losses on sale of assets allowable when applying income to a charitable trust
Facts of the case
The assessee is a Trust, registered under Section 12A of the Income-Tax Act, 1961 vide order No.DIT(E)/2002-03/R- 415/02/680 dated 09.10.2012, which is also notified under Section 80G(5)(vi) of the Act. Assessee filed its return of income for assessment year 2014-15 on 29.09.2014 declaring nil income. The case was selected for scrutiny and thereafter assessment was framed under Section 143(3) of the Act vide order dated 27.12.2016 by denying claim of sale of assets as application of income.
During the course of assessment proceedings, Assessing Officer noticed that assessee had sold certain assets and the loss of Rs.14,81,627/- on the sale of such assets was claimed as application of income. The assessee was asked to show-cause as to why the loss claimed as application of income not to be disallowed as the cost of assets was already claimed as application of income in earlier years. The assessee made detailed submission which was not found acceptable to Assessing Officer. Assessing Officer for the reasons discussed in the order, held the loss of Rs. 14,81,627/- cannot be considered as application of income.
Aggrieved by the order of Assessing Officer, assessee carried the matter before the learned Commissioner of Income-Tax (Appeals) who upheld the order of Assessing Officer. Aggrieved by the order of learned Commissioner of Income- Tax(Appeals), assessee is now in appeal before us.
Before us, learned authorized representative reiterated the submission made before Assessing Officer and learned Commissioner of Income-Tax (Appeals) and further submitted that during the year, assessee had sold certain assets having book value of Rs.17,11,414/- for Rs.2,29,787 resulting into loss of Rs.14,81,627/-. He submitted that the aforesaid loss was debited to the income and expenditure account by relying on the Board’s Circular No. 5- P(LXX-6) dated 19th June, 1968. He relying upon the aforesaid circular submitted that the income of the trust should be understood in its commercial sense and the income should be computed on the basis of commercial principles. He submitted that CBDT in Circular No.5-P(LXX-6) dated 19/06/68 has taken a view that the income of the trust should be understood in its commercial sense and is to be computed on the basis of commercial principles. He further submitted that the principle that the income of the charitable assessees needs to be computed only based on commercial principles has been upheld by various Hon’ble High Courts and Hon’ble Supreme Court. He further submitted that the amendment made by Finance Act, 2014 by inserting Clause (6) is w.e.f 01.04.2015 and, therefore, not applicable to the year under consideration. He, therefore, submitted that the loss claimed be allowed as application of income. Learned Departmental Representative on the other hand supported the orders of lower authorities.
Observation by the court
The court has considered the rival submissions and perused the material available on record. The issue in the present ground is with respect of claim of loss as application of income. It is an undisputed fact that the loss that assessee had incurred on sale of fixed assets and the same has been debited to the income and expenditure account of the assessee. We find that the CBDT in Circular No. 5- P(LXX-6) dated 19th June, 1968 has taken a view that the income of the trust should be computed on the basis of commercial principles and should be understood in its commercial sense.
The court has finds that Clause (6) has been inserted in Section 11 of the Act w.e.f 01.04.2015 which inter alia mandated that income which is required to be applied or accumulated or set apart for application shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of any asset the acquisition of which has been claimed as an application of income in any previous year. The aforesaid clause has been inserted w.e.f 01.04.2015 and therefore in our view it would not be applicable to the year under consideration.
Considering the totality of the aforesaid facts and relying on the case laws cited hereinabove, the CBDT Circular, we are of the view that the AO was not justified in denying the loss as application of income. The court accordingly set aside the order of AO which has been upheld by CIT(A).
The appeal of the assessee is allowed by the court.Rajiv-Gandhi-Charitable-Trust-Vs-JCIT-ITAT-Delhi