| Question And Answer | |
|---|---|
| Subject: | Charitable Trust – Adjustment of loss in Covid-2019 from deemed income u/s.11(3) |
| Category: | Income-Tax |
| Querist: | RAJESH LOYA |
| Answered by: | Advocate Shashi Ashok Bekal |
| Tags: | adjustment of loss, charitable trust |
| Date: | March 19, 2023 |
The issue relates to A. Y. 2021-22 which was Covid-2019 pandemic period. The education institution incurred loss of Rs.2.89 Cr. for the reason that the fees from student reduced substantially while the expenditure on salary allowances continued as usual. The accumulation u/s.11(2) for A.Y. 2015-16 and 2016-17 was utilised to set off the loss arising due to peculiar circumstances. The deemed income u/s. 11(3) to the extent of Rs.2.89 Cr. was considered in the computation of income. The net result of computation was Nil. My question is whether the loss can be adjusted from the deemed income u/s. 11(3).
The Hon’ble Supreme Court in the case of Escorts Ltd. v. Union of India [1993] 199 ITR 43 (SC) held that depreciation on assets whose cost has been allowed as an application of income to the charitable purpose under section 11(1)(a) of the Act, has to be allowed while computing the income of the trust.
The Hon’ble Supreme Court further held that the trust is entitled to carry forward excess application of income for charitable purposes to subsequent years and set off against the income of the trust.
This proposition is further supported by the decision of the Hon’ble Supreme Court in the case of CIT v. Rajasthan & Gujarati Charitable Foundation, Poona 402 ITR 441 (SC), where the Hon’ble Supreme Court after considering the amendment in section 11(6) of the Act, by the Finance Act, 2014 held that the assessee is entitled to depreciation under section 32 of the Act on assets whose cost has been allowed as an application to a charitable purpose. The court further observed that once the assessee is allowed depreciation, it shall be entitled to carry forward depreciation as well.
The Hon’ble Karnataka High Court in the case of PCIT (E) v. Shushrutha Education Trust [2018] 408 ITR 536, had considered an identical issue and by following the decision of the Hon’ble Supreme Court in the case of Rajasthan & Gujarati Charitable Foundation, Poona (supra) held that charitable institutions are entitled to depreciation on assets whose cost has been allowed as application of income. The court further noted that excess application of income for charitable purposes can be carried forward to subsequent years and further set off against income of the trust in the subsequent years.