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2008 (4) TMI 333 - AT - Income TaxComputation of income of charitable or trust - Carry forward of deficit on account of excess expenditure - Accumulation of income u/s.11(1)(a) - Entitled to first accumulate or set apart 25 per cent of the total income of the trust and then claim a carry forward of the excess amount, incurred on application for purposes of the trust, over and above the remaining income i.e. 75 per cent of the total income for its set off against the income of the trust in succeeding year?. HELD THAT:- The Hon'ble Bombay High Court in the case of Institute of Banking [2003 (7) TMI 52 - BOMBAY HIGH COURT] held that the income derived from the trust property has also got to be computed on commercial principles and if the commercial principles are applied then the adjustments of expenses incurred by the trust for charitable and religious purposes in earlier years against the income earned by the trust in the subsequent year will have to be regarded as application of income of the trust for charitable and religious purposes in subsequent years in which the adjustments have been made having regard to the benevolent provisions contained in s. 11 of the Act. The accumulation of 25 per cent of the total income is permissible when the assessee failed to apply the total income of the trust in a particular year. If the assessee applies the entire income of the trust he is entitled to claim 100 per cent exemption and there is no question of further accumulation of 25 per cent of the total income of the assessee. If the assessee incurs more expenditure than the total income of the trust the expenditure over and above to the income can be carried forward and is allowed to be set off against the income in succeeding year. In this case, he is entitled to claim the carry forward of the excess expenditure but he will not be allowed to accumulate 25 per cent of the total income first and then claim the excess expenditure for its carry forward, to subsequent years. We accordingly set aside the order of the CIT(A) and restore the matter to the file of the AO with a direction to allow the carry forward of the excess expenditure incurred by the assessee to subsequent year for its set off only in terms indicated. In the result, the appeal of the assessee is partly allowed for statistical purposes.
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