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2008 (7) TMI 623 - AT - Income TaxCharitable or religious institution - Exemption of income from property held under the trust - Whether excess expenditure incurred in earlier year can be treated as application of income in the year under consideration? - Scientific Research Institute approved u/s 35(1)(ii) - CIT (Appeals) allowed the carry forward and set off of deficit of earlier years against the surplus in the assessment year 2004-05 ignoring the fact that the provisions of sections 11, 12 and 13 do not contain any provisions allowing such set off. HELD THAT:- The language employed in section 11(1)(a) is plain and clear. It says that 85 per cent of the income derived from the property during the year has to be applied for the objects of the trust in the year in which such income was earned. If the assessee is not able to apply the income to the extent of 85 per cent, the statute provides an option to accumulate it for a period of not more than 5 years for a specific purpose. As per the ratio decidendi of decision of Hon’ble Delhi High Court in the case of Indian National Theatre Trust [2007 (11) TMI 1 - HIGH COURT , DELHI] for the purpose of claiming of exemption u/s 11(2), the income accumulated should be derived from the property in the relevant assessment year. The exemption u/s 11(1)(a) and section 11(2) are independent and the assessee can claim exemption in either of two sub-sections of section 11. The same ratio will equally apply when trust seeks exemption on the basis of application of income as it is the same income which is sought to be accumulated. When income accumulated in an earlier year cannot qualify for exemption u/s 11(2), the excess income applied in earlier assessment year will also not qualify for exemption. AO has disallowed the claim of assessee on the ground that loss on account of excess income applied in earlier year was not allowed to be carried forward. There is no provision u/s 11 of the Act under which the assessee can claim set off of excess expenditure incurred in earlier year against the income of the relevant assessment year. It is not the case of assessee that it had incurred debt in carrying out charitable objects in earlier years which was paid out of current year’s income and would amount to application of income for the objects of the trust. The income of the trust is not computed on the principles of business income which contains the provisions of carry forward of losses of earlier year and set off such losses against income of the current year. Respectfully following the decision in the case of Indian National Theatre Trust (supra) it is held that the income applied in earlier year cannot be treated as applied for the year under consideration. We accordingly set aside the order of the ld. CIT (A) and restore the order of the AO. In the result, the appeal filed by the revenue is allowed and the appeal filed by the assessee is dismissed.
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