Loading judgment…
Facts
The assessee, a charitable trust registered u/s 12A, filed its return for AY 2014-15 claiming exemption u/s 11 by treating acquisition of assets and repayment of bank loans as application of income. The CPC, after an application u/s 154, allowed asset cost as application but disallowed loan repayment (Rs. 4.68 crores) and carry forward of excess amounts spent in earlier years. The CIT(A) confirmed this disallowance.
Held
The Tribunal held that repayment of loan constitutes application of income, relying on Supreme Court and Madras High Court judgments. It also directed the CPC/AO to allow the carry forward of excess application from earlier years for charitable purposes. The Tribunal further opined that these adjustments made by the CPC/AO were beyond the scope of Section 143(1) of the Act.
Key Issues
1. Whether repayment of loan by a charitable trust constitutes application of income under Section 11 of the Income Tax Act. 2. Whether excess application of income for charitable purposes from prior years can be carried forward. 3. Whether the adjustments made by the CPC were within the scope of Section 143(1).
Sections Cited
12A, 11, 154, 143(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, COCHIN BENCH
Before: SHRI INTURI RAMA RAO, AM & SHRI PRAKASH CHAND YADAV, JM
Assessment Year: 2014-15 Cheruvathur Foundation .......... Appellant HIG 5, Panampilly Nagar, Kochi 682036 [PAN: AABTC0724E] vs. ACIT (Exemptions), Kochi .......... Respondent Appellant by: Shri Abraham Joseph Markos, Advocate Respondent by: Smt. Veni Raj, CIT-DR Date of Hearing: 20.05.2025 Date of Pronouncement: 23.06.2025 O R D E R Per: Inturi Rama Rao, AM This appeal filed by the assessee is directed against the order of the Commissioner of Income Tax (Appeal)-4, Chennai, dated 23.10.2024 for Assessment Year (AY) 2014-15.
Brief facts of the case are that the appellant is a charitable trust found with the object of imparting education. It is duly registered u/s. 12A of the Income Tax Act, 1961 (the Act). The appellant trust filed return of income for 2014-15 on 31.03.2015 disclosing Nil income after claiming exemption u/s. 11 of the Act. In Cheruvathur Foundation the return of income the appellant claimed the amount spent on acquisition of fixed assets and repayment of loans to bank as application of income. The said return of income was processed by the CPC vide intimation dated 16.03.2016 by making adjustment of the cost of fixed assets of Rs. 1,25,20.205/- and repayment of loans of Rs. 4,68,87,408/- by not allowing as application of income. Being aggrieved by the said intimation, an application u/s. 154 of the Act was filed before the CPC. The intimation was amended by allowing the cost of asset as an application of income and confirmed the adjustment of repayment of loan of Rs. 4,68,87,408/- and also not allowed carry forward of excess amount spent in earlier years.
Being aggrieved, an appeal was filed before the CIT(A), who vide the impugned order confirmed the action of the AO by holding that it amounts to double taxation.
Being aggrieved, the appellant is in appeal before this Tribunal in the present appeal.
The learned counsel for the assessee submitted that repayment of loan of Rs. 4,68,87,408/- clearly amounts to application of income relying on the judgement of the Hon'ble Apex Court in the case of CIT v. Rajasthan and Gujarati Charitable Foundation Civil Appeal No. 5171/206. He further submitted that the CPC erred in not allowing the carry forward of excess amount spent towards charitable purpose in earlier years of Rs. 41,49,14,635/- in view of
On the other hand, the ld. CIT-DR supported he orders of the lower authorities.
We have heard the rival contentions and perused the material available on record. The issue that arises in the present appeal, is whether the CPC/AO is justified in not allowing repayment of loan paid to the bank as application of income. Provisions of section 11 of the Act provided for exemption from tax in respect of income from property held for charitable and religious purposes. This section contemplates that for computation of income it is to be seen whether the income has been applied for charitable purpose to the extent required or not as per the object of the trust. Application amount can be for revenue or capital purpose. Repayment of loan also been held to be application of income by the decision of the Hon'ble Madras High Court in the case of Director of Income Tax (E) v. Govindn Naicker Estate [2009] 315 ITR 237. In any way, we are of the considered opinion that these adjustments are beyond the scope of provisions of section 143(1) of the Act. Therefore, we direct the CPC/AO to amend the intimation by deleting the addition of repayment of loan. Thus, ground Nos. B & C of the appeal stand allowed.
Ground No. D challenges the action of the CPC as confirmed by the CIT(A) not allowing the excess amount spent towards Cheruvathur Foundation charitable purpose in the earlier years carried forward for subsequent years. The issue is no longer res integra as it stood by the decision of Hon'ble Supreme Court in the case of CIT v. Rajasthan and Gujarat Charitable Foundation [2018] 253 Taxman 164 (SC). Therefore, we direct the CPC/AO to allow this carry forward excess application spent on earlier years after due verification of the assessment records.
In the result, the appeal filed by the assessee stands partly allowed.
Order pronounced in the open court on 23rd June, 2025.