Application of income

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avrandco (Querist)
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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

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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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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