ABCAUS - Excel for Chartered Accountants

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ABCAUS Excel for Chartered Accountants

Excel for
Chartered Accountants

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Under section 11 of the Income tax Act, 1961 a charitable or religious trust is entitled to exemption to the extent such income is applied or accumulated or set apart for such objects. It is also known that the option of accumulation/ setting part of income is subject to the condition that it is not in excess of fifteen per cent (15%) of the income.

However, there had been a controversy with respect to allowability of depreciation in computing the application of income. Over the years, various High Courts had dealt with this question.   Punjab& Haryana and Delhi High Courts had ruled that depreciation would be allowable, however the Kerala High   Court had taken a contrary view, holding that depreciation should be added back to the income of the trust as disclosed in its books of account.

The legal position, however, would undergo a change in terms of   amendment to Section 11. Finance (No. 2) Act of 2014 has inserted a new sub-section (6) to   Section 11   of the Income Tax Act, 1961 with effect from 1st April, 2015. This section 11(6) provides that for the purpose of accumulation or setting apart of income for application, depreciation on assets, the acquisition of which have been claimed as application shall not be allowed .

The text of the sub-section 6 is as under:

“(6) In this section where any income is required to be applied or accumulated or set apart for application, then, for such purposes the income shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of any asset, acquisition of which has been claimed as an application of income under this section in the same or any other previous year.”

This amendment has taken effect from 1st April, 2015 and accordingly, applies in relation to the assessment year 2015-16 and subsequent years .

Thus the amendment has settled the legal position which must be borne in mind by the auditors (chartered accountants) while computing the income applied for the purpose of issuing audit report in Form No. 10B for AY 2015-16 and filling Statement of Particulars in Annexure related to Application of Income for Charitable or Religious Purposes.

A simple computation of Income applied would be as under:


Gross Receipts




Surplus of Income over Expenses as per Income Expenditure  A/c




Add: Depreciation debited to Income & Expenditure  A/c




Less: Capital expenditure for the year




Effective Surplus of Income over expenditure for the year (b+c-d)




Income Applied (a) – (e)




Percentage of Income applied (f)x100/(a)




Percentage of Income accumulated/set apart ( 100-g)



Thus it can be seen that had depreciation been not added back, the accumulation would have been 90% well within the threshold of 85 percent.

Allowability of Depreciation in Calculating 85% of Income Applied under Section 11 Settled by Amendment from AY 2015-16-Be Careful! | CA Ashutosh Lohani | | 02-08-2015 |

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