2014 (6) TMI 432 - AT - Income Tax

Allowability of benefits of exemption u/s 11 of the Act Held that - The assessee s registration u/s 12A granted earlier by DIT (E) was withdrawn u/s 12AA(3) - the order of the DIT (E) has been set aside by the Tribunal and assessee s registration u/s 12A has been upheld - the very basis and foundation of denying the benefit u/s 11 ceases to exist - once the registration u/s 12A continues - it is axiomatic that the income has to be computed in accordance with section 11 and benefit/exemption has to be given - The exemption cannot be denied simply on the ground that the matter is subjudice before the Hon ble High Court Decided against Revenue. Allowability of carry forward of unabsorbed depreciation Held that - Following CIT vs. Shri Plot Swetamber Murti Pujak Jain Mandal 1993 (11) TMI 17 - GUJARAT High Court - the income derived from the trust property has to be computed on commercial principles and if commercial principles are applied then adjustment of expenses incurred by the trust for charitable and religious purposes in the earlier years against the income earned by the trust in the subsequent year will have to be regarded as application of income of the trust in the subsequent year in which adjustment has been made - Decided against Revenue.

Summary

Issues:
1. Allowance of exemption u/s11 to the assessee.
2. Carry forward of unabsorbed depreciation and deficit for adjustment against subsequent year's income.

Analysis:

Issue 1: Allowance of exemption u/s11 to the assessee

The appeal was filed by the department against the order passed by CIT(A)-1, Mumbai regarding the quantum of assessment for the assessment year 2009-10. The assessee trust was registered as a charitable organization with the Charity Commissioner and granted registration under section 12A by the DIT(E), Mumbai. However, the registration was withdrawn due to changes in the objects of the trust. The ITAT later set aside the cancellation of registration, upholding the trust's registration under section 12A. The Assessing Officer disallowed benefits under section 11, citing the pending appeal. The CIT(A) directed the AO to allow benefits under section 11 based on the ITAT's decision. The Tribunal held that once the registration under section 12A continues, the income should be computed in accordance with section 11, and the exemption cannot be denied merely because the matter is sub judice before the High Court. The Tribunal dismissed the department's appeal on this ground.

Issue 2: Carry forward of unabsorbed depreciation and deficit for adjustment against subsequent year's income

The department challenged the direction of the CIT(A) to allow the claim of the assessee for carry forward of unabsorbed depreciation and deficit for adjustment against the income of the subsequent year. The CIT(A) relied on the decision of the Bombay High Court in the case of "CIT vs. Institute of Banking Personnel" to support this direction. The Tribunal noted that the Hon'ble Bombay High Court upheld the adjustment of expenses against income of subsequent years based on commercial principles. Referring to the decision of the Gujarat High Court, the Tribunal concluded that such adjustments should be considered as the application of income of the trust in the subsequent year. Therefore, the Tribunal found no merit in the department's ground and dismissed the appeal.

In conclusion, the Tribunal dismissed the department's appeal, upholding the CIT(A)'s decision to allow exemption under section 11 and the adjustment of unabsorbed depreciation and deficit against subsequent year's income based on relevant legal precedents.