Charitable trust - Depreciation on fixed assets

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This query is : Resolved

Abhishek Agarwal (Querist)

21 May 2008 As per law if any charitable trust made some capital expenditure for charitable purpose, it will be treated as sufficient compliance for application of income for charitable purpose as per senction 11 of the Income Tax Act.

My question is whether the depreciation provided on that assets would also be treated as application of income for charitable porpose.
and if yes, would it not be a case of double befefit of an expenditure.

S.Srinivasaraghavan

S.Srinivasaraghavan (Expert)

21 May 2008 No only the actual cash flow will be considered and not the depreciation.

Abhishek Agarwal

Abhishek Agarwal (Querist)

21 May 2008 If only the actual cash flow would be considered what about the expenses booked during the current year but paid in the next year.

S.Srinivasaraghavan

S.Srinivasaraghavan (Expert)

21 May 2008 Booked but not paid expenditure will not be considered. But you have time till you file the return to spend it

Swaminathan

Swaminathan (Expert)

18 August 2011 There is a difference of opinion from Mr Srini's reply.
1.As per the existing provisions of I.T Act and Appropriate Accounting Standards we have to follow only Accrual Basis for the Trust also. After Implementation of ITC only Cash Basis for Trusts shall be followed.
2. All accrued Expenses which may be paid before filig returns can be termed as Application of Income.
3. The Department allowing both Capital Expenses , Depreciation as Application Of Income. Eventhough it seems to be double deduction - for purely charitable trusts -the depreciation allowance is for the purpose of augmentation of corpus purposes. The Double Deduction matter is pending in many Tribunals and Courts and most of the decissions are allowing Double Deduction.
4. After introduction of ITC the problem may not arise, since we have to follow only Cash Basis Accounting for Trusts.
5. Even in that case we should have accrual basis also, if we need a True & Fair view Balance Sheet.for accounting purposes.

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