01 May 2014
U/s. 11 of the Income Tax Act, 1961, a charitable or religious trust, subject to certain conditions, is entitled to exemption in respect of income from property held under trust for charitable or religious purposes, to the extent that such income is applied for charitable or religious purposes, or accumulated for charitable or religious purposes. The CBDT has clarified vide its circular number 5 – P(LXX-6) dated 19th June 1968 that for the purposes of such exemption u/s. 11, the income of a trust is to be taken in the commercial sense, and not as computed under the provisions of the Income Tax Act. In other words, the income, that is eligible for exemption, is the one that has been determined as per the books of account. This position clarified by the CBDT is also confirmed by the decisions of the various high courts . Taking this into account, various high courts have also held that that depreciation had necessarily to be deducted in computing the commercial income, as depreciation was a necessary accounting adjustment to income. Further, various courts, including the Supreme Court in the case of M. Ct. M. Tiruppani Trust vs. CIT 230 ITR 636, have held that all capital expenditure laid out in furtherance of the objects and purposes of the trust would be treated as an application of the income.
01 May 2014
The question that has arisen before the courts as to whether, when a trust has claimed the capital expenditure on acquisition of an asset as an application of income for the purposes of claiming exemption u/s. 11, whether depreciation on such asset was also allowable as a deduction in computing the income of the trust. While the Bombay, Punjaband Haryana and Delhi High Courts have taken the view that depreciation would be allowable as a deduction even in such cases where the capital expenditure had been allowed as an application of income for charitable purposes, the Kerala High Court has taken a contrary view, holding that such depreciation should be added back to the income of the trust as disclosed in its books of account.
01 May 2014
Gujarat High court has also allowed depreciation as a deduction under section 11(1)(a). Citation:- CIT V Sheth Manilal Ranchhoddas Vishram Bhavan Trust (1992) 198 ITR 598.
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