Rama Naick Charitable Trust, CHENNAI V. DDIT, CHENNAI

ITA 2930/CHNY/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95921 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 10-07-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 02-12-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P RADHAKRISHNAN
• Assessee Lawyers: A KANAGARAJ
• Keywords: Capital asset; Business income; Depreciation; Charitable institution; Scheme of amalgamation; Capital expenditure
• Section: 32; 63; 11; 12AA

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL S M C BENCH, CHENNAI ... , BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER ./ ITA NO.2930/MDS/2014 ' #$' / ASSESSMENT YEAR : 2009-10 M/S RAMA NAICK CHARITABLE TRUST, 274, T.H. ROAD, CHENNAI - 600 021. PAN : AAATT0484B V. THE DDIT EXEMPTIONS II, CHENNAI - 600 034. (&'/ APPELLANT) (()&'/ RESPONDENT) &' * + / APPELLANT BY : SH. A. KANAGARAJ, CA ()&' * + / RESPONDENT BY : SH. P. RADHAKRISHNAN, JCIT , # * -. / DATE OF HEARING : 10.07.2015 /0$ * -. / DATE OF PRONOUNCEMENT : 21.08.2015 / O R D E R THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-VII, CHENN AI, DATED 18.08.2014 AND PERTAINS TO ASSESSMENT YEAR 2009-10. 2 I.T.A. NO.2930/MDS/14 2. SHRI A. KANAGARAJ, THE LD. REPRESENTATIVE FOR TH E ASSESSEE, SUBMITTED THAT THE ASSESSEE, A CHARITABLE INSTITUTI ON REGISTERED UNDER SECTION 12AA OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'), CLAIMED EXEMPTION IN RESPECT OF ITS INCOME ON APPLI CATION UNDER SECTION 11 OF THE ACT. THE ASSESSEE HAS ALSO CLAIM ED DEPRECIATION ON THE CAPITAL ASSET. ACCORDING TO THE LD. REPRESE NTATIVE, THOUGH THE INCOME WAS ALLOWED AS APPLICATION OF INCOME UND ER SECTION 11 OF THE ACT, THE INCOME OF THE TRUST HAS TO BE COMPU TED ON COMMERCIAL SENSE AND DEPRECIATION HAS TO BE ALLOWED UNDER SECTION 32 OF THE ACT. ACCORDING TO THE LD. REPRES ENTATIVE, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSES SEE ON THE GROUND THAT ALLOWING DEPRECIATION WOULD AMOUNT TO D OUBLE DEPRECIATION, BY PLACING RELIANCE ON THE JUDGMENT O F THE APEX COURT IN ESCORTS LTD. AND ANOTHER V. UNION OF INDIA AND O THERS (1993) 199 ITR 43. THE LD. REPRESENTATIVE PLACED HIS RELIANCE ON THE DECISION OF HIS BENCH OF THE TRIBUNAL IN DDIT(EXEMPTIONS) V. SRI RANGALATCHUMI EDUCATIONAL TRUST IN I.T.A. NO.1930/M DS/2014 DATED 31.10.2014 AND SUBMITTED THAT ON IDENTICAL CIRCUMST ANCES, THIS TRIBUNAL ALLOWED DEPRECIATION. 3. SHRI A. KANAGARAJ, THE LD. REPRESENTATIVE FOR TH E ASSESSEE, FURTHER SUBMITTED THAT THE NEXT GROUND OF APPEAL IS WITH REGARD TO 3 I.T.A. NO.2930/MDS/14 ADJUSTMENT OF EXCESS AMOUNT SPENT TOWARDS CHARITABL E PURPOSES. ACCORDING TO THE LD. REPRESENTATIVE, THE ASSESSEE H AS APPLIED EXCESS AMOUNT OVER AND ABOVE THE INCOME, THE SAME H AS TO BE ALLOWED DURING THE YEAR UNDER CONSIDERATION. ACCOR DING TO THE LD. REPRESENTATIVE, THE EXPENDITURE INCURRED IN THE EAR LIER YEAR HAS TO BE ALLOWED AS APPLICATION OF INCOME FOR THE YEAR UNDER CONSIDERATION. 4. I HEARD SH. P. RADHAKRISHNAN, THE LD. DEPARTMENT AL REPRESENTATIVE ALSO. ADMITTEDLY, THE ASSESSEE IS A CHARITABLE INSTITUTION AND THE ASSESSEE IS NOT DOING ANY BUSIN ESS. IF THE ASSESSEE ENGAGED ITSELF IN BUSINESS ACTIVITY, THEN IT WOULD NOT BE ELIGIBLE FOR EXEMPTION UNDER SECTION 11 OF THE ACT. IT IS NOT THE CASE OF THE ASSESSEE THAT ANY BUSINESS UNDERTAKING WAS H ELD UNDER THE ASSESSEE-TRUST. IN OTHER WORDS, THE DEPRECIATION C LAIMED BY THE ASSESSEE IS NOT IN RESPECT OF ANY ASSET WHICH WAS U SED FOR BUSINESS PURPOSE. THE ASSET ON WHICH DEPRECIATION WAS CLAIM ED IS ADMITTEDLY USED FOR ASSESSEES CHARITABLE ACTIVITY. WE HAVE CAREFULLY GONE THROUGH THE PROVISIONS OF SECTION 32 OF THE ACT, WHICH READS AS FOLLOWS:- (1) IN RESPECT OF DEPRECIATION OF-- (I) BUILDINGS, MACHINERY, PLANT OR FURNITURE BEING TANGIBLE ASSETS ; 4 I.T.A. NO.2930/MDS/14 (II) KNOW-HOW, PATENTS, COPYRIGHTS, TRADE MARKS, LI CENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGH TS OF SIMILAR NATURE, BEING INTANGIBLE ASSETS ACQUIRED ON OR AFTER THE 1ST DAY OF APRIL, 1998, OWNED, WHOLLY OR PARTLY, BY THE ASSESSEE AND USED F OR THE PURPOSES OF THE BUSINESS OR PROFESSION THE FOLLOWIN G DEDUCTIONS SHALL BE ALLOWED-- (I) IN THE CASE OF ASSETS OF AN UNDERTAKING ENGAGED IN GENERATION OR GENERATION AND DISTRIBUTION OF POWER, SUCH PERCENTAGE ON THE ACTUAL COST THEREOF TO THE ASSESS EE AS MAY BE PRESCRIBED. (II) IN THE CASE OF ANY BLOCK OF ASSETS, SUCH PERCE NTAGE ON THE WRITTEN DOWN VALUE THEREOF AS MAY BE PRESCRIBED : PROVIDED THAT NO DEDUCTION SHALL BE ALLOWED UNDER T HIS CLAUSE IN RESPECT OF--(A) ANY MOTOR CAR MANUFACTURED OUTSI DE INDIA, WHERE SUCH MOTOR CAR IS ACQIRED BY THE ASSESSEE AFT ER THE 28TH DAY OF FEBRUARY, 1975 5BUT BEFORE THE 1ST DAY OF APRIL, 2001, UNLESS IT IS USED--(I) IN A BUSINESS OF R UNNING IT ON HIRE FOR TOURISTS; OR(II) OUTSIDE INDIA IN HIS B USINESS OR PROFESSION IN ANOTHER COUNTRY ; AND(B) ANY MACHINER Y OR PLANT IF THE ACTUAL COST THEREOF IS ALLOWED AS A DE DUCTION IN ONE OR MORE YEARS UNDER AN AGREEMENT ENTERED INTO B Y THE CENTRAL GOVERNMENT UNDER SECTION 42: PROVIDED FURTHER THAT WHERE ANY ASSET REFERRED TO I N CLAUSE (I) 6OR CLAUSE (II) OR CLAUSE (IIA), AS THE CASE MAY BE, IS ACQUIRED BY THE ASSESSEE DURING THE PREVIOUS YEAR A ND IS PUT TO USE FOR THE PURPOSES OF BUSINESS OR PROFESSION F OR A PERIOD OF LESS THAN ONE HUNDRED AND EIGHTY DAYS IN THAT PREVIOUS YEAR, THE DEDUCTION UNDER THIS SUB-SECTION IN RESPECT OF SUCH ASSET SHALL BE RESTRICTED TO FIFTY PER CENT. OF THE AMOUNT CALCULATED AT THE PERCENTAGE PRESCRIB ED FOR AN ASSET UNDER CLAUSE (I) 6OR CLAUSE (II) OR CLAUSE (IIA), AS THE CASE MAY BE: PROVIDED ALSO THAT WHERE AN ASSET BEING COMMERCIAL VEHICLE IS ACQUIRED BY THE ASSESSEE ON OR AFTER THE 1ST DAY OF OCTOBER, 1998, BUT BEFORE THE 1ST DAY OF APRIL, 1999, A ND IS PUT TO USE BEFORE THE 1ST DAY OF APRIL, 1999, FOR THE 5 I.T.A. NO.2930/MDS/14 PURPOSES OF BUSINESS OR PROFESSION, THE DEDUCTION I N RESPECT OF SUCH ASSET SHALL BE ALLOWED ON SUCH PERCENTAGE O N THE WRITTEN DOWN VALUE THEREOF AS MAY BE PRESCRIBED. EXPLANATION FOR THE PURPOSES OF THIS PROVISO,-- (A) THE EXPRESSION 'COMMERCIAL VEHICLE' MEANS 'HEAVY GOODS VEHICLE', 'HEAVY PASSENGER MOTOR VEHICLE', 'LIGHT M OTOR VEHICLE', 'MEDIUM GOODS VEHICLE' AND 'MEDIUM PASSEN GER MOTOR VEHICLE' BUT DOES NOT INCLUDE 'MAXI CAB', 'MOT OR-CAB', 'TRACTOR' AND 'ROAD-ROLLER' ; (B) THE EXPRESSIONS 'HEAVY GOODS VEHICLE', 'HEAVY PA SSENGER MOTOR VEHICLE', 'LIGHT MOTOR VEHICLE', 'MEDIUM GOOD S VEHICLE', 'MEDIUM PASSENGER MOTOR VEHICLE', 'MAXI-CA B', 'MOTOR-CAB', 'TRACTOR' AND 'ROAD-ROLLER' SHALL HAVE THE MEANINGS RESPECTIVELY AS ASSIGNED TO THEM IN SECTIO N 2 OF THE MOTOR VEHICLES ACT, 1988 (59 OF 1988). PROVIDED ALSO THAT, IN RESPECT OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON THE 1ST DAY OF APRIL, 1991, THE DEDUCTION IN RELATION TO ANY BLOCK OF ASSET S UNDER THIS CLAUSE SHALL, IN THE CASE OF A COMPANY, BE RES TRICTED TO SEVENTY-FIVE PER CENT. OF THE AMOUNT CALCULATED AT THE PERCENTAGE, ON THE WRITTEN DOWN VALUE OF SUCH ASSET S, PRESCRIBED UNDER THIS ACT IMMEDIATELY BEFORE THE COMMENCEMENT OF THE TAXATION LAWS (AMENDMENT) ACT, 1991. PROVIDED ALSO THAT THE AGGREGATE DEDUCTION, IN RESP ECT OF DEPRECIATION OF BUILDINGS, MACHINERY, PLANT OR FURN ITURE, BEING TANGIBLE ASSETS OR KNOW-HOW, PATENTS, COPYRIG HTS, TRADEMARKS, LICENCES, FRANCHISES OR ANY OTHER BUSIN ESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE, BEING INTANGIB LE ASSETS ALLOWABLE TO THE PREDECESSOR AND THE SUCCESSOR IN T HE CASE OF SUCCESSION REFERRED TO IN CLAUSE (XIII), CLAUSE ( XIIIB) AND CLAUSE (XIV) OF SECTION 47 OR SECTION 170 OR TO THE AMALGAMATING COMPANY AND THE AMALGAMATED COMPANY IN THE CASE OF AMALGAMATION, OR TO THE DEMERGED COMPANY AN D THE RESULTING COMPANY IN THE CASE OF DEMERGER, AS THE C ASE MAY BE, SHALL NOT EXCEED IN ANY PREVIOUS YEAR THE DEDUCT ION CALCULATED AT THE PRESCRIBED RATES AS IF THE SUCCES SION OR THE AMALGAMATION OR THE DEMERGER, AS THE CASE MAY B E, HAD NOT TAKEN PLACE, AND SUCH DEDUCTION SHALL BE APPORT IONED 6 I.T.A. NO.2930/MDS/14 BETWEEN THE PREDECESSOR AND THE SUCCESSOR, OR THE AMALGAMATING COMPANY AND THE AMALGAMATED COMPANY, O R THE DEMERGED COMPANY AND THE RESULTING COMPANY, AS THE CASE MAY BE, IN THE RATIO OF THE NUMBER OF DAYS FOR WHIC H THE ASSETS WERE USED BY THEM. EXPLANATION 1. WHERE THE BUSINESS OR PROFESSION OF THE ASSESSEE IS CARRIED ON IN A BUILDING NOT OWNED BY H IM BUT IN RESPECT OF WHICH THE ASSESSEE HOLDS A LEASE OR OTHE R RIGHT OF OCCUPANCY AND ANY CAPITAL EXPENDITURE IS INCURRED BY THE ASSESSEE FOR THE PURPOSES OF THE BUSINESS OR PROFES SION ON THE CONSTRUCTION OF ANY STRUCTURE OR DOING OF ANY W ORK, IN OR IN RELATION TO, AND BY WAY OF RENOVATION OR EXTENSIO N OF, OR IMPROVEMENT TO, THE BUILDING, THEN, THE PROVISIONS OF THIS CLAUSE SHALL APPLY AS IF THE SAID STRUCTURE OR WORK IS A BUILDING OWNED BY THE ASSESSEE. EXPLANATION 2. FOR THE PURPOSES OF THIS SUB-SECTION 'WRITTEN DOWN VALUE OF THE BLOCK OF ASSETS' SHALL H AVE THE SAME MEANING AS IN CLAUSE (C) OF SUB-SECTION (6) OF SECTION 43; EXPLANATION 3. FOR THE PURPOSES OF THIS SUB-SECTION, 10THE EXPRESSIONS 'ASSETS' SHALL MEAN-- (A) TANGIBLE ASSETS, BEING BUILDINGS, MACHINERY, PL ANT OR FURNITURE ; (B) INTANGIBLE ASSETS, BEING KNOW-HOW, PATENTS, COP YRIGHTS, TRADE MARKS, LICENCES, FRANCHISES OR ANY OTHER BUSI NESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE. EXPLANATION 4. FOR THE PURPOSES OF THIS SUB-SECTION, THE EXPRESSION 'KNOW-HOW' MEANS ANY INDUSTRIAL INFORMATI ON OR TECHNIQUE LIKELY TO ASSIST IN THE MANUFACTURE OR PR OCESSING OF GOODS OR IN THE WORKING OF A MINE, OIL-WELL OR O THER SOURCES OF MINERAL DEPOSITS (INCLUDING SEARCHING FO R DISCOVERY OR TESTING OF DEPOSITS FOR THE WINNING OF ACCESS THERETO) ; EXPLANATION 5. FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT THE PROVISIONS OF THIS SUB-SECTION SH ALL APPLY WHETHER OR NOT THE ASSESSEE HAS CLAIMED THE DEDUCTI ON IN RESPECT OF DEPRECIATION IN COMPUTING HIS TOTAL INCO ME ; 7 I.T.A. NO.2930/MDS/14 (IIA) IN THE CASE OF ANY NEW MACHINERY OR PLANT (OT HER THAN SHIPS AND AIRCRAFT), WHICH HAS BEEN ACQUIRED AND IN STALLED AFTER THE 31ST DAY OF MARCH, 2005, BY AN ASSESSEE ENGAGE D IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING, A FURTHER SUM EQUAL TO TWENTY PER CENT. O F THE ACTUAL COST OF SUCH MACHINERY OR PLANT SHALL BE ALL OWED AS DEDUCTION UNDER CLAUSE (II) : PROVIDED THAT NO DEDUCTION SHALL BE ALLOWED IN RESP ECT OF-(A) ANY MACHINERY OR PLANT WHICH, BEFORE ITS INSTALLATI ON BY THE ASSESSEE, WAS USED EITHER WITHIN OR OUTSIDE INDIA B Y ANY OTHER PERSON ; OR(B) ANY MACHINERY OR PLANT INSTALLE D IN ANY OFFICE PREMISES OR ANY RESIDENTIAL ACCOMMODATION, I NCLUDING ACCOMMODATION IN THE NATURE OF A GUEST-HOUSE ; OR(C ) ANY OFFICE APPLIANCES OR ROAD TRANSPORT VEHICLES ; OR(D ) ANY MACHINERY OR PLANT, THE WHOLE OF THE ACTUAL COST OF WHICH IS ALLOWED AS A DEDUCTION (WHETHER BY WAY OF DEPRECIAT ION OR OTHERWISE) IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' OF ANY ONE PREVIOUS YEAR ; (III) IN THE CASE OF ANY BUILDING, MACHINERY, PLANT OR FURNITURE IN RESPECT OF WHICH DEPRECIATION IS CLAIMED AND ALL OWED UNDER CLAUSE (I) AND WHICH IS SOLD, DISCARDED, DEMO LISHED OR DESTROYED IN THE PREVIOUS YEAR (OTHER THAN THE PREV IOUS YEAR IN WHICH IT IS FIRST BROUGHT INTO USE), THE AMOUNT BY WHICH THE MONEYS PAYABLE IN RESPECT OF SUCH BUILDING, MAC HINERY, PLANT OR FURNITURE, TOGETHER WITH THE AMOUNT OF SCR AP VALUE, IF ANY, FALL SHORT OF THE WRITTEN DOWN VALUE THEREO F : PROVIDED THAT SUCH DEFICIENCY IS ACTUALLY WRITTEN O FF IN THE BOOKS OF THE ASSESSEE. EXPLANATION FOR THE PURPOSES OF THIS CLAUSE,-- (1) 'MONEYS PAYABLE' IN RESPECT OF ANY BUILDING, MA CHINERY, PLANT OR FURNITURE INCLUDES (A) ANY INSURANCE, SALVAGE OR COMPENSATION MONEYS P AYABLE IN RESPECT THEREOF ; (B) WHERE THE BUILDING, MACHINERY, PLANT OR FURNITU RE IS SOLD, THE PRICE FOR WHICH IT IS SOLD, SO, HOWEVER, THAT W HERE THE ACTUAL COST OF A MOTOR CAR IS, IN ACCORDANCE WITH T HE PROVISO 8 I.T.A. NO.2930/MDS/14 TO CLAUSE (1) OF SECTION 43, TAKEN TO BE TWENTY-FIVE THOUSAND RUPEES, THE MONEYS PAYABLE IN RESPECT OF SUCH MOTOR CAR SHALL BE TAKEN TO BE A SUM WHICH BEARS TO THE AMOUN T FOR WHICH THE MOTOR CAR IS SOLD OR, AS THE CASE MAY BE, THE AMOUNT OF ANY INSURANCE, SALVAGE OR COMPENSATION MO NEYS PAYABLE IN RESPECT THEREOF (INCLUDING THE AMOUNT OF SCRAP VALUE, IF ANY) THE SAME PROPORTION AS THE AMOUNT OF TWENTY- FIVE THOUSAND RUPEES BEARS TO THE ACTUAL COST OF TH E MOTOR CAR TO THE ASSESSEE AS IT WOULD HAVE BEEN COMPUTED BEFORE APPLYING THE SAID PROVISO ; (2) 'SOLD' INCLUDES A TRANSFER BY WAY OF EXCHANGE OR A COMPULSORY ACQUISITION UNDER ANY LAW FOR THE TIME B EING IN FORCE BUT DOES NOT INCLUDE A TRANSFER, IN A SCHEME OF AMALGAMATION, OF ANY ASSET BY THE AMALGAMATING COMP ANY TO THE AMALGAMATED COMPANY WHERE THE AMALGAMATED COMPA NY IS 8AN INDIAN COMPANY OR IN A SCHEME OF AMALGAMATION OF A BANKING COMPANY, AS REFERRED TO IN CLAUSE (C) OF SE CTION 5 OF THE BANKING REGULATION ACT, 1949 (10 OF 1949), WITH A BANKING INSTITUTION AS REFERRED TO IN SUB-SECTION ( 15) OF SECTION 45 OF THE SAID ACT, SANCTIONED AND BROUGHT IN TO FORCE BY THE CENTRAL GOVERNMENT UNDER SUB-SECTION ( 7) OF SECTION 45 OF THAT ACT, OF ANY ASSET BY THE BANKING C OMPANY TO THE BANKING INSTITUTION. (2) WHERE, IN THE ASSESSMENT OF THE ASSESSEE, FULL E FFECT CANNOT BE GIVEN TO ANY ALLOWANCE UNDER SUB-SECTION (1) IN ANY PREVIOUS YEAR, OWING TO THERE BEING NO PROFITS OR G AINS CHARGEABLE FOR THAT PREVIOUS YEAR, OR OWING TO THE PROFITS OR GAINS CHARGEABLE BEING LESS THAN THE ALLOWANCE, THE N, SUBJECT TO THE PROVISIONS OF SUB-SECTION (2) OF SECTION 72 AND SUB- SECTION (3) OF SECTION 73, THE ALLOWANCE OR THE PART O F THE ALLOWANCE TO WHICH EFFECT HAS NOT BEEN GIVEN, AS TH E CASE MAY BE, SHALL BE ADDED TO THE AMOUNT OF THE ALLOWAN CE FOR DEPRECIATION FOR THE FOLLOWING PREVIOUS YEAR AND DE EMED TO BE PART OF THAT ALLOWANCE, OR IF THERE IS NO SUCH A LLOWANCE FOR THAT PREVIOUS YEAR, BE DEEMED TO BE THE ALLOWAN CE FOR THAT PREVIOUS YEAR, AND SO ON FOR THE SUCCEEDING PR EVIOUS YEARS. 9 I.T.A. NO.2930/MDS/14 SECTION 32 OF THE ACT IS APPLICABLE ONLY IN RESPECT OF THE ASSET WHICH IS USED FOR THE PURPOSE OF BUSINESS. THEREFORE, TH IS TRIBUNAL IS OF THE CONSIDERED OPINION THAT SECTION 32 IS NOT APPLI CABLE IF THE ASSESSEE IS NOT CARRYING ON ANY BUSINESS ACTIVITY. IN THIS CASE, IT IS NOT IN DISPUTE THAT THE ASSESSEE IS NOT CARRYING ON ANY BUSINESS ACTIVITY. THEREFORE, SECTION 32 OF THE ACT IS NOT APPLICABLE. APART FROM THAT, A DIVISION BENCH OF THIS TRIBUNAL IN THE ANJUMAN-E- HIMAYATH-E-ISLAM V. ADIT IN I.T.A. NO.2271/MDS/2014 BY ORDER DATED 2 ND JULY, 2015 CONSIDERED THIS ISSUE ELABORATELY AND O BSERVED AS FOLLOWS:- 5.2 WE FIND THIS ISSUE IS ELABORATELY DISCUSSED IN T HE CASE OF LISSIE MEDICAL INSTITUTION VS. CIT REPORTED IN [2012] 348 ITR 344(KER.) AND HELD THE ISSUE AGAINST THE ASSESSEE. WHILE DOI NG SO, THE HONBLE KERALA HIGH COURT HAD CONSIDERED THE CIRCULAR NO.5P(LLX-6) DATED 19.06.1968 WHICH HAS NOT BEEN CONSIDERED BY THE OTHER DECISIONS. THE CIRCULAR NO. 5P(LLX-6) IS RE PRODUCED 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 REGARDI NG. IN BOARD'S CIRCULAR NO. 2-P(LXX-5) OF 1963, DATED T HE 15TH MAY, 1963, IT WAS EXPLAINED THAT A RELIGIOUS OR CHARITAB LE TRUST CLAIMING EXEMPTION UNDER SECTION 11(1) OF THE INCOME- TAX AC T, 1961, MUST SPEND AT LEAST 75 PER CENT OF ITS TOTAL INCOME, FOR RELIGIOUS OR CHARITABLE PURPOSES. IN OTHER WORDS, IT WAS NOT PER MITTED TO ACCUMULATE MORE THAN 25 PER CENT OF ITS TOTAL INCOM E. THE QUESTION 10 I.T.A. NO.2930/MDS/14 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 I N 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 ACT AS 'THE TOTAL AMOUNT OF INCOME . . . COMPUTED I N THE MANNER LAID DOWN IN THIS ACT'. IT WOULD ACCORDINGLY BE INCORRECT TO ASSIGN TO THE WORD 'INCOME' USED IN SECTION 11(1)(A), THE SAM E MEANING AS HAS BEEN SPECIFICALLY 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 ACCOUNT S OF THE UNDERTAKING. UNDER SECTION 11(4), ANY INCOME OF THE BUSINESS UNDERTAKING DETERMINED BY THE INCOME-TAX OFFICER IN ACCORDANCE WITH THE PROVISIONS OF THE ACT, WHICH IS IN EXCESS OF TH E INCOME AS SHOWN IN ITS ACCOUNTS, IS TO BE DEEMED TO HAVE BEEN APPLI ED TO PURPOSES OTHER THAN CHARITABLE OR RELIGIOUS, AND HENCE IT WI LL BE CHARGED TO TAX UNDER SUB-SECTION (3). AS ONLY THE INCOME DISCLOSED BY THE ACCOUNT WILL BE ELIGIBLE FOR EXEMPTION UNDER SECTION 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 THER EOF TOWARDS THE PURPOSES OF THE TRUST OR OTHERWISE, AND ALSO AFTER ADDING BACK ANY DEBITS MADE FOR CAPITAL EXPENDITURE INCURRED FOR TH E PURPOSES OF THE TRUST OR OTHERWISE. IT SHOULD BE NOTED, IN THIS CON NECTION, THAT THE AMOUNTS SO ADDED BACK WILL BECOME CHARGEABLE TO TAX UNDER SECTION 11(3) TO THE EXTENT THAT THEY REPRESENT OUTGOINGS F OR PURPOSES OTHER 11 I.T.A. NO.2930/MDS/14 THAN THOSE OF THE TRUST. THE AMOUNTS SPENT OR APPLI ED FOR THE PURPOSES OF THE TRUST FROM OUT OF THE INCOME COMPUT ED 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 EXEMPTI ON UNDER 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 INCOM E AND NOT ACCUMULATE MORE THAN 25 PER CENT THEREOF. THE EXCES S ACCUMULATION, IF ANY, WILL BECOME TAXABLE UNDER SEC TION 11(1). AFTER CONSIDERING THE CIRCULAR, THE HONBLE KERALA HIGH COURT HELD AS FOLLOWS:- 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 F ORM OF DEPRECIATION, SUCH NOTIONAL CLAIM BECAME A CASH SURPLUS 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 FO R A CHARITABLE INSTITUTION TO GENERATE INCOME OUTSIDE THE BOOKS IN THIS FASHION A ND THERE WOULD BE VIOLATION OF SECTION 11(1)(A). IT WAS FOR THE ASSESSEE TO WRITE BACK THE DEPRECIATION AND IF THAT WAS DONE, THE ASSESSING OFFICER WOULD MODIFY T HE ASSESSMENT DETERMINING HIGHER INCOME AND ALLOW RECOMPUTED INCOME WITH THE DEPRECIATION WRITTEN BACK BY THE ASSESSEE TO BE CARRIED FORWARD FOR SUBSEQUEN T YEARS FOR APPLICATION 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 C OURT AND TAKING CUE FROM THE DECISION OF THE HONBLE CALCUTTA HIGH COURT, WE DO NOT FIND ANY HESITATION TO CONFIRM THE ORDER OF THE LD. CIT(A) A ND ALSO THE VIEWS EXPRESSED BY HIM IN HIS ORDER. ACCORDINGLY THIS APPE AL IS HELD IN FAVOUR OF THE REVENUE . 5. IN VIEW OF THE ABOVE, THE DECISION OF THIS BENCH OF THE TRIBUNAL IN SRI RANGALATCHUMI EDUCATIONAL TRUST (SU PRA) MAY NOT BE 12 I.T.A. NO.2930/MDS/14 APPLICABLE IN THE FACTS OF THE CASE. BY FOLLOWING THE ORDER OF THIS TRIBUNAL IN THE CASE OF THE ANJUMAN-E-HIMAYATH-E-IS LAM (SUPRA) AND THE REASON STATED THEREIN, THE ORDERS OF THE LO WER AUTHORITIES ARE UPHELD. 6. NOW COMING TO THE EXCESS APPLICATION, AN IDENTIC AL FACTUAL SITUATION WAS CONSIDERED BY THE DIVISION BENCH OF T HIS TRIBUNAL IN THE ANJUMAN-E-HIMAYATH-E-ISLAM (SUPRA). THIS TRIBU NAL FOUND THAT EXCESS APPLICATION OF INCOME CANNOT BE ALLOWED SINC E IT IS NOT THE CASE OF THE ASSESSEE THAT THE MONEY WAS GENERATED I N THE COURSE OF CHARITABLE ACTIVITY. IN FACT, THIS TRIBUNAL OBS ERVED AS FOLLOWS:- 4.5. APPLICATION OF FUND BY ANY CHARITABLE INSTITUT ION IS POSSIBLE ONLY FROM THE FOLLOWING SOURCES:- I) VOLUNTARY CONTRIBUTIONS RECEIVED BY THE TRUST TOWARDS 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 UN DER 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 T HE INCOME AS ASSESSED OR ASSESSABLE . FURTHER, HONBLE APEX HIGH COURT HAS HELD IN THE 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 LIMITATION OR QUALIFICATION WHICH T HE 13 I.T.A. NO.2930/MDS/14 CONTEXT MIGHT REQUIRE, IT SIGNIFIES EVERY POSSIBLE I NTEREST WHICH A PERSON CAN ACQUIRE, HOLD AND ENJOY. BUSINESS WOULD UNDOUBTEDLY BE PROPERTY UNLESS THERE IS SOMET HING TO 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 AP PLIED CANNOT BE SAID TO BE FUNDS APPLIED FROM THE INCOME OF THE TRUST. THEREFORE, THERE CANNOT BE A CASE WHERE THE TRUST CAN APPLY ITS INCOME MORE THAN THE INCOME REC EIVED BY IT FOR THE PURPOSE OF SECTION-11(1)(A)&(B) OF THE AC T . THUS EXCESS APPLICATION OF FUND OVER AND ABOVE THE I NCOME OF THE TRUST CAN ARISE ONLY WHEN FUNDS ARE APPLIED FROM THE CORPUS OF THE TRUST, ACCUMULATED FUND, LOAN OBTAINE D BY THE TRUST OR GOODS AND SERVICES RECEIVED FROM SUNDR Y CREDITORS. IT CAN BE LOGICAL TO DEDUCE THAT WHEN FU NDS ARE APPLIED FROM BORROWED FUNDS OR BY WAY OF SUNDRY CRE DITORS THE SAME CAN BE TREATED AS APPLICATION OF FUND IN T HE YEAR IN WHICH SUCH LOAN/SUNDRY CREDITORS ARE REPAID FROM TH E INCOME OF THE TRUST. HOWEVER WHEN AMOUNT IS APPLIED FROM THE CORPUS FUND OR ACCUMULATED FUND THE SAME CANNOT BE TREATED AS APPLICATION OF FUND FOR THE PURPOSE OF S ECTION 11 OF THE ACT, BECAUSE SUCH FUND HAVE ALREADY BEEN EXEM PT FROM THE INCOME OF THE TRUST IN THE YEAR IN WHICH I T IS RECEIVED OR SUCH AMOUNT IS SET ASIDE AND THEREFORE ONCE AGAIN TREATING THE SAME AS APPLICATION OF FUND WILL AMOUNT TO DOUBLE DEDUCTION. SIMILARLY VOLUNTARY CONTRIBUTION RECEIVED TOWARD CORPUS IS EXEMPT FROM INCOME OF THE TRUST IN THE YEAR IN WHICH IT IS RECEIVED AND THEREFORE WHEN IT IS UTILIZED FOR THE OBJECTS OF THE TRUST IT CANNOT BE CONSIDERE D AS APPLICATION OF FUND OTHERWISE IT WILL AMOUNT TO DOU BLE DEDUCTION. FROM THE ABOVE FACTUAL AND MATHEMATICAL MATRIX IT IS EVIDENT THAT CARRY FORWARD OF EXCESS APPLICATI ON OF FUND IN THE COMMERCIAL PRINCIPLES CANNOT BE ALLOWED AS PER THE PROVISIONS OF THE ACT BECAUSE IT WOULD RESULT I N NOTIONAL APPLICATION OF INCOME IN THE SUBSEQUENT YEAR. THESE ASPECTS HAVE NOT BEEN CONSIDERED BY THE MUMBAI BENCH OF THE TRIBUNAL, AND THE UNREPORTED DECISION OF THE HONBL E BOMBAY HIGH COURT IS ALSO NOT PLACED BEFORE US. 14 I.T.A. NO.2930/MDS/14 4.6 NOW ANALYZING THE FACTS OF THE CASE BEFORE US, I T 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 HAS SPENT ` 23,96,355/- MORE THAN ITS INCOME RECEIVED DURING THE RELEVANT YEAR. THIS AMOUNT OF ` 23,96,355/- MAY HAVE BEEN TAKEN OUT FROM THE CORPUS FUNDS, ACCUMULATE D FUNDS, LOAN OBTAINED BY THE ASSESSEE TRUST OR ARISING OU T OF SUNDRY CREDITORS. THEREFORE IT IS OBVIOUS THAT T HERE IS NO EXCESS APPLICATION OF INCOME OVER AND ABOVE THE INCO ME RECEIVED BY THE TRUST , HENCE THE QUESTION OF CARRY FORWARD OF EXCESS APPLICATION OF INCOME DOES NOT ARI SE . HOWEVER THE AMOUNT APPLIED FROM THE LOAN OR SUND RY CREDITORS WILL BE ALLOWED AS APPLICATION OF FUND I N THE YEAR IN WHICH SUCH LOAN OR SUNDRY CREDITORS ARE REPA ID. IT IS PERTINENT TO MENTION THAT IF THE AMOUNT IS APPLIED FROM THE CORPUS FUND OR ACCUMULATED FUND IT WILL NOT BE TREATED AS APPLICATION OF FUND BECAUSE CORPUS FUND AND ACCU MULATE FUND ARE ALREADY EXEMPT FROM THE INCOME OF THE TRUS T AND ONCE AGAIN IF IT IS TREATED AS APPLICATION OF FUND IT WOULD AMOUNT TO DOUBLE DEDUCTION. THEREFORE THE CLAIM OF THE ASSESSEE TO CARRY FORWARD THE EXCESS APPLICATION OF FUND CANNOT BE ENTERTAINED APPLYING THE COMMERCIAL PRINC IPLES. HOWEVER IF THE EXCESS AMOUNT OF ` 23,96,355/- IS APPLIED FROM THE BORROWED FUND OR FROM SUNDRY CREDITORS, TH E SAME SHALL BE ALLOWED AS APPLICATION IN THE YEAR IN WHICH SUCH LOAN OR SUNDRY CREDITORS ARE REPAID FROM THE INCOME OF THE TRUST AS DISCUSSED HEREIN ABOVE. NEEDLESS TO MENTIO N 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 TH EY 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. 7. IN VIEW OF THE ABOVE, THE ASSESSEE CANNOT CLAIM EXCESS APPLICATION/EXPENDITURE AS APPLICATION OF INCOME. IN VIEW OF THE 15 I.T.A. NO.2930/MDS/14 ABOVE DISCUSSION, THIS TRIBUNAL DO NOT FIND ANY INF IRMITY IN THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY, THE SAME IS CONFIRMED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DIS MISSED. ORDER PRONOUNCED ON 21 ST AUGUST, 2015 AT CHENNAI. SD/- ( ... ) (N.R.S. GANESAN) /JUDICIAL MEMBER /CHENNAI, 2 /DATED, THE 21 ST AUGUST, 2015. KRI. * (-34 54$- /COPY TO: 1. &' /APPELLANT 2. ()&' /RESPONDENT 3. , 6- () /CIT(A)-VII, CHENNAI-34 4. DIT (EXEMPTIONS), CHENNAI 5. 4#7 (- /DR 6. 8' 9 /GF.