2014 (2) TMI 317 - AT - Income Tax

Waiver of principal amount of loan - Held that - Assessee is treated as trust AND has been registered under section 12A and also nature of activity is charitable activity - The computation of income has to follow the provisions of sections 11 and 12 and not Chapter IV-D pertaining to profits and gains of business or profession - The waiver of the loan cannot be treated as income as the assessee has not claimed any deduction earlier on the loan amount, which is on capital account - Decided against Revenue. Validity of deficit shown by the assessee - Held that - The appellant is entitled for exemption under section 11(1)(a) - The deficit returned by the appellant is valid, which may be modified subject to the decisions of the undersigned on various additions made by the A.O - If the modified position is also deficit, in that case, the appellant is not entitled for carry forward of such deficit as there is no such scheme in any of the sections like section 10, section 11, section 12, section 13 etc., the sections applicable to the activities of the appellant - It is the duty of the A.O. to correctly compute the deductions allowance etc., under the Income Tax Act - The AO was directed to compute the correct income of the trust - Decided against Revenue.

Summary

Issues:
1. Deletion of amount treated as income of the trust
2. Computation of income made by the assessee in the return of income

Deletion of amount treated as income of the trust:
The appeal by Revenue challenged the deletion of an amount of Rs.12,72,180 treated as income of the trust and the computation of income made by the assessee. The Assessing Officer (A.O.) added the waived amount of a loan as income, considering the assessee as a company following the mercantile system of accounting. However, the CIT(A) held that the waived amount was not claimed as expenditure or application for charitable purposes, thus not constituting income. The A.O. failed to consider that the assessee, a registered trust, should follow provisions of sections 11 and 12, not 'profits and gains of business or profession'. The CIT(A) decision was upheld, rejecting the Revenue's argument based on case laws related to business income computation.

Computation of income made by the assessee in the return of income:
The A.O. ignored the computation by the assessee showing excess expenditure over income, starting the income computation at NIL and adding all amounts as income without granting any exemption under section 11. The A.O. relied on a Rajasthan High Court decision which the CIT(A) found inapplicable to the current case. The CIT(A) allowed the assessee's contention, stating that the A.O. wrongly applied the principles and directed correct computation. The Tribunal found no merit in the Revenue's contentions and dismissed the appeal, upholding the CIT(A)'s decision.

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