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The Income Tax Officer (Exemptions) Versus Dr. U. Krishna Muniyal Memorial Trust

2016 (8) TMI 54 - ITAT BANGALORE

Set off of unabsorbed expenses of earlier years against the income of the current year of Trust - Held that:- Income derived from the trust property has also got to be computed 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 reli .....

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uld not amount to double deduction. See CIT v. Society of the Sisters of St. Anne [1983 (8) TMI 44 - KARNATAKA High Court ] .- Decided in favour of assessee - ITA No.140/Bang/2015, CO No.104/Bang/2015 - Dated:- 27-7-2016 - Shri Vijay Pal Rao, Judicial Member And Shri Inturi Rama Rao, Accountant Member Revenue by : Shri Sunil Kumar Agarwal, Jt. CIT ( DR ) Assessee by : Shri V.K. Gurunathan, Advocate ORDER Per Vijay Pal Rao, Judicial Member This appeal by the revenue and CO by the assessee are dir .....

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t that as per the scheme of taxation of charitable or religious trust/institution as codified u/s. 11, 12 and 13, there is no provision for computing loss from property held under trust/institution on account of excess application of income/funds of the trust. On the issue of depreciation 1. The CIT(A) has erred in ignoring the fact that the assessee has claimed depreciation on the assets the cost of acquisition of which was already claimed by the assessee and allowed by the department as applic .....

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r years of ₹ 1,15,42,645. The AO was of the view that the Income-tax Act does not specify that the assessee trust is entitled to the benefit of either carry forward of excess expenditure over the income or to set off such deficit. Accordingly, the AO disallowed the claim of the assessee. 5. On appeal, the assessee relied upon various decisions in support of the claim and submitted that the carry forward of the current year deficit as well brought forward unabsorbed expenses of the earlier .....

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for AYs 2002-03 to 2006-07. (ii) ACIT v. Dr. TMA Pai Foundation in ITA No.486 to 491/Bang/2009, order dated 16.2.2010 for AYs 2001-02 to 2006-07. (iii) ACIT v. Academy of General Education in ITA No.481 to 485/Bang/2009, order dated 16.2.2010 for AYs 2002-03 to 2006-07. 7. We further note that this issue is covered by the decision of the Hon ble Bombay High Court in CIT v. Institute of Banking, 264 ITR 110 (Bom) and by following the said decision, the coordinate Bench of this Tri vide its order .....

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had held 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 .....

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the income 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. .....

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er s. 11 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 t .....

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incurred 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 boo .....

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CIT(A). The revenue s appeal is, accordingly, dismissed 6. Further, we also find that the Hon ble Bombay High Court in the case of CIT vs. Institute of Banking (2003) 264 ITR 110 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 subsequent year and whether such adjustment should be treated as application of income in the subsequent year for charitable purposes? I .....

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aritable trust, their income was assessable under self-contained code mentioned in section 11 to section 13 of the Income-tax Act and that the income of the charitable trust was not assessable under the head Profits and gains of business under section 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 of the excess of expenditure of earlier years to be adjusted against income of the subsequent year .....

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adjustment has been made having regard to the benevolent provisions contained in section 11 of the Act and that such adjustment will have to be excluded from the income of the trust under section 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 (1995) 211 ITR 293. Accordingly, we answer question No.3 in the affirmative, i.e. in favour of the assessee and against the Department. Respectful .....

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The AO has disallowed the claim of depreciation on the ground that when the assessee has already claimed the exemption at the time of acquisition of the capital asset being application of income, then depreciation would amount to double deduction. 10. On appeal, the CIT(Appeals) has allowed the claim of the assessee by following the various decisions including the decision of the Hon ble Kerala High Court in the case of Lissie Medical Institutions v. CIT dated 17.2.2012. 11. We have heard the l .....

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terials on record. The Tribunal in the assessee's own case for the assessment year 2006-07 at paragraph 7 of its order has decided the issue in favour of the assessee. The relevant finding of the Tribunal reads as follows : "7. We have heard both the parties. We have in the earlier para referred to the findings of the hon'ble Bombay High Court in the case of Institute of Ban king [2003] 264 ITR 110 (Bom). We have also gone through the decision of the jurisdictional High Court. The h .....

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igh Court. The facts for the assessment year 2007-08 and 2008-09 being identical to the facts considered by the Tribunal for the assessment year 2006-07, (I.T.A. No. 775/Bang/2009 dated January 29,2010), we follow the co-ordinate Bench order of the Tribunal in the assessee's own case for the assessment year 2006-07 and hold that the Commissioner of Income-tax (Appeals) is justified in directing the Assessing Officer to grant depreciation in respect of the assessment years 2007-08 and 2008-09 .....

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quent years: Section 11(1) of the LT Act clearly spells that at least 85% of the income of a Charitable Trust or institution has to be applied for charitable purposes in India, to avail full exemption, subject to other conditions under sections 11,12 & 13 of the Act. At least 85% of the income received during the year has to be applied for the purposes of charitable trust or institution but there is no ban under the Act to make the applications in advance from other sources in anticipation o .....

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t. Application of these incomes as a stop-gap-arrangement for the purposes of trust or institution in advance that means making application without revenue income on hand if not allowed as application us 11(1) (that means excess application not allowed to be set-off against incomes of subsequent years) ultimately results in taxing of exempted incomes which is contrary to the intents of the legislature. Similarly application out of borrowed funds results in "excess application" since bo .....

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be set- off against future revenue income. The above views are supported by pronouncements of different High Courts/Tribunals in the following cases: (1) Allahabad High Court in CIT vs Audh Educational Society 203 Taxman 166 (All HC 2011) (2) Madras High Court in CIT Vs Matriseva Trust 242 ITR 20 (3) Tribunal decisions mentioned by appellate authority (Mad) As appreciated by learned assessing authority provisions of sec.72 of IT Act is not applicable in the present case but provisions of sec 11 .....

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