In the present case, the sole basis of disallowing the amount of Rs. 10,62,94,245/- is on account of the loans borrowed for the purpose of capital expenditure. It is thus clear that the total expenditure incurred by the assessee was Rs. 47,87,64,431/-, for the charitable purposes / activities of the trust. It is also coming from the record that the assessee has applied the total amount of Rs. 47,87,64,431/- for the trust purposes. The reasoning given by the AO is this that as the excess fund was already available with the assessee- trust which was lying in the form FDRs, that should have been applied instead of the loan amount. As per the assessee, funds even if borrowed funds were utilized for the objects of the trust and therefore, it should be allowed. In our view, if this proposition of the assessee is accepted then it would amount to granting the benefit of double deduction. The income of the assessee is lying invested in FDR and it is not utilized for the objects of the trust or for repayment of loan earlier taken for objects of the trust.
The assessee is asking for accepting the usage of borrowed funds as application of income for the objects of the trust , therefore seeking exemption under section 11 of the Act , the same cannot be allowed as in future when the assessee start repaying the loan, at that time repayment of loan would be treated as application of income in that year of repayment , as the repayment of loan would be from the income of trust . Further, the Ld. DR during the course of argument has submitted that the judgment of Hon’ble jurisdictional High Court in Janmabhoomi Press Trust (supra) is not applicable as it is the case of application of repayment of loan.
In our view, Section 11 only contemplates the application of income and if the said income is applied for the aims and objectives of the trust, then the trust is entitled for exemption under the provision. The said analogy cannot be extended to acquisition of assets from the borrowed funds. If we hold so, then we would be equating the borrowed fund with the income of the trust. Under the law, it is the application of income and not of the fund that is required to be seen for the purpose of granting the exemption. In fact, the assessee would be entitled to exemption in view of the judgment of Hon’ble jurisdictional High Court in the matter of Janmabhoomi Press Trust (supra), as and when the loan is repaid to the financial institutions. In view thereof, if the claim of the assessee that the borrowed funds were utilized for the objects of the trust, is entertained and accepted at this stage, it would tantamount to double benefit which cannot be the intention of the statute. In view thereof, we find that the CIT (A) erred in allowing the claim for acquisition of capital assets from the borrowed fund. Therefore, the order passed by the CIT (A) is required to be recalled and the ground of the Revenue is allowed to the extent of borrowed fund for an amount of Rs. 10,62,94,245/-.