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TMI Blog1993 (11) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... t off regarding carry forward of the expenses. The Income-tax Officer, without assigning any reasons, disallowed the said claim of set off. The assessee, therefore, carried the matter in appeal before the Appellate Assistant Commissioner of Income-tax, Rajkot Range, Rajkot, without any success. In second appeal before the Tribunal, the Tribunal took the view that the issue was covered by the decision of the Tribunal in the case of ITO v. Trustees of Balkan-ji-Bari [1979] 10 CTR (Trib) 22 and held that the assessee was entitled to the set off claimed by it. Thereupon, the Revenue moved the Tribunal for referring the question of law arising out of the order dated October 15, 1980, passed by the Tribunal in Income-tax Appeal No. 1864/(Ahd.) of 1979 for the opinion of the High Court. The Tribunal agreed that a question of law arises out of the aforesaid order for the opinion of the High Court and has, therefore, referred the abovementioned question for the opinion of this court : Before answering the question referred to us, it would be worthwhile to note the scheme of section 11 of the Act. The relevant provisions which need to be examined are those contained in section 11(1)(a), se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purposes as aforesaid or ceases to be accumulated or set apart for application thereto, or (b) ceases to remain invested or deposited in any of the forms or modes specified in sub-section (5), or (c) is not utilised for the purpose for which it is so accumulated or set apart during the period referred to in clause (a) of that sub-section or in the year immediately following the expiry thereof, shall be deemed to be the income of such person of the previous year in which it is so applied or ceases to be so accumulated or set apart or ceases to remain so invested or deposited, or, as the case may be, of the previous year immediately following the expiry of the period aforesaid." A bare perusal of the above-referred provisions of the Act shows that the income derived from property held under trust wholly for charitable or religious purposes to the extent to which such income is applied to such purposes in India is to be excluded for the purposes of computing the income of the trust for the purpose of assessment. There are no words of limitation in this section providing that the income should have been applied for charitable or religious purposes only in the year in which the inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount to the application of income for charitable purposes. As and when the loan is returned to the trust, it will be treated as income of that year." (Circular No. 100, dated January 24, 1973, F. No. 195/1/72-I. T.-(A.I.)). According to the abovereferred circular if a trust wants to spend more money for charitable and religious purposes in a particular year, it can take a loan and the said loan can be repaid out of the income of the subsequent year and the repayment of the said loan out of the income of the subsequent year would amount to application of income for charitable and religious purposes under section 11(1)(a) of the Act. The contention that only that part of the income of a charitable trust should be excluded which was applied for charitable and religious purposes during the relevant assessment year in which the income was earned, cannot be accepted, as it would lead to an anomalous situation. If the trust takes a loan for the purposes of incurring expenses for charitable and religious purposes in a particular year and the said loan is repaid out of the income of the subsequent year, the said repayment would be entitled to exemption from tax under section 11(1)(a) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the point, has held that the adjustment of the expenses incurred by the trust for charitable and religious purposes in the earlier year against the income earned by the trust in the subsequent year would amount to applying the income of the trust for charitable and religious purposes in the subsequent year in which such adjustment had been made and would have to be excluded from the income of the trust under section 11(1)(a) of the Act. We are in respectful agreement with the view expressed by the Rajasthan High Court and we also hold that the deficit arising out of excess of expenditure over income during the previous year relevant to the assessment year should be set off against the surplus of income over the expenditure relating to the assessment year in computing the taxable income of the latter assessment year. Viewing the question from a different angle also, we are of the opinion that the claim made by the assessee was well-founded. In the case of CIT v. Ganga Charity Trust Fund [1986] 162 ITR 612, this court considered the question as to whether deduction of income-tax liability must be taken as an outgoing before the surplus could be ascertained in order to give meani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n under the various heads as set out in section 14 of the Act. In view of the two decisions of this court above referred to, it is the well-settled position that income derived from the trust property has to be determined on commercial principles and if commercial principles for determining the income are applied, it is but natural that the adjustment of the expenses incurred by the trust for charitable and religious purposes in the earlier year against 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 such adjustment has been made having regard to the benevolent provisions contained in section 11 of the Act and will have to be excluded from the income of the trust under section 11(1)(a) of the Act. In view of the above discussion, we are of the opinion that, on the facts and in the circumstances of the case, the assessee is entitled to carry forward expenses for set off in the subsequent year. The question referred to us is, therefore, answered in the affirmative, i.e., in favour of the assessee and against the Revenue. The reference stands dispos ..... X X X X Extracts X X X X X X X X Extracts X X X X
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