2012 (7) TMI 252 - AT - Income Tax

Charitable Trust - carry forward and set off of losses - denial on ground that there was no provision for carry forward of the excess of expenditure of earlier years - income of the charitable trust was not assessable under the head profit and gains of business u/s 28 in which the provision for carry forward of losses was relevant - 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 religious purpose in the earlier years against the income earned by the trust in the subsequent year will have to be regarded as application of the income of the trust for charitable and religious purpose. Also, assessee has been permitted to carry forward the losses and also to claim set off such losses against the income in earlier AYs, which has been accepted by Revenue. Carry forward and set off allowed. See DIT vs. Vishwa jagrithi Mission (2012 (4) TMI 289 (HC)) - Decided against Revenue

Summary

Issues:
- Disallowance of loss carry forward due to excess application of funds
- Applicability of previous court decisions on loss carry forward

Issue 1: Disallowance of loss carry forward due to excess application of funds
The case involved an appeal by the assessee against the order of the CIT(A) for the A.Y. 2006-07 regarding the disallowance of a loss carry forward claim. The A.O. disallowed the claim as the excess application of income was not considered eligible for carry forward. The A.O. argued that the income from trust properties had to be determined in a commercial manner or as per the Income Tax Act provisions, and excess application could not be carried forward. The A.O. also cited a recent decision by the Hon'ble ITAT, Delhi, which emphasized that excess income applied in an earlier year could not be treated as an application in the current year. The A.O. held that the trust income was exempt under section 11 of the Act, and excess expenditure related to earlier years' applications could not be carried forward. The First Appellate Authority upheld the disallowance, distinguishing previous decisions and emphasizing the commercial principles in computing trust income. The assessee appealed against this decision.

Issue 2: Applicability of previous court decisions on loss carry forward
The assessee contended that the Hon'ble Allahabad High Court's judgment should be followed in this matter. The assessee cited specific decisions in favor of their claim, including ACIT vs. City Education Social Welfare Society and ACIT vs. M/s Subrathi KKB Charitable Trust. The CIT(A) had relied on a decision by the Cochin Bench of the Tribunal in the case of Adisankara Trust. In the final judgment, the ITAT, Delhi, referred to a previous decision by the Delhi 'B' Bench in a similar case where the CIT(A) had permitted the assessee to claim set off against brought forward losses. The ITAT upheld the assessee's contention, citing the principle of consistency and previous court decisions, including the judgment of the Hon'ble Bombay High Court in the case of CIT vs. Institute of Banking. The ITAT dismissed the revenue's appeal and allowed the assessee's appeal based on the cited precedents.

In conclusion, the ITAT, Delhi, allowed the assessee's appeal, emphasizing the applicability of previous court decisions and the principle of consistency in permitting the claim for loss carry forward despite excess application of funds in earlier years. The judgment highlighted the importance of following established legal principles and court decisions in determining the eligibility of loss carry forward claims for charitable trusts.