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2015 (11) TMI 1270 - ITAT BANGALORE

2015 (11) TMI 1270 - ITAT BANGALORE - TMI - Carry forward of excess application over income - CIT (Appeals) is not justified in denying the claim of the assessee on the ground that there is no provision for carry forward of the deficit to be regarded as application of income in the subsequent assessment years - Held that:- The income of charitable trusts is required to be computed on commercial principles. The concept of application of the income for the year in which the income has arisen is no .....

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assessee for carry forward of excess application is in accordance with the judicial precedents on the issue and the same is allowable.

To satisfy the requirements of section 11(2)(b) of the Act, the investment must necessarily come out of current year’s income and the investment made in the past obviously cannot satisfy the requirements for the current year. We are, therefore, inclined to follow the view taken by the co-ordinate benches of this Tribunal, inter alia, in the case of Ba .....

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d from income from property held under trust of the subsequent years. - Decided in favour of assessee. - I.T.A. No.312/Bang/2015 - Dated:- 24-9-2015 - SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER For The Appellant : Shri V. Srinivasan, C.A. For The Respondent : Shri S.K. Agarwala, JCIT (D.R) ORDER Per Shri Jason P. Boaz, A.M. : This appeal by the Revenue is directed against the order of the Commissioner of Income Tax (Appeals)-14, LTU, Bangalore dt.27.10.2014 for .....

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benefits of sections 11 and 12 of the Act. For Assessment Year 2007-08, the assessee filed its return of income on 26.10.2007 declaring NIL income. In the said return, the assessee had, inter alia, claimed carry forward of excess application over income for the year under consideration amounting to ₹ 7,44,328 to be adjusted as application against the income of the future years. It was claimed by the assessee that the excess application of income for the year under consideration is to be r .....

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tion of income in the subsequent assessment years and has made a note to this effect in the computation of income in the order of assessment. 2.2 Aggrieved by the order of assessment for Assessment Year 2007-08 dt.30.11.2009, the assessee preferred an appeal before the CIT (Appeals)-14, LTU, Bangalore on the sole issue relating to the carry forward of excess expenditure over income amounting to ₹ 7,44,328. On appeal, the assessee relied upon several decisions in support of its contention t .....

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carry forward the excess application of income by charitable trusts to be regarded as / for application of income in the later years. In coming to this conclusion, the learned CIT (Appeals) relied upon the judgment of the Hon'ble High Court of Delhi in the case of CIT V. Indian National Trust (305 ITR 149) and the decision of the ITAT, Mumbai Bench in the case of Trustees of Sri Satya Sai Trust (33 ITD 320). The learned CIT (Appeals), accordingly, declined to allow the carry forward of defi .....

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eals) is not justified in upholding the denial of carry forward of the deficit being the excess application of income amounting to ₹ 7,44,328 to be set off against the income from property held under trust in the future under the facts and in the circumstances of the appellant s case. 3. The learned CIT (Appeals) ought to have appreciated that the carry forward of the deficit to be set off against the income form property held under trust in future is permissible and the same is not prohib .....

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general in nature and not being urged before us, are dismissed as infructuous. 5.1 Grounds S.No.2 and 3 are in respect of the only effective issue to be decided in this appeal. The learned Authorised Representative for the assessee submitted that the learned CIT (Appeals) is not justified in denying the claim of the assessee on the ground that there is no provision for carry forward of the deficit to be regarded as application of income in the subsequent assessment years. It was submitted that .....

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expenditure incurred is not permissible in the absence of a specific provision for the same is not correct and in this regard referred to the observations of the Hon'ble High Court of Bombay in the case of CIT V Institute of Banking (264 ITR 111) and the decision of the co-ordinate benches of this Tribunal in the cases of Baldwin Methodist Education Society in ITA No.523/Bang/2014 dt.31.3.2015 and St. Francis Sales Educational and Charitable Trust in ITA No.365/Bang/2014 dt.10.7.2015 in supp .....

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is called for thereon. 5.3.1 We have heard the rival contentions of both parties and perused and carefully considered the material on record; including judicial pronouncements, cited and placed reliance upon. We find that the case of Institute of Banking (supra), the Hon'ble High Court of Bombay has held as under :- Now coming to question No. 3, the point which arises for consideration is : whether excess of expenditure in the earlier years can be adjusted against the income of the subseque .....

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expenditure to be set off against the surplus of the subsequent years on the ground that in the case of a charitable trust, their income was assessable under self-contained code mentioned in s. 11 to s. 13 of the IT Act and that the income of the charitable trust was not assessable under the head "Profits and gains of business" under s. 28 in which the provision for carry forward of losses was relevant. That, in the case of a charitable trust, there was no provision for carry forward .....

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n of income of the trust for charitable and religious purposes in the subsequent year in which adjustment has been made having regard to the benevolent provisions contained in s. 11 of the Act and that such adjustment will have to be excluded from the income of the trust under s. 11(1)(a) of the Act. Our view is also supported by the judgment of the Gujarat High Court in the case of CIT vs. Shri Plot Swetamber Murti Pujak Jain Mandal (1994) 119 CTR (Guj) 144 : (1995) 211 ITR 293 (Guj). According .....

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We are of the view that pendency of an appeal before the Hon'ble High Court of Karnataka cannot be the basis not to follow the decision on the issue already rendered in identical cases. Section 11(1)(a) does not contain any words of limitation to the effect that the income should have been applied for charitable or religious purpose only in the year in which the income has arisen. The application for charitable purposes as contemplated in section 11(1)(a) takes place in the year in which the .....

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the income of a later year will amount to application of income of such later year. The above is the position of law as held in the case of CIT Vs. Maharana of Mewar Charitable Foundation 164 ITR 439 (Raj) CIT Vs. Shri Plot Swetamber Murti Pujak Jain Mandal 211 ITR 293 (Guj.). In CIT Vs. Institute of Banking Personnel Selection 264 ITR 110 (Bom), it was held that in case of charitable trust whose income is exempt under s. 11, excess of expenditure in the earlier years can be adjusted against in .....

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religious or charitable purposes in earlier year or years can be adjusted against the income of the subsequent year. The principle that the loss incurred under one head can only be set off against the income from the same head is not of any relevance, if the expenditure incurred was for religious or charitable purposes, and the expenditure adjusted against the income of the trust in a subsequent year, would not amount to an incidence of loss of an earlier year being set off against the profit o .....

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year, it has to be held that the trust had incurred expenditure on religious and charitable purposes from the income of the subsequent year, even though the actual expenditure was in the earlier years, if in the books of account of the trust such earlier expenditure had been set off against the income of the subsequent year. The expenditure that can be so adjusted can only be expenditure on religious and charitable purposes and no other. The High Court relied on the decision in the case of CIT V .....

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ts is required to be computed on commercial principles. The concept of application of the income for the year in which the income has arisen is not found in Section 11(1)(a) of the Act. No limitation to the above effect is found in the language of the section. It merely requires application of the income that has arisen from the property held under trust. In this view of the matter, the principles relating to set off of losses, etc. is not of any relevance and therefore any excess application of .....

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