2016 (1) TMI 396 - AT - Income Tax

Eligibility for claim of carry forward of deficit of an earlier year to assessee registered u/s.12A - Held that - As decided in Academy of Liberal Education 2015 (12) TMI 607 - ITAT BANGALORE the income of the trust has to be arrived at having due regard to the commercial principles, that s. 11 is a benevolent provision, and that the expenditure incurred on religious or charitable purposes in earlier year or years can be adjusted against the income of the subsequent year. The principle that the loss incurred under one head can only be set off against the income from the same head is not of any relevance, if the expenditure incurred was for religious or charitable purposes, and the expenditure adjusted against the income of the trust in a subsequent year, would not amount to an incidence of loss of an earlier year being set off against the profit of a subsequent year. The object of the religious and charitable trust can only be achieved by incurring expenditure and in order to incur that expenditure, the trust should have an income. So long as the expenditure incurred is on religious or charitable purposes, it is the expenditure properly incurred by the trust, and the income from out of which that expenditure is incurred, would not be liable to tax. 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. Tribunal had allowed set off of losses even for years prior to the immediately preceding assessment year. - Decided against revenue

Summary

Issues:
- Eligibility of an assessee registered u/s.12A of the Income-tax Act for the claim of carry forward of losses from earlier assessment years.

Analysis:
The appeal before the Appellate Tribunal ITAT Bangalore involved the grievance of the Revenue regarding the CIT (A) allowing the set off of carry forward losses to the assessee. The Revenue argued that as the assessee was a trust registered u/s.12AA of the Income-tax Act, there should be no computation of business loss or carry forward. The Revenue contended that only losses of the immediately preceding assessment year could be allowed for set off, not losses from earlier years. The assessee, on the other hand, supported by the Ld. AR, relied on a decision of a coordinate bench in a similar case. The Tribunal examined the orders and contentions, noting the claim of carry forward of losses from A.Ys. 2005-06 and 2006-07 to be set off against the income for A.Y. 2010-11.

The Tribunal referred to a decision of a coordinate bench in the case of Academy of Liberal Education, where it was held that the set off of losses from earlier years against the income of a subsequent year can be considered as application of income. The Tribunal emphasized that the pendency of an appeal before the High Court cannot be a basis to disregard a decision already rendered in similar cases. Citing various legal precedents, the Tribunal reiterated that the expenditure incurred on religious or charitable purposes in earlier years can be adjusted against the income of subsequent years, considering it as application of income. The Tribunal highlighted that the trust's objective of achieving religious and charitable purposes requires incurring expenditure, and as long as the expenditure is on such purposes, it can be adjusted against income of subsequent years.

The Tribunal concluded that the set off of losses from years prior to the immediately preceding assessment year was permissible, aligning with the decision of the coordinate bench in a similar case. Consequently, the appeal filed by the Revenue was dismissed, affirming the allowance of carry forward losses for the assessee.