Sundaram Medical Foundation, CHENNAI V. DDIT, CHENNAI

ITA 1295/CHNY/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8289 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-01-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 03-11-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 28-05-2015
• Court: TRIBUNAL
• Department Lawyers: DR B NISCHAL
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Business income; Depreciation; Charitable institution; Opportunity of being heard; Cost of acquisition; Bad and doubtful debts; Capital expenditure
• Section: 143(3); 12AA; 63; 11

Judgement Text

, , IN THE INCOME-TAX APPELLATE TRIBUNAL A BENCH, CHE NNAI . , ! ' ! # . $% , & ' BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY, JUDICIAL MEMBER S.P. NOS.389/MDS./2015 & ./ I.T.A.NO1295/MDS./2015 ( & ( )( / ASSESSMENT YEAR :2010-11) M/S.SUNDARAM MEDICAL FOUNDATION , 21,PATULLOS ROAD, CHENNAI 600 002. VS. DEPUTY DIRECTOR OF INCOME TAX (EXEMPTIONS) I, CHENNAI 600 034. PAN AACTS 1335 A ( / APPELLANT ) ( / RESPONDENT ) *+ , - / APPELLANT BY : R.VIJAYARAGHAVAN, ADVOCATE ./*+ , - / RESPONDENT BY : DR.B.NISCHAL, JCIT, D.R ! , 0 / DATE OF HEARING : 03.11.2015 1) , 0 /DATE OF PRONOUNCEMENT : 01.01.2016 / O R D E R PER A.MOHAN ALANKAMONY , ACCOUNTANT MEMBER: THE STAY PETITION AND THE CONNECTED APPEAL ARE FIL ED BY THE ASSESSEE, AGGRIEVED BY THE ORDER OF THE LEARNED COM MISSIONER OF INCOME-TAX(A)-VII, CHENNAI DATED 31/03/2015 IN ITA NO.334/13-14 ITA NO.1295 /MDS/15 2 PASSED UNDER SEC.143(3) READ WITH SECTION SEC. 250 OF THE ACT. IT WAS DECIDED BY THE BENCH TO HEAR THE APPEAL OF THE ASSESSEE AND ACCORDINGLY THE SAME IS HEARD. 2. THE ASSESSEE HAS RAISED TEN ELABORATE GROUNDS IN ITS APPEAL; HOWEVER THE CRUXES OF THE ISSUES ARE THAT:- I) THE LD. CIT (A) HAD ERRED BY TRAVELLING BEYO ND THE SUBJECT MATTER OF THE APPEAL AND ERRONEOUSLY HELD THAT THE ASSESSE E TRUST IS NOT ELIGIBLE TO CLAIM THE BENEFIT U/S.11 OF THE ACT. II) THE LD. CIT(A) HAD ERRED BY HOLDING THAT THE CORPUS DONATION RECEIVED BY THE ASSESSEE TRUST WILL BECOME THE INCO ME OF THE ASSESSEE TRUST SINCE THE ASSESSEE TRUST IS NOT TREA TED AS A CHARITABLE INSTITUTION. III) THE LD. CIT(A) HAD ERRED BY HOLDING THAT THE A SSESSEE TRUST WOULD NOT BE ELIGIBLE TO CARRY FORWARD EXCESS APPLICATION OF INCOME OF ` 6,22,83,776/-. IV) THE LD. CIT(A) HAD ERRED BY NOT TREATING THE L OSS ON SALE OF ASSETS FOR ` 14,31,181/- AS APPLICATION OF INCOME. ITA NO.1295 /MDS/15 3 V) THE LD. CIT(A) HAD ERRED BY NOT ALLOWING DEPREC IATION OF ` 2,83,44,917/- AS APPLICATION OF INCOME. VI) THE LD. CIT(A) HAD ERRED BY NOT ALLOWING THE CL AIM OF BAD DEBTS OF ` 3,08,658/- AS APPLICATION OF INCOME. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE-TRUST REGISTERED U/S 12AA OF THE ACT, IS ENGAGED IN THE A CTIVITY OF RUNNING HOSPITALS, FILED ITS RETURN OF INCOME FOR THE ASSES SMENT YEAR 2010-11 ON 01.10.2010 DECLARING NIL INCOME AFTER CLAIMIN G DEDUCTION U/S. 11 OF THE ACT AND DEPRECIATION ON THE ASSETS. THE CASE WAS TAKEN UP FOR SCRUTINY AND ASSESSMENT WAS COMPLETED U/S.143 (3) O F THE ACT ON 21.03.2013 WHEREIN THE LD. ASSESSING OFFICER DISALL OWED THE CLAIM OF DEPRECIATION, CARRIED FORWARD OF EXCESS APPLICATION OF FUNDS, BAD DEBTS WRITTEN OFF AS APPLICATION OF FUND, AND LOSS ON TRANSFER OF ASSETS AS APPLICATION OF INCOME. WHILE DOING SO, THE LD. A SSESSING OFFICER ALLOWED THE BENEFIT OF SECTION-11 OF THE ACT TO THE ASSESSEE TRUST. ON APPEAL, THE LD. CIT (A) WENT A STEP FORWARD AND DIS ALLOWED THE BENEFIT OF SECTION-11 OF THE ACT BY DENYING TO TREA TING THE ASSESSEE TRUST AS A CHARITABLE INSTITUTION. ITA NO.1295 /MDS/15 4 5.1 GROUND NOS.(I) & (II): DENIAL OF THE BENEFIT OF SECTION-11 OF THE ACT AND THEREBY TAXING THE CORPUS DONATION RECEIVED. THE LD. CIT (A) WAS OF THE OPINION THAT THE ASSES SEE TRUST IS NOT CARRYING OUT CHARITABLE ACTIVITIES AND THEREFORE NO T ENTITLED FOR THE BENEFIT OF SECTION-11 OF THE ACT BECAUSE OF THE FOL LOWING REASONS:- I) THE ASSESSEE TRUST IS INVOLVED IN THE ACTIVITY OF PROVIDING MEDICAL RELIEF BY CHARGING A HEFTY PRICE UNBLENDED WITH THE TINGE OF CHARITY II) CHARITY AND COMMERCE CANNOT CO-EXIST. IN THE CASE OF THE ASSESSEE MEDICAL RELIEF IS PROVIDED FOR A PRICE CON SIDERATION LEADING TO COMMERCIAL ACTIVITY. III) THE ACTIVITY OF MEDICAL RELIEF PROVIDED BY TH E ASSESSEE IS AKIN TO THE CHARACTER OF HOTELIER PROVIDING FOOD TO HUNGRY PEOPLE. IV) IF CHARITY IS NOT THE MOTIVE FOR THE SERVICES PROVIDED, THEN IT WILL OPEN THE FLOODGATE TO EVERYONE TO SELL ANYTHING ON THE PRETEXT OF PROVIDING SOME RELIEF OR THE OTHER. V) THE INCOME TAX ACT ONLY GRANTS RELIEF TO THE A SSESSEE TO PROVIDE CHARITABLE MEDICAL RELIEF TO THE ASSESSEE AND NOT O THERWISE. ITA NO.1295 /MDS/15 5 VI) IF MEDICAL RELIEF IS PROVIDED ON COMMERCIAL BA SIS, THEN THE SPECIAL STATUS PROVIDED UNDER THE ACT HAS TO BE DEN IED AND RELIEF U/S.11 CANNOT BE GRANTED. VII) IN THE CASE OF THE ASSESSEE TRUST, IT REVEALS THAT HEFTY SUM ARE RECEIVED FROM BOTH IN-PATIENTS AND OUT-PATIENTS AND THEREBY BRINGING IT UNDER THE CATEGORY OF BUSINESS ORGANIZA TION. VIII) RELIANCE WAS PLACED BY THE LD. CIT (A) IN T HE DECISION OF THE CUT VS. SURAT ART SILK CLOTH MFRS ASSOCIATION 121 I TR (SC) WHEREIN IT WAS HELD THAT FULFILLING CHARITABLE PURP OSES MUST BE UNSULLIED BY PROFIT MAKING INTEREST. IX) THE ASSESSEE WAS CARRYING OUT ITS OBJECTIVES F OR THE PURPOSE OF MAKING PROFIT. X) DISCOUNTS TO PATIENTS WERE PROVIDED ONLY TO THE EXTENT OF 1.6% OF THE OPERATING REVENUE OF THE ASSESSEES TRUST. SIMI LARLY FREE TREATMENT IS GIVEN TO THE PATIENTS ONLY TO THE EXTE NT OF 3% OF THE OPERATING REVENUE. WHEN THE FACT REVEALS THAT EVEN THE CORPORATE HOSPITALS AND CLINICS OFFER BETTER DISCOU NT THAN THE ASSESSEE TRUST. THE PROCEDURE TO GET DISCOUNT ARE A LSO CUMBERSOME. ITA NO.1295 /MDS/15 6 XI) THE ASSESSEE IS RUNNING ITS HOSPITAL AS A NOR MAL ROUTINE COMMERCIAL HOSPITAL BUT IN THE GRAB OF CHARITABLE I NSTITUTION. XII) THE ASSESSEE HAS NOT DISTINGUISHED ITS ACTIVI TIES AS TO HOW IT DIFFERS FROM OTHER CORPORATE HOSPITALS/POLYCLINIC/D ISPENSARIES RUN BY INDIVIDUAL DOCTORS. XIII) THE INTENTION OF THE STATUTE IS TO PROVIDE C HARITABLE MEDICAL RELIEF, CHARITABLE EDUCATION ETC., AND NOT FOR COMM ERCIAL OPERATIONS. 5.2 LD. A.R. SUBMITTED BEFORE US THAT EVEN THOUGH THERE IS SURPLUS DERIVED FROM PROVIDING MEDICAL RELIEF, THE BENEFIT OF SECTION-11 CANNOT BE DENIED SUBJECT TO THE FULFILLMENT OF OTHER CONDI TIONS PROVIDED IN THE ACT, BECAUSE THE PROVISIONS OF SECTION 2(15) SPECIF ICALLY PROVIDES THAT ANY SERVICES IN THE NATURE OF MEDICAL RELIEF OUGHT TO BE CONSIDERED AS CHARITABLE IN NATURE. THE LD. A.R. FURTHER RELIED I N THE DECISION OF HONBLE APEX COURT REPORTED IN 2015-TIOL-20-SC-II I N THE CASE OF M/S.QUEENS EDUCATIONAL SOCIETY VS. CIT VIDE ORDER DATED 16 TH MARCH, 2015 WHEREIN IT WAS HELD THAT IF THE EDUCATI ONAL INSTITUTION GENERATES SURPLUS, IT WILL NOT CEASE TO EXIST SOLEL Y FOR EDUCATIONAL ITA NO.1295 /MDS/15 7 PURPOSE AND CONSIDERED AS PROFIT MAKING ENTERPRISE. LD. D.R ON THE OTHER HAND ARGUED IN SUPPORT OF THE ORDERS OF THE R EVENUE. 5.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFU LLY PERUSED THE MATERIALS AVAILABLE ON RECORD. SECTION-2(15) OF THE ACT CLEARLY PROVIDES THAT ANY ACTIVITY IN THE NATURE OF PROVIDI NG MEDICAL RELIEF WOULD BE CONSIDERED AS A CHARITABLE ACTIVITY. FURTH ER THE PROVISO CLARIFIES THAT ONLY ACTIVITIES THAT ARE IN THE NATU RE OF ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY SHALL N OT BE CONSIDERED TO BE FOR CHARITABLE PURPOSE IF IT INVOLVES IN CARRYING O F ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS ETC., GENERAT ING REVENUE EXCEEDING A SPECIFIED LIMIT. THUS, THE ACTIVITY IN THE NATURE OF MEDICAL RELIEF WILL FALL OUTSIDE THE SCOPE OF THE PROVISO A ND ANY SURPLUS RESULTING FROM THE ACTIVITY OF CARRYING MEDICAL REL IEF WILL NOT BE TAXABLE IF THE SURPLUS IS DEALT WITH IN THE MANNER PROVIDED UNDER THE ACT. THE DECISION OF HONBLE APEX COURT CITED SUPRA RELIED B Y THE LD. A.R ALSO SUPPORTS THIS VIEW. FURTHER, THE HONBLE BOMBAY HIG H COURT IN THE CASE OF VANITA VISHRAM TRUST VS. CIT REPORTED IN (2 010) 327 ITR 0121 HELD AS FOLLOWS: ITA NO.1295 /MDS/15 8 THE PETITIONER HAS BEEN CONDUCTING PRIMARY AND SEC ONDARY SCHOOLS AND COLLEGES FOR ARTS, SCIENCE, COMMERCE AND TECHNICAL COURSES IN MUMBAI S INCE 1929 AND IN SURAT SINCE 1940. NOR IS THERE ANY DISPUTE BEFORE THE COURT THAT SAVE AND EXCEPT FOR CONDUCTING THESE EDUCATIONAL INSTITUTIONS, THE PETITIONER HAS NOT CA RRIED ON ANY OTHER ACTIVITIES RIGHT SINCE 1929. IN THIS BACKGROUND, IT WOULD BE NECESSARY TO ADVERT TO THE OBJECTS SET OUT IN THE MEMORANDUM OF ASSOCIATION. CLAUSE III(B) SPELLS OUT AS THE OBJECT, AMELIORATION OF THE CONDITION OF GUJARATI HINDU WOMEN OF THE THEN BOMBA Y PRESIDENCY AND OTHER PLACES AND ALLEVIATION OF THEIR SOCIAL STATUS BY EDUCATING TO THEM IN SUBJECTS TENDING TO THEIR MATERIAL, MORAL AND SPIRITUAL ADVANCEMENT, OPENING OUT FOR TH EM PROPER AND SUITABLE FIELDS OF WORK, LAWFULNESS AND INFLUENCE IN HINDU SOCIETY. FROM THI S OBJECT, IT IS ABUNDANTLY CLEAR THAT THE AMELIORATION OF THE CONDITION OF GUJARATI SPEAKING HINDU WOMEN WAS SOUGHT TO BE IMPROVED, WHEN THE TRUST WAS FOUNDED IN MARCH, 1928 , BY PROVIDING FOR THE EDUCATION OF THIS CLASS OF WOMEN. THE MEANS BY WHICH THIS OBJECT IS SOUGHT TO BE ACHIEVED IS BY CONDUCTING ASHRAMS OR HOMES FOR WOMEN AND GIRLS, PA RTICULARLY FOR WIDOWS AND ORPHANED GIRLS EITHER AS FREE OR AS PAYING INMATES AND BY CO NDUCTING SCHOOLS FOR IMPARTING RELIGIOUS, SECULAR AND INDUSTRIAL EDUCATION AND TRAINING IN FI NE ARTS. A NUMBER OF ANCILLARY OBJECTS HAVE BEEN ADVERTED THEREIN INCLUDING PROVISION OF LIBRAR IES AND GYMNASIUMS, PUBLICATION OF BOOKS AND BY MEANS OF PECUNIARY AND OTHER HELP TO STUDENT S OF THE INSTITUTION. A HOLISTIC READING OF THE OBJECT CLAUSE WOULD ESTABLISH BEYOND DOUBT T HAT THE SOLE PURPOSE FOR THE ESTABLISHMENT OF THE PETITIONER WAS TO FURTHER THE CAUSE OF EDUCATION AMONGST WOMEN BELONGING TO A PARTICULAR CLASS, AS STATED THEREIN. THOUGH THE OBJECTS CLAUSE CONTAINED VARIED OBJECTS INCLUDING THE MANAGEMENT AND DEVELOP MENT OF MOVABLE AND IMMOVABLE PROPERTIES, THE STATEMENT OF FACT BEFORE THE COURT WHICH IS NOT DISPUTED IS THAT THE ONLY ACTIVITY WHICH HAS BEEN CARRIED OUT BY THE TRUST EV ER SINCE ITS INCEPTION IS THE CONDUCT OF EDUCATIONAL INSTITUTIONS. THE COURT, IT MUST BE EMP HASIZED, IS NOT DEALING WITH AN INSTITUTION WHICH HAS SOUGHT APPROVAL FOR THE FIRST TIME OR WHI CH HAS BEEN SET UP IN THE PROXIMATE PAST. THE TRUST HAS A HISTORY OF OVER EIGHTY YEARS DURING THE COURSE OF WHICH THE ONLY ACTIVITY IS OF ITA NO.1295 /MDS/15 9 CONDUCTING EDUCATIONAL INSTITUTIONS. THE FACT THAT THE TRUST EXISTS SOLELY FOR EDUCATIONAL PURPOSES IS EVIDENCED FROM THE ASSESSMENT ORDERS FO R ASST. YRS. 2000-01 AND 2006-07, COPIES OF WHICH FORM A PART OF THE RECORD BEFORE TH E COURT. BOTH THESE ORDERS WHICH HAVE BEEN MADE UNDER S. 143(3) OF THE ACT, CONTAIN A STA TEMENT TO THE EFFECT THAT THE ASSESSEE IS RUNNING SCHOOLS WITH GUJARATI AND ENGLISH AS MED IA OF INSTRUCTION AT THE PRIMARY AND SECONDARY STAGES AND THAT THE ASSESSEE ALSO CONDUCT S A COLLEGE FOR GIRLS WITH THE SOLE INTENT OF IMPARTING EDUCATION. THE RECORD OF THESE PROCEEDINGS ALSO CONTAINS A JUDGMENT OF A DIVISION BENCH OF THIS COURT DT. 29TH JUNE, 2005 IN A REFERENCE UNDER S. 256(1) TO WHICH THE PETITIONER WAS THE APPLICANT. THE ISSUE BEFORE THE COURT IN THE REFERENCE WAS WHETHER THE ASSESSEE WAS ENTITLED TO EXEMPTION UNDER S. 10( 22) ON INTEREST EARNED ON SURPLUS FUNDS OF THE SCHOOL RUN BY THE TRUST FOR ASST. YRS. 1979-80 AND 1980-81. THE DIVISION BENCH OBSERVED THAT MERELY BECAUSE A CERTAIN SURPLUS AROS E FROM THE OPERATIONS OF THE TRUST, IT COULD NOT BE HELD THAT THE INSTITUTION WAS RUN FOR THE PURPOSE OF PROFIT, SO LONG AS NO PERSON OR INDIVIDUAL WAS ENTITLED TO ANY PORTION OF THE PR OFIT AND THE PROFIT WAS UTILIZED FOR THE PURPOSE OF PROMOTING THE OBJECTS OF THE INSTITUTION . THE INCOME OF THE TRUST WAS, THEREFORE, HELD TO BE EXEMPT UNDER S. 10(22). THE DIVISION BEN CH FOLLOWED THE DECISION OF THE SUPREME COURT IN ADITANAR EDUCATIONAL INSTITUTION E TC. VS. ADDL. CIT (1997) 139 CTR (SC) 7 : (1997) 224 ITR 310 (SC) AND NOTED AS A PRINCIPLE OF LAW THAT IF AFTER MEETING THE EXPENDITURE, A SURPLUS RESULTS INCIDENTALLY FROM AN ACTIVITY LAWFULLY CARRIED ON BY THE EDUCATIONAL INSTITUTION, THE INSTITUTION WOULD NOT CEASE TO BE ONE WHICH IS EXISTING SOLELY FOR EDUCATIONAL PURPOSES SINCE THE OBJECT IS NOT TO MAK E PROFIT. THE DIVISION BENCH ALSO OBSERVED THAT IF THE TRUST EXISTS SOLELY FOR EDUCAT IONAL PURPOSES AND CONDUCTS AN EDUCATIONAL INSTITUTION, THE FACT THAT IT HAD OTHER OBJECTS WOULD NOT DISENTITLE IT TO THE EXEMPTION SO LONG AS THE ACTIVITY CARRIED OUT BY IT IN THAT ASSESSMENT YEAR WAS THAT OF RUNNING AN EDUCATIONAL INSTITUTION AND NOT FOR PROF IT. THE COURT OBSERVED THAT THE ASSESSEE HAD EXISTED ONLY FOR EDUCATIONAL PURPOSES WHICH CON SISTED OF RUNNING EDUCATIONAL INSTITUTION AND NOT FOR EARNING PROFITS. THE OBSERV ATIONS OF THE DIVISION BENCH WHICH HAVE ITA NO.1295 /MDS/15 10 BEEN MADE IN THE CONTEXT OF S. 10(22) WOULD FURNISH A COGENT ANSWER TO BOTH THE ISSUES ON WHICH THE APPLICATIONS FOR APPROVAL WERE REJECTED B Y THE FIRST RESPONDENT. FIRSTLY, THOUGH THE MEMORANDUM OF ASSOCIATION CONTAINS VARIED OBJECTS, SO LONG AS THE RECORD DEMONSTRATES THAT THE ASSESSEE ONLY CONDUCTS EDUCATIONAL INSTITU TIONS, IT MUST BE REGARDED AS EXISTING SOLELY FOR THE PURPOSE OF EDUCATION. NO OTHER ACTIV ITY IS CARRIED ON. SECONDLY, THE FACT THAT A SURPLUS MAY INCIDENTALLY ARISE FROM THE ACTIVITIES OF THE TRUST, AFTER MEETING THE EXPENDITURE INCURRED FOR CONDUCTING EDUCATIONAL ACTIVITIES WOUL D NOT DISENTITLE THE TRUST OF THE BENEFIT OF THE PROVISIONS OF S. 10(23C). INSOFAR THE ASPECT O F SURPLUS IS CONCERNED, ONE MUST IN ADDITION, ADVERT TO THE PROVISION WHICH HAS BEEN MA DE BY PARLIAMENT IN THE THIRD PROVISO TO S. 10(23C). BY THE THIRD PROVISO, IT HAS BEEN CLARI FIED THAT IN THE CASE INTER ALIA OF UNIVERSITIES OR OTHER EDUCATIONAL INSTITUTIONS WHIC H HAVE APPLIED ITS INCOME OR ACCUMULATED IT FOR APPLICATION WHOLLY AND EXCLUSIVELY TO THE OB JECTS FOR WHICH IT IS ESTABLISHED AND IN A CASE WHERE FIFTEEN PER CENT OF INCOME IS ACCUMULATE D ON OR AFTER 1ST APRIL, 2002, THE PERIOD OF THE ACCUMULATION OF THE AMOUNT EXCEEDING FIFTEEN PER CENT, SHALL IN NO CASE EXCEED FIVE YEARS. THIS PROVISION WOULD ESTABLISH THAT PARLIAME NT DID NOT REGARD THE ACCUMULATION OF INCOME BY A UNIVERSITY OR EDUCATIONAL INSTITUTION G OVERNED BY SUB-CL. (VI) AS A DISABLING FACTOR, SO LONG AS THE PURPOSE OF ACCUMULATION IS T HE APPLICATION OF THE INCOME WHOLLY AND EXCLUSIVELY TO THE OBJECTS FOR WHICH THE INSTITUTIO N HAS BEEN ESTABLISHED. PARLIAMENT HAS, HOWEVER, PRESCRIBED THAT WHERE MORE THAN FIFTEEN PE R CENT OF THE INCOME IS ACCUMULATED AFTER 1ST APRIL, 2002, THE AMOUNT EXCEEDING FIFTEEN PER CENT SHALL NOT BE ACCUMULATED FOR A PERIOD IN EXCESS OF FIVE YEARS. FOR ALL THESE REASO NS, WE ARE OF THE VIEW THAT THE REJECTION OF THE APPROVAL BY THE FIRST RESPONDENT WAS MANIFESTLY MISCONCEIVED - ADITANAR EDUCATIONAL INSTITUTION ETC. VS. ADDL. CIT (1997) 139 CTR (SC) 7 : (1997) 224 ITR 310 (SC ) RELIED ON; PINEGROVE INTERNATIONAL CHARITABLE TRUST VS. UOI (2010) 37 DTR (P&H) 105 CONCURRED WITH; CIT VS.QUEENS EDUCATIONAL SOCIETY (2009) 223 CTR(UTTARAKHAND) 395: ITA NO.1295 /MDS/15 11 5.4 THE HONBLE DELHI HIGH COURT IN THE CASE OF DE PUTY DIRECTOR OF INCOME TAX VS. SHANTI DEVI PROGRESSIVE EDUCATION SO CIETY REPORTED IN (2012) 340 ITR 0320 HELD AS FOLLOWS:- IN THE ABSENCE OF ANY FINDING OR ALLEGATION THAT THE ASSESSEE SOCIETY RUNNING SCHOOLS HAS DIVERTED ITS FUNDS FOR NON-EDUCATIONAL ACTIVITIES A ND ANYTHING ON RECORD TO SHOW EXISTENCE OF PROFIT MOTIVE, EXEMPTION U/S.10(22) COULD NOT BE DE NIED ON THE GROUND THAT THE ASSESSEE WAS COLLECTING MONEY BY WAY OF ADMISSION FEE, CORPU S FUND AND LOANS FROM THE PARENTS OF THE STUDENTS, MORE SO AS IT IS REGISTERED U/S.12A A ND EXEMPTION U/S.10(22) HAS BEEN ALLOWED TO IT FOR SEVERAL YEARS IN THE PAST AND EVE N IN SUBSEQUENT YEARS. 5.5 FOLLOWING THE AFORESAID DECISIONS, WE HEREBY H OLD THAT THE ASSESSEE TRUST ENGAGED IN RUNNING OF HOSPITALS WOUL D BE ENTITLED FOR THE BENEFIT OF SECTION-11 OF THE ACT EVEN THOUGH IT IS INCIDENTALLY GENERATING SURPLUS, SINCE IT IS RUNNING A HOSPITAL AND THEREBY PROVIDING MEDICAL RELIEF, HOWEVER SUBJECT TO THE CO MPLIANCE OF THE OTHER PROVISIONS OF THE ACT. THUS THIS ISSUE IS DE CIDED IN FAVOUR OF THE ASSESSEE. SINCE WE HAVE HELD THAT THE ASSESSEE TRU ST WOULD BE ELIGIBLE FOR THE BENEFIT OF SECTION-11 OF THE ACT, CONSEQUENTLY WE HEREBY HOLD THAT THE CORPUS DONATIONS RECEIVED BY T HE ASSESSEE TRUST SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE PR EVIOUS YEAR IN WHICH ITA NO.1295 /MDS/15 12 SUCH DONATION IS RECEIVED BY THE TRUST, AS PROVIDED U/S.11 (1)(D) OF THE ACT. FURTHER WE MAKE IT CLEAR THAT THE LD.CIT(A ) HAS POWERS TO ENHANCE AN ASSESSMENT AND TRAVEL BEYOND THE SUBJECT MATTER OF THE APPEAL AS PER SECTION 251(2) OF THE ACT AFTER PROVI DING AN OPPORTUNITY OF BEING HEARD. 6.1 GROUND NO.(III): DISALLOWANCE OF THE CARRY FORWARD AND SET OFF OF EXCESS APPLICATION OF INCOME . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT W AS OBSERVED THAT THE ASSESSEE HAD CLAIMED ` 6,24,83,776/- AS EXCESS APPLICATION OF FUND TO BE CARRIED FORWARD TO THE SUBSEQUENT YEA RS. IT WAS ALSO OBSERVED THAT THE EXCESS APPLICATION OF FUND CLAIME D BY THE ASSESSEE TRUST WAS NOT FROM THE INCOME EARNED BY THE ASSESSE E TRUST DURING THE PREVIOUS YEAR. THEREFORE IT WAS CLEAR THAT EXCE SS APPLICATION OF FUND WAS EITHER SOURCED FROM THE LOAN OBTAINED BY T HE ASSESSEE TRUST OR FROM THE ACCUMULATION OF FUNDS DURING THE EARLIE R YEARS. IT WAS FURTHER OBSERVED THAT ONLY ` 3,75,02,118/- WAS APPLIED FROM THE INCOME DERIVED DURING THE RELEVANT PREVIOUS YEAR AN D THE BALANCE AMOUNT OF ` 3,07,92,656/- WAS ACTUALLY SPENT FROM THE ACCUMULA TED ITA NO.1295 /MDS/15 13 FUNDS OF THE EARLIER YEARS. THE EXCESS APPLICATION OF FUND CLAIMED BY THE ASSESSEE TRUST ALSO INCLUDED THE CLAIM OF DEPRE CIATION FOR THE ASSESSMENT YEARS 2008-09, 2009-10 & 2010-11 OF ` 2,04,59,791/-, ` 2,24,88,139/-, & ` 2,83,44,917/- RESPECTIVELY, WHICH HAVE BEEN DISALLOWED DURING THE ASSESSMENT PROCEEDINGS AS DOU BLE DEDUCTIONS SINCE THE ENTIRE COST OF THE ASSET WAS ALREADY ALLO WED AS APPLICATION OF FUNDS. FOR THE ABOVE REASONS THE LD. ASSESSING O FFICER DISALLOWED THE CLAIM OF CARRY FORWARD OF EXCESS APPLICATION OF FUNDS FOR ` 6,24,83,776/-. ON APPEAL, SINCE THE LD. CIT (A) WI THDREW THE BENEFIT OF SECTION-11 OF THE ACT TO THE ASSESSEE, THIS ISSU E WAS NOT ADDRESSED AS IT WAS NOT RELEVANT. 6.2 AFTER HEARING THE BOTH THE PARTIES, WE FIND T HAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF THIS TRIBUNAL I N THE CASE OF THE ANJUMAN-E-HIMAYATH-E-ISLAM FOR THE ASSESSMENT YEAR 2009-10 IN I.T.A.NO.2271/MDS./2014 VIDE ORDER DATED 02.06.2015 . THE RELEVANT PORTION OF THE ORDER IS REPRODUCED HEREIN BELOW FOR READY REFERENCE:- 4.4 WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PERUSED THE MATERIALS AVAILABLE ON RECORD. SECTION-11(1)(A) OF THE ACT PROVIDES THAT ITA NO.1295 /MDS/15 14 INCOME DERIVED FROM PROPERTY HELD UNDER TRUST WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSE SHALL NOT BE INCLUDED IN THE TOT AL INCOME TO THE EXTENT SUCH INCOME IS APPLIED FOR CHARITABLE OR RELIGIOUS PURPOSE IN INDIA. THE ACT ALSO PROVIDES THAT UPTO 15% OF SUCH INCOME IS ACCUMULATED OR SET APART, THEN THAT SHALL ALSO NOT BE INCLUDED IN THE TOTAL INCOME. FURTHER SECTION-11(1)(D) OF THE ACT PROVIDES THAT INCOME IN THE FORM OF VOLUNTARY CONTRIBUTION MADE WITH SPECIFIC DIRECTION THAT THEY SHALL FORM PART OF THE CORPUS OF THE TRUST OR INSTITUTION WILL ALSO NOT BE INCLUDED IN THE TOTAL INCOME. BY VIRTUE OF SECTION- 2(24) OF THE ACT THE DEFINITION OF INCOME INCLUDES ANY VOLUNTARY CONTRIBUTION RECEIVED BY THE TRUST CREATED WHOLLY OR PARTLY OF CHARITABLE OR RELIGIOUS PURPOSES . FURTHER EXPLANATION TO SECTION-11(1)(A)(B) R.W.S 12 (1) OF THE ACT PROVIDES THAT ANY VOLUNTARY CONTRIBUTION RECEIVED OTHER THAN WITH SPE CIFIC DIRECTION THAT THEY SHALL FORM PART OF THE CORPUS OF THE TRUS T OR INSTITUTION CREATED WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSE SHALL BE DEEMED TO BE THE INCOME DERIVED FROM PROPERTY HELD UNDER TRUST . FROM THE ABOVE IT IS CLEAR THAT, WHEN THE ASSESSEE TRUST APPLIES 85% OF ITS INCOME RECEIVED BY WAY OF VOLUNTARY CONTRIBUTIONS OTHER THAN THE VOLUNTARY CONTRIBUTIONS RECEIVED WITH SPECIFIC DIRE CTIONS AND THE INCOME DERIVED FROM PROPERTY HELD UNDER TRUST, THEN SUCH INCOME SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE TRUST. FURTHER THE BALANCE 15% OF SUCH INCOME EVEN IF ACCUMULATED OR SET APART SHALL ALSO NOT BE INCLUDED IN THE ITA NO.1295 /MDS/15 15 TOTAL INCOME OF THE TRUST. THEREFORE, WHAT IS PROVI DED UNDER THE ACT IS WITH RESPECT TO APPLICATION OF INCOME FROM THE INCOME DERIVED FROM THE PROPERTY HELD UNDER THE TRUS T AND ANY VOLUNTARY CONTRIBUTIONS RECEIVED BY THE TRUST OTHER THAN CONTRIBUTIONS MADE WITH SPECIFIC DIRECTIONS THAT THEY SHALL FORM PART OF THE CORPUS OF THE TRUS T . THUS, THERE IS NO REFERENCE IN SECTION-11 OF THE ACT WITH RESPECT TO APPLICATION OF FUND FROM THE CORPUS OF THE TRUST, LOAN OBTAINE D BY THE TRUST, SUNDRY CREDITORS OF THE TRUST OR ACCUMULATE FUND OF THE TRUST FOR CLAIMING EXEMPTION U/S.11 (1) OF THE ACT. 4.5. APPLICATION OF FUND BY ANY CHARITABLE INSTITU TION IS POSSIBLE ONLY FROM THE FOLLOWING SOURCES:- I) VOLUNTARY CONTRIBUTIONS RECEIVED BY THE TRUST T OWARDS ITS CORPUS, II) OTHER VOLUNTARY CONTRIBUTIONS, III) ACCUMULATED FUND, IV) AMOUNT RECEIVED BY WAY OF LOAN, V) SUNDRY CREDITORS, VI) INCOME DERIVED FROM THE PROPERTY HELD UNDER THE TRUST. [HONBLE CALCUTTA HIGH COURT HAS HELD IN THE CAS E DCIT VS. GIRDHARILAL SHEWNARAIN TANTIA TRUST REPORTED IN [1993] 199 ITR 15(CAL.) THAT THE INCOME CONTEMPLATED BY THE PROVISIONS OF SECTION 11 IS THE REAL INCOME AND NOT THE INCOME AS ASSESSED OR ASSESSABLE . ITA NO.1295 /MDS/15 16 FURTHER, HONBLE APEX HIGH COURT HAS HELD IN TH E CASE OF J.K.TRUST VS. LD. CIT /CEPT REPORTED IN [1957] 32 ITR 535(SC) THAT PROPERTY IS A TERM OF THE WIDEST IMPORT, AND SUBJECT ANY LIMITATI ON OR QUALIFICATION WHICH THE CONTEXT MIGHT REQUIRE, IT SIGNIFIES EVERY POSSIBLE INTEREST WHICH A PERSON CAN ACQUIRE, HOLD AND ENJOY. BUSINES S WOULD UNDOUBTEDLY BE PROPERTY UNLESS THERE IS SOMETHING T O THE CONTRARY IN THE ENACTMENT . ] WHEN THE TRUST APPLIES ITS FUNDS FROM ITS CORPUS , ACCUMULATED FUND, SUNDRY CREDITORS OR FROM THE LOAN OBTAINED BY THE TRUST, THEN SUCH FUNDS WHICH ARE APPLIED CANNOT BE SAID TO BE FUNDS APPLIE D FROM THE INCOME OF THE TRUST. THEREFORE, THERE CANNOT BE A CASE WHERE THE TRUST C AN APPLY ITS INCOME MORE THAN THE INCOME RECEIVED BY IT FOR THE PURPOSE OF SECTION-11(1)(A)&(B) OF THE ACT . THUS EXCESS APPLICATION OF FUND OVER AND ABOVE THE INCOME OF THE TRUST CAN ARISE ONLY WH EN FUNDS ARE APPLIED FROM THE CORPUS OF THE TRUST, ACCUMULATED FUND, LOA N OBTAINED BY THE TRUST OR GOODS AND SERVICES RECEIVED FROM SUNDRY CR EDITORS. IT CAN BE LOGICAL TO DEDUCE THAT WHEN FUNDS ARE APPLIED FROM BORROWED FUNDS OR BY WAY OF SUNDRY CREDITORS THE SAME CAN BE TREATED AS APPLICATION OF FUND IN THE YEAR IN WHICH SUCH LOAN/SUNDRY CREDITORS ARE RE PAID FROM THE INCOME OF THE TRUST. HOWEVER WHEN AMOUNT IS APPLIED FROM T HE CORPUS FUND OR ACCUMULATED FUND THE SAME CANNOT BE TREATED AS APPL ICATION OF FUND FOR THE PURPOSE OF SECTION 11 OF THE ACT, BECAUSE SUCH FUND HAVE ALREADY ITA NO.1295 /MDS/15 17 BEEN EXEMPT FROM THE INCOME OF THE TRUST IN THE YEA R IN WHICH IT IS RECEIVED OR SUCH AMOUNT IS SET ASIDE AND THEREFORE ONCE AGAIN TREATING THE SAME AS APPLICATION OF FUND WILL AMOUNT TO DOUBLE D EDUCTION. SIMILARLY VOLUNTARY CONTRIBUTION RECEIVED TOWARD CORPUS IS EX EMPT FROM INCOME OF THE TRUST IN THE YEAR IN WHICH IT IS RECEIVED AND T HEREFORE WHEN IT IS UTILIZED FOR THE OBJECTS OF THE TRUST IT CANNOT BE CONSIDERE D AS APPLICATION OF FUND OTHERWISE IT WILL AMOUNT TO DOUBLE DEDUCTION. FROM THE ABOVE FACTUAL AND MATHEMATICAL MATRIX IT IS EVIDENT THAT CARRY FORWAR D OF EXCESS APPLICATION OF FUND IN THE COMMERCIAL PRINCIPLES CANNOT BE ALLOWED AS PER THE PROVISIONS OF THE ACT BECAUSE IT WOULD RESULT IN NOTIONAL APPL ICATION OF INCOME IN THE SUBSEQUENT YEAR. THESE ASPECTS HAVE NOT BEEN CONSID ERED BY THE MUMBAI BENCH OF THE TRIBUNAL, AND THE UNREPORTED DE CISION OF THE HONBLE BOMBAY HIGH COURT IS ALSO NOT PLACED BEFORE US. 4.6 NOW ANALYZING THE FACTS OF THE CASE BEFORE US, IT APPEARS THAT THE ASSESSEE TRUSTS GROSS RECEIPTS IS ` 5,11,60,794/- AND THE ASSESSEE TRUST HAVE SPENT ` 5,35,57,149/- WHICH SHOWS THAT THE ASSESSEE TRUST H AS SPENT ` 23,96,355/- MORE THAN ITS INCOME RECEIVED DURING TH E RELEVANT YEAR. THIS AMOUNT OF ` 23,96,355/- MAY HAVE BEEN TAKEN OUT FROM THE CORPU S FUNDS, ACCUMULATED FUNDS, LOAN OBTAINED BY THE ASSESSE E TRUST OR ARISING OUT OF SUNDRY CREDITORS. THEREFORE IT IS OBVIOUS THAT T HERE IS NO EXCESS APPLICATION OF INCOME OVER AND ABOVE THE INCOME RECEIVED BY THE TRUST , ITA NO.1295 /MDS/15 18 HENCE THE QUESTION OF CARRY FORWARD OF EXCESS APPLI CATION OF INCOME DOES NOT ARISE . HOWEVER THE AMOUNT APPLIED FROM THE LOAN OR SU NDRY CREDITORS WILL BE ALLOWED AS APPLICATION OF FUND I N THE YEAR IN WHICH SUCH LOAN OR SUNDRY CREDITORS ARE REPAID. IT IS PERT INENT TO MENTION THAT IF THE AMOUNT IS APPLIED FROM THE CORPUS FUND OR ACCUMU LATED FUND IT WILL NOT BE TREATED AS APPLICATION OF FUND BECAUSE CORPUS F UND AND ACCUMULATE FUND ARE ALREADY EXEMPT FROM THE INCOME OF THE TRU ST AND ONCE AGAIN IF IT IS TREATED AS APPLICATION OF FUND IT WOULD AMOUNT T O DOUBLE DEDUCTION. THEREFORE THE CLAIM OF THE ASSESSEE TO CARRY FORWAR D THE EXCESS APPLICATION OF FUND CANNOT BE ENTERTAINED APPLYING THE COMMERCIAL PRINCIPLES. HOWEVER IF THE EXCESS AMOUNT OF ` 23,96,355/- IS APPLIED FROM THE BORROWED FUND OR FROM SUNDRY CREDITORS, THE SAM E SHALL BE ALLOWED AS APPLICATION IN THE YEAR IN WHICH SUCH LOAN OR SUNDR Y CREDITORS ARE REPAID FROM THE INCOME OF THE TRUST AS DISCUSSED HEREIN ABOVE. NEEDLESS T O MENTION THAT THE INCOME OF THE TRUST REFERS TO INCOME DERIVED FROM THE PROPERTY HELD UNDER THE TRUS T AND ANY VOLUNTARY CONTRIBUTIONS RECEIVED BY THE TRUST OTHER THAN CONTRIBUTIONS MADE WITH SPECIFIC DIRECTIONS THAT THEY SHALL FORM PART OF THE CORPUS OF THE TRUS T I.E., ITEM NOS.(II) AND (VI) MENTIONED HEREINABOVE. THIS GROUN D RAISED BY THE ASSESSEE IS ACCORDINGLY DISPOSED OFF. ITA NO.1295 /MDS/15 19 6.3 FOLLOWING THE RATIO OF THE ABOVE DECISION OF T HE CHENNAI BENCH OF THE TRIBUNAL, WE HEREBY HOLD THAT THE CLAIM OF T HE ASSESSEE FOR CARRY FORWARD OF EXCESS APPLICATION OF FUND TO SUBS EQUENT YEARS IS NOT PERMISSIBLE AS PER THE PROVISIONS OF THE ACT. IT IS ORDERED ACCORDINGLY. 7.1 GROUND NO.(IV): DENIAL OF TREATING THE LOSS ON SALE OF ASSETS OF ` `` ` 14,31,181/- AS APPLICATION OF INCOME . IT WAS NOTICED BY THE LD. ASSESSING OFFICER FROM THE INCOME & EXPENDITURE STATEMENT THAT THE ASSESSEE TRUST HAD C LAIMED RS 14, 31,55,182/- AS LOSS ON TRANSFER OF ASSETS. THE LD. ASSESSING OFFICER WAS OF THE VIEW THAT THE SAME CANNOT BE TREATED AS APPLICATION OF FUNDS AS THERE WAS NO CASH OUTFLOW. IT WAS FURTHER NOTICED BY THE LD. ASSESSING OFFICER THAT THE ASSESSEE TRUST HAD RECEI VED ` 5,81,000/- AS SALE PROCEEDS FROM THESE ASSETS AND THE SAME HAS NO T BEEN OFFERED AS INCOME. THEREFORE THE LD. ASSESSING OFFICER TREA TED THE SALE PROCEEDS OF ` 5,81,000/- AS THE INCOME OF THE ASSESSEE. WE ARE IN AGREEMENT WITH THE VIEW TAKEN BY THE LD. ASSESSING OFFICER. THE PURCHASE COST OF THESE ASSETS WOULD HAVE BEEN ALREA DY ALLOWED AS APPLICATION OF FUNDS IN THE YEAR IN WHICH THE ASSET S WERE PURCHASED. ITA NO.1295 /MDS/15 20 THEREFORE, THE LOSS ON SALE OF THESE ASSETS CANNOT BE TREATED AS APPLICATION OF FUNDS ONCE AGAIN. IT WOULD AMOUNT TO DOUBLE DEDUCTION. FURTHER THE FACTS REMAIN THAT THE SALE PROCEEDS OF ` 5,81,000/- IS THE INCOME OF THE ASSESSEE BECAUSE THERE IS A CASH INFL OW TO THAT EXTEND WHICH HAS TO BE APPLIED FOR THE OBJECTS OF THE TRUS T AS PROVIDED UNDER THE PROVISIONS OF THE ACT. THEREFORE THE ACTION OF LD. ASSESSING OFFICER IS JUSTIFIED. IT IS ORDERED ACCORDINGLY. 8.1 GROUND NO.(V): DISALLOWANCE OF THE DEPRECIATION WHILE COMPUTING TH E INCOME OF THE ASSESSEE TRUST . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WA S OBSERVED BY THE LD. ASSESSING OFFICER THAT THE ASSESSEE HAD CLAIMED DEPRECIATION ON THE SAME ASSETS THE FULL COST OF WH ICH WAS ALLOWED AS APPLICATION OF FUNDS. THE LD. ASSESSING OFFICER DIS ALLOWED THE CLAIM OF DEPRECIATION MADE BY THE ASSESSEE BECAUSE THE CO ST OF THE ASSET WAS ALREADY ALLOWED AS APPLICATION OF FUND AND THER EFORE SUCH CLAIM WOULD AMOUNT TO DOUBLE DEDUCTION. ON APPEAL, THE LD . CIT (A) HAVING WITHDRAWN THE BENEFIT OF SECTION-11 OF THE ACT TO T HE ASSESSEE DID NOT ADJUDICATED THIS ISSUE AS IT HAD BECOME IRRELEVANT. ITA NO.1295 /MDS/15 21 8.2 AT THE OUTSET WE FIND THAT ON THE EARLIER OCCA SION, THE CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF THE ANJUMAN-E- HIMAYATH-E- ISLAM FOR THE ASSESSMENT YEAR 2009-10 IN I.T.A.NO.2 271/MDS./2014 VIDE ORDER DATED 02.06.2015 HAD ADJUDICATED THE ISS UE IN FAVOUR OF THE REVENUE. THE RELEVANT PORTION OF THE ORDER IS R EPRODUCED HEREIN BELOW FOR REFERENCE:- 5.1 THE ASSESSEE TRUST HAD CLAIMED DEPRECIATION ON THE ASSETS AS APPLICATION OF INCOME IN THE RETURN OF INCOME. THE LD. ASSESSING OFFICER OPINED THAT THE CLAIM OF DEPRECIATION BY THE ASSESS EE WOULD AMOUNT TO DOUBLE DEDUCTION BECAUSE THE ENTIRE COST OF ASSET H AS ALREADY BEEN CLAIMED AS APPLICATION OF INCOME IN THE YEAR IN WHI CH THE ASSETS WERE PURCHASED. THEREAFTER, THE LD. ASSESSING OFFICER CI TING CERTAIN DECISIONS HELD THAT THE CLAIM OF DEPRECIATION CANNOT BE CONSI DERED AS APPLICATION OF INCOME. ON APPEAL, THE LD. CIT (A) WAS ALSO OF THE VIEW OF THE LD. ASSESSING OFFICER AND THEREFORE CONFIRMED LD. ASSES SING OFFICERS ORDER. 5.2 WE FIND THIS ISSUE IS ELABORATELY DISCUSSED IN THE CASE OF LISSIE MEDICAL INSTITUTION VS. CIT REPORTED IN [2012] 348 ITR 344(KER.) AND HELD THE ISSUE AGAINST THE ASSESSEE. WHILE DOING SO, THE HONBLE KERALA HIGH COURT HAD CONSIDERED THE CIRCULAR NO.5P(LLX-6) DATED 19.06.1968 WHICH ITA NO.1295 /MDS/15 22 HAS NOT BEEN CONSIDERED BY THE OTHER DECISIONS. THE CIRCULAR NO. 5P(LLX-6) IS REPRODUCED HEREIN BELOW FOR REFERENCE:- 1. CIRCULAR NO. 5-P (LXX-6) OF 1968, DATED 19-6-196 8. SUBJECT : SECTION 11CHARITABLE TRUSTSINCOME REQUI RED TO BE APPLIED FOR CHARITABLE PURPOSEINSTRUCTIONS REGARDING. IN BOARD'S CIRCULAR NO. 2-P(LXX-5) OF 1963, DATED T HE 15TH MAY, 1963, IT WAS EXPLAINED THAT A RELIGIOUS OR CHARITABLE TRUST CLAIMING EXEMPTION UNDER SECTION 11(1) OF THE INCOME- TAX ACT, 1961, MUST SP END AT LEAST 75 PER CENT OF ITS TOTAL INCOME, FOR RELIGIOUS OR CHARITABLE PU RPOSES. IN OTHER WORDS, IT WAS NOT PERMITTED TO ACCUMULATE MORE THAN 25 PER CE NT OF ITS TOTAL INCOME. THE QUESTION HAS BEEN RECONSIDERED BY THE BOARD AND THE CORRECT LEGAL POSITION IS EXPLAINED BELOW. 2. SECTION 11(1) PROVIDES THAT SUBJECT TO THE PROVI SIONS OF SECTIONS 60 TO 63 'THE FOLLOWING INCOME SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE PREVIOUS YEAR . . . '. THE REFERENCE IN SUB-SECTION (A) IS INVARIABLY TO 'INCOME' AND NOT TO 'TOTAL INCOME'. THE EXPRESSION 'TOTAL INCOME' HAS BEEN SPECIFICALLY DEFINED IN SECTION 2(45) OF THE A CT AS 'THE TOTAL AMOUNT OF INCOME . . . COMPUTED IN THE MANNER LAID DOWN IN TH IS ACT'. IT WOULD ACCORDINGLY BE INCORRECT TO ASSIGN TO THE WORD 'INC OME' USED IN SECTION 11(1)(A), THE SAME MEANING AS HAS BEEN SPEC IFICALLY ASSIGNED TO THE EXPRESSION 'TOTAL INCOME' VIDE SECTION 2(45) . 3. IN THE CASE OF A BUSINESS UNDERTAKING HELD UNDER TRUST, ITS 'INCOME' WILL BE THE INCOME AS SHOWN IN THE ACCOUNTS OF THE UNDER TAKING. UNDER SECTION 11(4), ANY INCOME OF THE BUSINESS UNDERTAKING DETER MINED BY THE INCOME- TAX OFFICER IN ACCORDANCE WITH THE PROVISIONS OF TH E ACT, WHICH IS IN EXCESS ITA NO.1295 /MDS/15 23 OF THE INCOME AS SHOWN IN ITS ACCOUNTS, IS TO BE DE EMED TO HAVE BEEN APPLIED TO PURPOSES OTHER THAN CHARITABLE OR RELIGI OUS, AND HENCE IT WILL BE CHARGED TO TAX UNDER SUB-SECTION (3). AS ONLY THE I NCOME DISCLOSED BY THE ACCOUNT WILL BE ELIGIBLE FOR EXEMPTION UNDER SECTIO N 11(1), THE PERMITTED ACCUMULATION OF 25 PER CENT WILL ALSO BE CALCULATED WITH REFERENCE TO THIS INCOME. 4. WHERE THE TRUST DERIVES INCOME FROM HOUSE PROPER TY, INTEREST ON SECURITIES, CAPITAL GAINS, OR OTHER SOURCES, THE WO RD 'INCOME' SHOULD BE UNDERSTOOD IN ITS COMMERCIAL SENSE, I.E., BOOK INCOME , AFTER ADDING BACK ANY APPROPRIATIONS OR APPLICATIONS THEREOF TOWARDS THE PURPOSES OF THE TRUST OR OTHERWISE, AND ALSO AFTER ADDING BACK ANY DEBITS MADE FOR CAPITAL EXPENDITURE INCURRED FOR THE PURPOSES OF THE TRUST OR OTHERWISE. IT SHOULD BE NOTED, IN THIS CONNECTION, THAT THE AMOUNTS SO ADDE D BACK WILL BECOME CHARGEABLE TO TAX UNDER SECTION 11(3) TO THE EXTENT THAT THEY REPRESENT OUTGOINGS FOR PURPOSES OTHER THAN THOSE OF THE TRUS T. THE AMOUNTS SPENT OR APPLIED FOR THE PURPOSES OF THE TRUST FROM OUT OF T HE INCOME COMPUTED IN THE AFORESAID MANNER, SHOULD BE NOT LESS THAN 75 PER CE NT OF THE LATTER, IF THE TRUST IS TO GET THE FULL BENEFIT OF THE EXEMPTION U NDER SECTION 11(1). 5. TO SUM UP, THE BUSINESS INCOME OF THE TRUST AS DISC LOSED BY THE ACCOUNTS PLUS ITS OTHER INCOME COMPUTED ABOVE, WILL BE THE 'INCOME' OF THE TRUST FOR PURPOSES OF SECTION 11(1). FURTHER, THE TRUST MUST SPEND AT LEAST 75 PER CENT OF THIS INCOME AND NOT ACCUMUL ATE MORE THAN 25 PER CENT THEREOF. THE EXCESS ACCUMULATION, IF ANY, WILL BECOME TAXABLE UNDER SECTION 11(1). AFTER CONSIDERING THE CIRCULAR, THE HONBLE KERALA HIGH COURT HELD AS FOLLOWS:- ITA NO.1295 /MDS/15 24 HELD, THAT AFTER WRITING OFF THE FULL VALUE OF THE CAPITAL EXPENDITURE ON ACQUISITION OF ASSETS AS APPLICATION OF INCOME FOR CHARITABLE PURPOSES AND WHEN THE ASSESSEE AGAIN CLAIMED THE SAME AMOUNT IN THE FORM OF DEPRECIATION, SUCH NOTIONAL CLAIM BECAME A CASH SUR PLUS AVAILABLE WITH THE ASSESSEE, WHICH WAS OUTSIDE THE BOOKS OF ACCOUNT OF THE TRUST UNLESS IT WAS WRITTEN BACK WHICH WAS NOT DONE BY THE ASSESSEE. IT WAS NOT PERMISSIBLE FOR A CHARITABLE INSTITUTION TO GENERATE INCOME OUTSIDE THE BOOKS IN THIS FASHION AND THERE WOULD BE VIOLATION OF SECTION 11(1)(A). I T WAS FOR THE ASSESSEE TO WRITE BACK THE DEPRECIATION AND IF THAT WAS DONE, T HE ASSESSING OFFICER WOULD MODIFY THE ASSESSMENT DETERMINING HIGHER INCO ME AND ALLOW RECOMPUTED INCOME WITH THE DEPRECIATION WRITTEN BAC K BY THE ASSESSEE TO BE CARRIED FORWARD FOR SUBSEQUENT YEARS FOR APPLICA TION FOR CHARITABLE PURPOSES . FURTHER HONBLE CALCUTTA HIGH COURT HAS HELD IN THE CASE DCIT VS. GIRDHARILAL SHEWNARAIN TANTIA TRUST REPORTED IN [1993] 199 ITR 15(CAL.) THAT THE INCOME CONTEMPLATED BY THE PROVISIONS OF SECT ION 11 IS THE REAL INCOME AND NOT THE INCOME AS ASSESSED OR ASSES SABLE. RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE KERALA HIGH COURT AND TAKING CUE FROM THE DECISION OF THE HONBLE CALCUTT A HIGH COURT , WE DO NOT FIND ANY HESITATION TO CONFIRM THE ORDER OF THE LD. CIT(A) AND ALSO THE VIEWS EXPRESSED BY HIM IN HIS ORDER. ACCORDINGLY THIS APP EAL IS HELD IN FAVOUR OF THE REVENUE. 8.3 FOLLOWING THE RATIO OF THE ABOVE DECISION OF TH E CHENNAI BENCH OF THE TRIBUNAL, WE HEREBY HOLD THAT THE CLAIM OF D EPRECIATION MADE ITA NO.1295 /MDS/15 25 BY THE ASSESSEE CANNOT BE ENTERTAINED AS PER THE PR OVISIONS OF THE ACT. IT IS ORDERED ACCORDINGLY. 9.1 GROUND NO.(VI): DISALLOWING THE CLAIM OF BAD DEBTS OF ` `` ` 3,08,658/- AS APPLICATION OF INCOME. THE ASSESSEE HAD CLAIMED BAD DEBTS OF ` 3,08,658/- IN ITS INCOME & EXPENDITURE STATEMENT. THE LD. ASSESSING OFFICER DID NOT ALLOW IT TO BE TREATED AS APPLICATION OF FUND BECAU SE THERE WAS NO ACTUAL CASH OUTFLOW BUT IT WAS MERELY A BOOK ADJUST MENT. THE VIEW OF THE LD. ASSESSING OFFICER WAS THAT THE CLAIM OF BAD DEBT IS ONLY NOTIONAL EXPENDITURE AND THEREFORE CANNOT BE CONSTR UED AS APPLICATION OF INCOME. SINCE THE LD. CIT (A) WITHDR EW THE BENEFIT OF SECTION-11 TO THE ASSESSEE, THIS ISSUE WAS NOT ADJU DICATED AS IT WAS IRRELEVANT. ON THIS ISSUE WE ARE OF THE VIEW THAT IF THE RECEIVABLES ON WHICH SUCH CLAIM OF BAD DEBTS IS MADE WAS EARLIER T REATED AS THE INCOME OF THE ASSESSEE TRUST FOR THE PURPOSE OF SEC TION-11(1) OF THE ACT, BY APPLYING THE ACCRUING CONCEPT AND FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING, THEN THE SAME SHOULD BE ALLOW ED AS APPLICATION OF FUND WHEN SUCH RECEIVABLES HAVE BECO ME BAD AND ITA NO.1295 /MDS/15 26 WRITTEN OFF IN THE BOOKS OF ACCOUNTS DURING THE REL EVANT ASSESSMENT YEAR. IT IS ORDERED ACCORDINGLY. 10. SINCE WE HAVE DECIDED THE APPEAL OF THE ASSESSE E, THE STAY PETITION FILED BY THE ASSESSEE HAS BECOME INFRUCTUO US AND ACCORDINGLY IT IS DISMISSED. 11. IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALLOWED AS INDICATED HEREIN ABOVE & THE STAY PETITION FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON THE 1 ST JANUARY,2016 AT CHENNAI. SD/- SD /- ( ! ' ! # . $% ) ( DUVVURU RL REDDY ) ( . ) (A.MOHAN ALANKAMONY) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 1 ST JANUARY,2016. K S SUNDARAM. COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE