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2016 (1) TMI 307 - ITAT BANGALORE

2016 (1) TMI 307 - ITAT BANGALORE - TMI - Exemption in terms of section 11(1)(a) - entitlement for carry forward of excess application of income - 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 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 h .....

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Bangalore Versus Asst. Director of Income Tax (Exemption) , Circle 17 (2) , Bangalore [2015 (11) TMI 1270 - ITAT BANGALORE] - Decided in favour of assessee. - ITA No. 971/Bang/2015 - Dated:- 10-11-2015 - Smt. Asha Vijayaraghavan, Judicial Member And Shri Inturi Rama Rao, Accountant Member For the Appellant : Shri S Venkatesan, C.A For the Respondent : Smt. Rukmani Attri, JCIT ORDER Per Smt. Asha Vijayaraghavan, Judicial Member The appeal is filed by the assessee. The appeal is directed against .....

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to the AO not permitting the deficit for the year to be carried forward and set off against the appellant s income of future years. 3. The assessee had shown excess expenditure of ₹ 26,23,938/- in its Income & Expenditure account. The AO did not allow carry forward of this for application to future years where surplus income would be available, holding that exemption in terms of section 11(1)(a) is allowable only for the application of the current year s income. He also mentioned that .....

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subsequent year out of receipt of income during the next year. As a corollary, therefore, it was claimed that the excess application of any year can be set off in the subsequent year. Reliance was placed on the following judicial decisions: • CIT Vs. Shri Gujarati Samaj 204 Taxman 151 (MP/17 taxmann.com 164 (M) • DIT Vs. Raghuvanshi Charitable Trust 197 Taxman 170 (Delhi) • CIT Vs. Maharana of Mewar Charitable Foundation (1987) 164 ITR 439 (Raj) • CIT Vs. Institute of Bankin .....

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(1988) 170 ITR 62; 36 Taxman 42 (Ker.) • Trustees of Balkan J Bari (1979) 10 CTR (Trib) 22 (Bombay) • Chotanagpur Diocesan Trust Vs. ITO 19 ITD 175 (Patna) 5. CIT(A) concluded the decision of the Hon ble ITAT Bombay in case of ITO Vs. Trustees of Sri Satya Sai Trust (33 ITD 320) have also affirmed the AO s position holding that the deficit arising on account of application of funs/sums which are not in the nature of income is not capable of being carried forward. Further, the CIT(A) ob .....

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horised Representative submitted that the view taken by the learned CIT (Appeals) that carry forward of excess 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 coordinate benches of this Tribunal in the cases of Baldwin Methodist Education Society in ITA No.523/Bang/2014 dt .....

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n view of the above, the impugned orders passed by the learned CIT (Appeals) is justified and no interference is called for thereon. 9. The co-ordinate Bench of the Tribunal in the case of Jyothi Seva Society of Bangalore Vs. Asst. Director of Income-tax (Exemption) in ITA No.312/Bang/2015 has held as follows: 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 .....

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be met out of the income of the subsequent year and that utilization of such income for meeting the expenditure of earlier years would not amount to application of income for charitable or religious purposes. In the present case, the AO did not allow carry forward of the excess of 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 A .....

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mputed on commercial principles and if commercial principles are applied then adjustment of expenses incurred by the trust for charitable and religious purposes in the 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 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 .....

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as under :- We also find that A bench of this Tribunal in the case of Academy of Liberal Education in ITA No.687/Bang/2014 dated 20/2/2015, to which one of us i.e. the Accountant Member is the signatory, has considered this issue and in para.8 of its order, held as under: 8. 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 .....

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ome of a subsequent year, the income of such subsequent year can be said to be applied for charitable or religious purposes in the year in which such adjustment takes place. In other words, the set-off of excess of expenditure incurred over the income of earlier years against 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 .....

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in past years. In Govindu Naicker Estate VS. ADIT 248 ITR 368 (Mad), the Hon ble Madras High Court held that the income of the trust has to be arrived at having due regard to the commercial principles, that s. 11 is a benevolent provision, and that the expenditure incurred on 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 h .....

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is on religious or charitable purposes, it is the expenditure properly incurred by the trust, and the income from out of which that expenditure is incurred, would not be liable to tax. The expenditure, if incurred in an earlier year is adjusted against the income of a later 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 acc .....

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The revenue s appeal is, accordingly, dismissed. It is clear from the relevant portions of the aforesaid decisions of the Hon'ble High Court of Bombay (supra) and the co-ordinate bench of the ITAT, Bangalore (supra) extracted above 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 not found in Section 11(1)(a) of the Act. No limitation to the above effect is found i .....

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