2015 (7) TMI 1119 - AT - Income Tax

Denial of carry forward of the excess application of income to be set off against the income from property held under trust in the future - Held that - Similar issue had arisen before the Tribunal in the case of Baldwin Methodist Educational Society 2015 (10) TMI 2416 - ITAT BANGALORE wherein held that 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 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. Also see Commissioner of Income-Tax Versus Institute Of Banking Personnel Selection 2003 (7) TMI 52 - BOMBAY High Court . Thus we direct the AO to allow the assessee to carry forward the deficit of the income arising on account of excess application of income during the relevant financial year to the subsequent assessment years.

Summary

Issues involved:
- Denial of carry forward of excess application of income for setting off against future income from property by a charitable trust.

Analysis:
The judgment by the Appellate Tribunal ITAT Bangalore involved the issue of denial of carry forward of excess application of income by a charitable trust for setting off against future income from property. The appeal was against the order of the CIT(A) upholding the denial. The assessee, a charitable trust, filed its return of income declaring taxable income as 'nil'. The Assessing Officer disallowed the carry forward of the deficit to future years, leading to an appeal before the CIT(A) and subsequently before the Tribunal.

The learned counsel for the assessee argued that the issue was covered in favor of the assessee by various decisions of the Tribunal and the Hon'ble Bombay High Court in the case of CIT vs. Institute of Banking. The Departmental Representative, however, relied on the orders of the authorities below. The Tribunal considered similar issues in previous cases and referred to relevant precedents to support its decision.

The Tribunal highlighted that the order of the CIT(A) was in line with judicial precedents, including decisions from different High Courts. It emphasized that the income of a charitable trust should be computed on commercial principles, allowing adjustment of expenses for charitable and religious purposes from earlier years against income earned in subsequent years. The judgment of the Hon'ble Bombay High Court was cited to support the decision to allow the carry forward of the deficit arising from excess application of income by the trust.

Based on the legal principles and precedents cited, the Tribunal allowed the assessee's appeal, directing the Assessing Officer to permit the carry forward of the deficit from excess application of income during the relevant financial year to subsequent assessment years. The judgment was pronounced in favor of the assessee, following the legal reasoning provided by the Tribunal and the Hon'ble Bombay High Court.