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Issues involved: The judgment deals with the issue of whether deficits from earlier years can be carried forward and adjusted against the income of the assessment year, specifically in the context of a charitable trust.
Summary: The High Court of Madras considered a case where a charitable trust was disputing the Director of Income-tax (Exemptions), Madras's decision that deficits from earlier years cannot be adjusted against the income of the assessment year 1991-92. The Director held that without specific enabling provisions in the Act, deficits of earlier years cannot be carried forward for adjustment in later years. The deficits claimed were due to payments made to the Indian Bank for a loan taken to construct a new commercial building, from which the trust derived rental income. The court noted that while the Director rejected the arrears claimed due to the lack of provisions in the Act, the law declared by various High Courts supported the carry forward of deficits for charitable trusts. Citing cases from Andhra Pradesh, Karnataka, Rajasthan, and Gujarat High Courts, it was highlighted that expenses incurred for charitable or religious purposes in earlier years can be adjusted against the income of subsequent years. The court emphasized that the income of the trust should be determined based on commercial principles, and section 11 of the Income-tax Act is a benevolent provision allowing for the adjustment of charitable expenses against income. It was clarified that losses incurred under one head can be set off against income from another head if the expenditure was for religious or charitable purposes. In conclusion, the court set aside the impugned order and remanded the matter to the Director of Income-tax (Exemptions) for fresh consideration in accordance with the law as discussed in the judgment. The writ petition was disposed of with no costs awarded.
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