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2016 (1) TMI 307 - AT - Income TaxExemption in terms of section 11(1)(a) - entitlement for carry forward of excess application of income - Held that - The income of charitable trusts is required to be computed on commercial principles. The concept of application of the income for the year in which the income has arisen is not found in Section 11(1)(a) of the Act. No limitation to the above effect is found in the language of the section. It merely requires application of the income that has arisen from the property held under trust. In this view of the matter the principles relating to set off of losses etc. is not of any relevance and therefore any excess application of income during the year can be regarded as application of the income of future years and can be adjusted. Therefore in our view the claim of the assessee for carry forward of excess application is in accordance with the judicial precedents on the issue and the same is allowable. See The Jyothi Seva Society of Bangalore Versus Asst. Director of Income Tax (Exemption) Circle 17 (2) Bangalore 2015 (11) TMI 1270 - ITAT BANGALORE - Decided in favour of assessee.
Issues Involved:
1. Whether the deficit for the year can be carried forward and set off against the appellant's income of future years. Issue-wise Detailed Analysis: The primary issue in this appeal is whether the deficit for the year can be carried forward and set off against the appellant's income of future years. The appellant, a public charitable institution, filed its return of income for AY 2011-12 declaring a total income of Rs. 'nil'. The appellant showed an excess expenditure of Rs. 26,23,938/- in its Income & Expenditure account. The Assessing Officer (AO) did not allow the carry forward of this deficit for application in future years, stating that exemption under section 11(1)(a) is only allowable for the current year's income. The AO mentioned that sections 11 to 13 of the Income Tax Act, 1961, do not expressly allow for the carry forward of losses due to excess application in a particular year. The appellant argued before the Commissioner of Income-tax (Appeals) [CIT(A)] that section 11(1)(a) does not restrict the application of income to the same year only, implying that excess application can be set off in subsequent years. The appellant cited several judicial decisions to support this claim, including CIT Vs. Shri Gujarati Samaj, DIT Vs. Raghuvanshi Charitable Trust, and CIT Vs. Institute of Banking Personnel Selection, among others. The CIT(A) upheld the AO's decision, referencing the Hon'ble ITAT Bombay's decision in ITO Vs. Trustees of Sri Satya Sai Trust and the Hon'ble ITAT Delhi's decision in Pushpavati Singhania Research Institute for Liver, Renal and Digestive Diseases Vs. DDIT (E), which held that excess expenditure incurred by a charitable institution in earlier years cannot be carried forward and set off against the income of subsequent years. The appellant's representative argued that the CIT(A)'s view is incorrect and referred to the Hon'ble High Court of Bombay's decision in CIT V Institute of Banking and decisions of the ITAT Bangalore in the cases of Baldwin Methodist Education Society and St. Francis Sales Educational and Charitable Trust, which supported the carry forward of excess expenditure. The Departmental Representative supported the orders of the authorities below, citing the Hon'ble High Court of Delhi's decision in Indian National Theater Trust, which held that accumulation of income should be only out of the current year's income. The co-ordinate Bench of the Tribunal in the case of Jyothi Seva Society of Bangalore Vs. Asst. Director of Income-tax (Exemption) held that income derived from trust property must be computed on commercial principles. The Hon'ble High Court of Bombay in CIT Vs. Institute of Banking held that excess expenditure in earlier years can be adjusted against the income of subsequent years and should be treated as application of income in subsequent years for charitable purposes. This view was supported by other judicial precedents, including CIT Vs. Maharana of Mewar Charitable Foundation and CIT Vs. Shri Plot Swetamber Murti Pujak Jain Mandal. The Tribunal found that the CIT(A)'s order was consistent with judicial precedents and saw no reason to interfere. The Tribunal held that the claim of the assessee for carry forward of excess application is allowable, directing the AO to allow the carry forward of the excess application for adjustment against future income. In conclusion, the Tribunal allowed the appeal of the assessee, permitting the carry forward of the excess expenditure to be set off against the income of subsequent years. Order pronounced in the open court on 10th Nov, 2015.
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