“application of income for charitable purposes”
The decision most relied on for application of income for charitable purposes is CIT v. Shri Plot Swetamber Murti Pujak Jain Mandal (211 ITR 293), cited in 204 judgments on BharatTax.
Leading authorities on application of income for charitable purposes
A charitable trust can carry forward its excess expenditure from previous years and adjust it against the income of subsequent years, which qualifies as an application of income under Section 11. Additionally, voluntary contributions received for a specific purpose are treated as corpus funds and are not taxable.
Depreciation is allowable as a deduction even if the expenditure for acquiring the capital asset was treated as application of income for charitable purposes. This does not constitute a double benefit.
The Kerala High Court held that charitable institutions claiming exemption under Section 11 are not entitled to claim depreciation on assets used for charitable purposes, taking a view contrary to most other High Courts.
For charitable trusts, the set-off of excess expenditure from prior years against the income of a subsequent year is considered an application of income for charitable purposes. Similarly, the repayment of loans borrowed for legitimate charitable activities is also treated as an application of income.
Once an institution receives registration under Section 12AA, the Assessing Officer must compute its income as per Section 11, focusing only on the application of income and not re-examining the charitable nature of its activities. The Supreme Court also clarified the meaning and scope of 'general public utility' under Section 2(15).
A charitable trust can claim depreciation on assets when computing the income applied for charitable or religious purposes under Section 11 of the Income Tax Act, for assessment years prior to the introduction of Section 11(6). The restriction on claiming depreciation, as introduced by Section 11(6), is prospective from AY 2015-16.
Charitable institutions are entitled to claim depreciation on assets even when the cost of acquisition has already been treated as an application of income for exemption purposes, as this does not constitute a double deduction.
An organization qualifies as charitable under Section 2(15) only if its income and property are solely applied for its charitable objects and, upon dissolution, its residual assets are restricted for utilization exclusively for charitable purposes, not for distribution to members or as general state revenue.
