TMI Blog2008 (7) TMI 623X X X X Extracts X X X X X X X X Extracts X X X X ..... tatute 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see's request for adjustment of loss against current year's income was disallowed. 4. On appeal the ld. CIT (Appeals) relying on decision of Hon'ble Madras High Court in the case of Matriseva Trust (supra); the decision of Hon'ble Rajasthan High Court in the case of CIT v. Maharana of Mewar Charitable Foundation [1987] 164 ITR 439; and the decision of Hon'ble Gujarat High Court in the case of CIT v. Sri Plot Swetambar Murti Pujak Jain Mandal [1995] 211 ITR 293 directed the Assessing Officer to grant relief of Rs. 1,60,71,976 against shortfall in application of income for assessment year 2004-05. 5. Aggrieved by the order of CIT(A), the revenue is in appeal before this Tribunal. 6. Before us the ld. DR submitted that under section 11 the income is to be applied for the objects of the trust in the year itself and excess expenditure incurred in earlier years cannot be allowed to set off against the income of subsequent year. He placed reliance on the decision of Hon'ble Calcutta High Court in the case of CIT v. Ramchandra Poddar Charitable Trust [1987] 164 ITR 666 for the proposition that the relief was limited to the extent of income actually applied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income so set apart is not in excess of [fifteen] per cent of the income from such property; Explanation. For the purposes of clauses (a) and (b), (1)in computing the fifteen per cent of the income which may be accumulated or set apart, any such voluntary contributions as are referred to in section 12 shall be deemed to be part of the income; (2)if, in the previous year, the income applied to charitable or religious purposes in India falls short of eighty-five per cent of the income derived during that year from property held under trust, or, as the case may be, held under trust in part, by any amount (i)for the reason that the whole or any part of the income has not been received during that year, or (ii)for any other reason, then (a)in the case referred to in sub-clause (i), so much of the income applied to such purposes in India during the previous year in which the income is received or during the previous year immediately following as does not exceed the said amount, and (b)in the case referred to in sub-clause (ii), so much of the income applied to such purposes in India during the previous year immediately following the previous year in which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eed ten years; (b)the money so accumulated or set apart is invested or deposited in the forms or modes specified in sub-section (5) : Provided that in computing the period of ten years referred to in clause (a), the period during which the income could not be applied for the purpose for which it is so accumulated or set apart, due to an order or injunction of any court, shall be excluded : Provided further that in respect of any income accumulated or set apart on or after 1-4-2001, the provisions of this sub-section shall have effect as if for the words 'ten years' at both the places where they occur, the words 'five years' had been substituted. Explanation. Any amount credited or paid, out of income referred to in clause (a) or clause (b) of sub-section (1), read with the Explanation to that sub-section, which is not applied, but is accumulated or set apart, to any trust or institution registered under section 12AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he trust or institution, which has invested or deposited its income in accordance with the provisions of clause (b) of sub-section (2), is dissolved, the Assessing Officer may allow application of such income for the purposes referred to in clause (d) of sub-section (3) in the year in which such trust or institution was dissolved. 8. Section 11 of the Act gives the scheme for application of income, its accumulation and chargeability to tax derived from property held in the trust for charitable or religious purposes. Under section 11(1)(a) where trust applies 85 per cent of its income, the income of the trust becomes exempt from tax. However, clause (2) of Explanation to section 11(1)(a) provides that where 85 per cent of income could not be applied for the reason that it was not received during the year, that part of income can be applied during the previous year in which the income is received or during the previous year immediately following. In a case, where income is not applied for any other reason, the trust can apply the income during the previous year immediately following the previous year in which the income was derived. For this purpose, the assessee has to exercise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f availing of the exemption. Hon'ble Delhi High Court held that it was not possible to agree with the conclusion arrived at by the Tribunal. It is one thing to say that the requirement of investment is deemed to have been satisfied if the investment was made in the year in which income was received, although such income was not necessarily receipt in the very year in which the accumulation was sought to be made. However, to stretch it to include the investments made in the years even earlier to previous year in question is not warranted on a plain reading of the section. There seems to be considerable force in the submissions of the revenue that the express wording of the provision indicates that in order to satisfy the requirements of section 11(2)(b) the investment must necessarily come out of the current years income. An investment made in the past obviously cannot satisfy this requirement. There is no occasion to take a different view given the purposes and objects of such a provision. It is not the assessee's case that the deposit with the bank matured during the assessment year in question and was renewed soon thereafter. It appears that the fixed deposit already made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd that loss on account of excess income applied in earlier year was not allowed to be carried forward. There is no provision under section 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. Hon'ble Calcutta High Court in the case of DIT (Exemption) v. Girdharilal Shewnarain Tantia Trust [1993] 199 ITR 215 has held that heads of income under section 14 have no relevance and question of allowing statutory deductions will not arise. The 'income' contemplated by the provisions of section 11 is the real income and not the income as assessed or assessable. Since the income from property held under trust has to be arrived at in a normal comme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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