23 September 2018
Loan availed from Bank for purchase of asset is taken as a receipt/income in the previous year and such loan repaid during the current year can be considered as application of income
23 September 2018
“In the Circular dated 24th January, 1973, the Central Board of Direct Taxes has considered the question to whether where a trust incurs a debt for the purpose of the trust, the repayment of the debt would amount to an application of income for the purposes of the trust. In the said circular, the Central Board of Direct Taxes has expressed the view that the repayment of the loan originally taken to fulfill one of the objects of the trust will amount to an application of the income for charitable and religious purposes. In other words, according to the said circular, if the trust wants to spend more money on charitable and religious purposes, then, in a particular year, it can take a loan and the said loan can be repaid out of the income of the subsequent year and the repayment of the said loan out of the income of the subsequent year would amount to application of income for charitable and religious purposes under Section 11(1)(a) of the Act”. Also in a recent decision of 2009 in the case of DDIT (E) v. Govindu Naicker Estate (Mad) 227 CTR 283 it was held that repayment of loan is to be treated as application under Section 11.
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