2019 (7) TMI 1941 - AT - Income Tax

Assessment of trust - Carry forward of excess expenses over next years - benefit of the deficit for earlier years against the income of subsequent year - whether the trust has incurred deficit due to excess spending on the object of the trust during the particular year and whether excess expenditure incurred in earlier years or in the current year by the trust could be allowed to be set off against the income of subsequent year by invoking Section 11? - HELD THAT - The issue is no longer res integra. The Hon ble Gujarat High Court in CIT vs. Shri Plot Shwetamber Murti Pujak Jain Mandal 1993 (11) TMI 17 - GUJARAT HIGH COURT has rendered decision favourable to the assessee on the very issue. The Hon ble Gujarat High Court has held that there is nothing in the language of Section 11(1)(a) of the Act to indicate that the income from trust property should have been applied for charitable or religious trusts only in the year in which such income has arisen. The expenditure incurred in an earlier year can be met out of the income of the subsequent year and utilization of such income for meeting the expenditure of the earlier year would amount to such income being applied for charitable or religious trusts -income derived from Trust property has to be computed on commercial principles and consequently deficit arising out of expenditure over income for the previous year should, therefore, be set off against surplus of income over expenditure relating to the subsequent year. Similar view has been expressed in CIT vs. Maharana of Mewar Charitable Foundation 1986 (7) TMI 56 - RAJASTHAN HIGH COURT and CIT vs. Matriseva Trust 1999 (3) TMI 34 - MADRAS HIGH COURT - Whatever little controversy might be existing has been put to rest by the recent decision of the Hon ble Supreme Court in the case of CIT(Exemption) vs. Subros Education Society 2018 (4) TMI 1622 - SC ORDER . Hence, the CIT(A) in our view has correctly applied the law as evolved by the judicial precedents. In the absence of any infirmity in the order of the CIT(A), we decline to interfere therewith. - Decided against revenue.

Summary

Issues:
Allowability of deficit carry forward for a charitable trust under Section 11 of the Income Tax Act.

Analysis:
The appeal was filed by the Revenue against the order of the Commissioner of Income Tax (Appeals) concerning the assessment order passed by the Assessing Officer under Section 143(3) of the Income Tax Act for the assessment year 2014-15. The substantive ground of appeal raised by the Revenue was related to the allowance of the deficit of Rs.5,78,95,663 for earlier years against the income of the subsequent year by the CIT(A). The assessee, a public charitable trust, had claimed the carry forward of deficit, which was disallowed by the AO but allowed by the CIT(A) in the first appeal. The Revenue challenged this decision before the Tribunal.

The key question for adjudication was whether the excess expenditure incurred by the trust in earlier years could be set off against the income of subsequent years under Section 11 of the Act. The Tribunal referred to the decision of the Hon'ble Gujarat High Court in CIT vs. Shri Plot Shwetamber Murti Pujak Jain Mandal, where it was held that income derived from trust property should be computed on commercial principles, allowing the deficit arising from expenditure over income in previous years to be set off against the surplus of income over expenditure in subsequent years. Similar views were expressed in other cases as well. The Tribunal noted that the recent decision of the Hon'ble Supreme Court in the case of CIT(Exemption) vs. Subros Education Society further clarified this position. Consequently, the Tribunal found that the CIT(A) had correctly applied the law as per judicial precedents and declined to interfere with the order.

Therefore, the appeal filed by the Revenue was dismissed, affirming the decision of the CIT(A to allow the carry forward of deficit for the charitable trust in accordance with the provisions of Section 11 of the Income Tax Act.