.1165, 1166, 1167, 1405, 1406 & 1464/BANG/20 18 ITA NO.2820/BANG/2017 PAGE 14 OF 18 CLAIM OF DEPRECIATION ON ASSETS. THE ISSUE OF CAR RY FORWARD OF DEFICIT AMOUNT IS CONSEQUENTIAL TO THE EARLIER TWO ISSUES. SINCE THE ASSESSING OFFICER HAS DISALLOWED CLAIM OF APPLICAT ION OF INCOME IN RESPECT OF ASSETS PURCHASE OUT OF LOAN FUNDS AND AL SO REPAYMENT OF LOANS, THE INCOME CAME TO BE ASSESSED IN POSITIVE F IGURE. HENCE THERE WAS NO REQUIREMENT OF HOLDING THAT THE DEFICI T SHALL BE CARRIED FORWARD. SINCE THE EARLIER TWO ISSUES HAVE BEEN R ESTORED TO THE FILE OF THE ASSESSING OFFICER, THIS ISSUE SHALL BE DEPEN DENT UPON THE RESULT OF THE CONSEQUENTIAL ORDER THAT MAY BE PASSE D BY THE AO. ACCORDINGLY, THIS ISSUE IS ALSO RESTORED TO HIS FIL E WITH THE DIRECTION TO ALLOW CARRY FORWARD OF DEFICIT, IF ANY, COMPUTED IN ANY OF THE YEARS. THE AO IS ALSO DIRECTED TO ALLOW CLAIM OF D EPRECIATION AFTER EXAMINING THE SAME UPTO ASSESSMENT YEAR 2014-15, SI NCE THE PROVISIONS OF SEC.11(6) DEBARS CLAIM OF DEPRECIATIO N ON THE ASSETS, WHICH HAVE BEEN ALLOWED AS APPLICATION OF INCOME. THE FOLLOWING DECISIONS GOVERN THE CLAIMS OF THE ASSESSEE ON THES E TWO ISSUES:- (A) CIT VS. RAJASTHAN & GUJARATI CHARITABLE FOUNDAT ION (CIVIL APPEAL NO. 7186/2014 DATED 13-12-2017) (B) CIT VS. INSTITUTE OF BANKING PERSONNEL (2003)(1 31 TAXMAN 386)(BOM). 10. THE NEXT COMMON ISSUE URGED IN ALL THE FIVE YEARS RELATE TO THE REJECTION OF CLAIM FOR EXEMPTION U/S 10(23C)(VI) OF THE ACT. AT THE TIME OF HEARING, THE LD COUNSELS DID NOT PRESS THIS GROUND IN ALL THE FIVE YEARS. ACCORDINGLY THIS GROUND IS DISMISSED A S NOT PRESSED. ITA NOS.1165, 1166, 1167, 1405, 1406 & 1464/BANG/20 18 ITA NO.2820/BANG/2017 PAGE 15 OF 18 11. IN THE APPEALS FILED BY THE REVENUE, FOLLOW ING COMMON GROUNDS ARE URGED IN ALL THE YEARS:- 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE CIT(A) IS RIGHT IN NOT APPRECIATING THE FACT THAT THE NORMAL COMPUTATION O F INCOME UNDER RESPECTIVE HEADS AS ENVISAGED U/S 15 T O 59 ARE NOT APPLICABLE TO THE COMPUTATION OF INCOME IN RESPECT OF CHARITABLE TRUST/INSTITUTION FOR THE PUR POSE OF CLAIMING EXEMPTIONS UNDER SECTION II, 12 AND 13 AND, THEREFORE, THE PROVISIONS RELATING TO SET-OFF OF LOSS FROM ONE SOURCE AGAINST THE INCOME FROM ANOTHER SOURCE, SET- OFF OF LOSS FROM ONE HEAD AGAINST INCO ME FROM ANOTHER HEAD AND CARRY FORWARD AND SET-OFF OF LOSS AGAINST THE INCOME OF SUBSEQUENT YEARS AS ENVISAGED U/S. 70 TO 79 ARE ALSO NOT APPLICABLE TO THE CHARITABLE TRUSTS/INSTITUTIONS. IL WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) IS RIGHT IN NOT APPRECIATING THE FACT THAT THE ISSUE OF APPLICATION OF INCOME MORE THAN THE INCOME COMPUTED DOES NOT ARISE EXCEPT IN A CASE WHERE THE ASSESSEE HAS INCURRED HUGE AMOUNT OF CAPITAL EXPENDITURE SOURCED OUT OF BORROWED OR CORPUS DONATIONS OR 15% OF INCOME SET APART OVER A PERIOD OF TIME? (EXPENDITURE INCURRED OUT OF THE ABOVE SOURCES HOWEVER CANNOT BE TERMED AS APPLICATION OF FUNDS OUT OF THE INCOME EARNED IN A ITA NOS.1165, 1166, 1167, 1405, 1406 & 1464/BANG/20 18 ITA NO.2820/BANG/2017 PAGE 16 OF 18 PARTICULAR ASSESSMENT YEAR IN AS MUCH AS LOAN BORROWED DOES NOT FALL UNDER THE CATEGORY OF INCOME EARNED BY THE ASSESSEE, CORPUS FUND DONATIONS DOES NOT COME UNDER INCOME BY VIRTUE OF SECTION 11(1 )(D ) 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 INCO ME IS ALSO EXCLUDED FROM INCOME AVAILABLE FOR APPLICAT ION. AS SUCH, THE CONCEPT OF APPLICATION IS ONLY TO SHOW THAT THE INCOME IS FULLY UTILISED RATHER THAN CLAIM ING EXCESS EXPENDITURE EITHER REVENUE OR CAPITAL OVER A ND 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 PART OF EARLIER YEARS, THE INCOME OF THE ASSESSEE CANNOT BE CONVERTED TO LOSS BUT AT BES T IT CAN BE MADE NIL. HENCE, THE CARRY FORWARD OF EXCESS APPLICATION OF INCOME AS CLAIMED BY THE ASSESSEE CANNOT BE ALLOWED. 12. WE HEARD THE PARTIES AND PERUSED THE RECORD . THE GROUNDS OF REVENUE ESSENTIALLY DEAL WITH THE MANNER OF COMPUTA TION OF INCOME U/S 11 OF THE ACT AND CARRY FORWARD OF EXCESS AMOUN T OF APPLICATION. BOTH THE PARTIES AGREED THAT THE ISSU ES URGED BY THE REVENUE ARE COVERED AGAINST THE REVENUE BY THE DECI SION RENDERED BY HON'BLE SUPREME COURT IN THE CASE OF CIT VS. RAJ ASTHAN & ITA NOS.1165, 1166, 1167, 1405, 1406 & 1464/BANG/20 18 ITA NO.2820/BANG/2017 PAGE 17 OF 18 GUJARATI CHARITABLE FOUNDATION (SUPRA). ACCORDINGL Y, WE DISMISS THE GROUNDS URGED BY THE REVENUE IN ALL THE THREE Y EARS. 13. IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE TREATED AS PARTLY ALLOWED AND THE APPEALS OF THE REVENUE ARE D ISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD JANUARY, 2020. SD/- SD/- ( N.V VASUDEVAN ) VICE PRESIDENT (B.R B ASKARAN ) ACCOUNTANT MEMBER BANGALORE, DATED, 23 RD JANUARY , 2019. / VMS / COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE