2021 (1) TMI 402 - AT - Income Tax

Assessment of trust - denial of carry forward of deficit - carrying forward of the losses for being set off against the income of the charitable trust - CIT-A allowed claim - as per revenue there is no express provision in the income tax act allowing such claim and Ld. CIT (A) granted double benefit to assessee 1st as accumulation of income or corpus donation in previous year/current year and exemption under section 10 (34) and then as application of income under section 11 (1) (a) - HELD THAT - The issue stands covered by order of CIT vs Ohio University Christ College 2018 (11) TMI 1055 - KARNATAKA HIGH COURT and decision CIT vs Institute of Banking 2003 (7) TMI 52 - BOMBAY HIGH COURT .These decision upholds the carry forward of losses for being set off against income of charitable trust for subsequent assessment years. We note that an identical issue has been decided by coordinate bench of this Tribunal in case of ITO vs Shraddha trust 2017 (4) TMI 1289 - ITAT BANGALORE wherein it was held that set-off of excess of expenditure incurred over the income of earlier years can be adjusted against income of subsequent years and such adjustment would not be application of income in subsequent years. - Decided against revenue.

Summary

Issues Involved:
1. Whether the CIT(A) erred in allowing the carry forward of deficit by the assessee.
2. Whether such a carry forward is permissible under the Income Tax Act, 1961.
3. Whether allowing the carry forward of deficit results in granting double benefits to the assessee.

Detailed Analysis:

1. Whether the CIT(A) erred in allowing the carry forward of deficit by the assessee:
The revenue challenged the CIT(A)'s decision to allow the assessee to carry forward the deficit, arguing that there is no express provision in the Income Tax Act, 1961 permitting such a claim. The CIT(A) had relied on previous judgments, including the jurisdictional ITAT judgment in the case of ITO vs. Shraddha Trust and the Karnataka High Court's decision in Pr. Commissioner of Income Tax (Exemption) vs. Manipal Academy of Higher Education, which supported the carry forward of deficits for charitable trusts.

2. Whether such a carry forward is permissible under the Income Tax Act, 1961:
The assessee, a charitable trust, filed its return of income, claiming a deduction under Section 11(1)(a) and seeking to carry forward a deficit for subsequent years. The AO denied this claim, stating that there is no express provision in the Act allowing the adjustment of earlier years' brought forward expenses as application of income in the current year. However, the CIT(A) allowed the amortization of the expenditure based on judicial precedents, including the Karnataka High Court's decision in CIT vs. Society of the Sisters of St. Anne and the CBDT Circular No. 5-P(LXX)-6 of 1968, which clarified that income should be understood in its commercial sense for trusts.

3. Whether allowing the carry forward of deficit results in granting double benefits to the assessee:
The revenue contended that allowing the carry forward of the deficit would result in double benefits to the assessee, first as accumulation of income or corpus donation in earlier/current years, and then as application of income under Section 11(1)(a) in subsequent years. However, the Tribunal noted that the issue is covered by the Karnataka High Court's decision in CIT vs. Ohio University Christ College and the Bombay High Court's decision in CIT vs. Institute of Banking, which upheld the carry forward of losses for being set off against the income of charitable trusts in subsequent assessment years. The Tribunal also referred to its own decision in ITO vs. Shraddha Trust, which held that set-off of excess expenditure over income of earlier years against income of subsequent years is permissible and does not constitute application of income in subsequent years.

Conclusion:
The Tribunal upheld the CIT(A)'s order, finding no infirmity in allowing the carry forward of the deficit by the assessee. The appeal filed by the revenue was dismissed, affirming that the carry forward of deficits for charitable trusts is permissible based on judicial precedents and commercial principles of accounting. The order was pronounced in the open court on 12th January, 2021.