2022 (12) TMI 1480 - AT - Income Tax

Set off of excess application of income for the subsequent years - Carry forward of the deficit/loss for trust - assessment of trust - HELD THAT - As during the year under consideration the assessee had applied income more than 85% of its total income however it claimed accumulation of income u/s 11(1)(a) to the extent of 15% of total income that came to a sum of Rs. 38, 05, 443/- however the AO restricted the accumulation to the extent of surplus available of Rs. 20, 34, 215/-. A bare reading of the section 11(1)(a) of the Act goes to prove that any income accumulated or set apart should not exceed 15% of total income. In the present case the assessee had applied more than 85% of the income that does not mean that in excess of 85% of income the assessee has accumulated or set apart for charitable purpose. Reliance is placed upon the judgment of Matriseva Trust 1999 (3) TMI 34 - MADRAS HIGH COURT wherein as followed the judgment in the case of CIT vs Maharana of Mewar Charitable Foundation 1986 (7) TMI 56 - RAJASTHAN HIGH COURT and in the case of CIT vs Shri Plot Swetamber Murti Pujak Jain Mandal ( 1993 (11) TMI 17 - GUJARAT HIGH COURT wherein as answered the questions in favour of the assessee and against the Revenue.

Issues Involved:
1. Validity of the order passed by the learned Commissioner of Income Tax (Appeals).
2. Restriction of 15% accumulation of income under section 11(1)(a) to surplus rather than total income.
3. Non-allowance of carry forward of net deficit.

Detailed Analysis:

1. Validity of the Order Passed by the Learned Commissioner of Income Tax (Appeals):
The appellant contended that the order passed by the learned CIT(A) is flawed both legally and factually. However, this ground was deemed general in nature and did not require separate adjudication.

2. Restriction of 15% Accumulation of Income Under Section 11(1)(a) to Surplus Rather Than Total Income:
The core issue was whether the 15% accumulation of income under section 11(1)(a) should be based on the total income derived from property held in trust or the surplus left after expenditure. The appellant argued that the 15% accumulation should be on the total income as per CBDT circular no. 5-P(LXX-6) of 1968 and the Apex Court's decision in 248 ITR 1 (SC). The Assessing Officer (AO) and CIT(A) restricted the accumulation to the surplus, citing that the appellant had applied more than 85% of its income and thus could only accumulate the remaining surplus. The Tribunal, referencing the Supreme Court's judgment in CIT vs. Programme for Community Organization, clarified that the accumulation should be 15% of the total income derived from the property held in trust, not just the surplus. The Tribunal directed the AO to allow the appellant's claim for accumulation based on total income, thus favoring the appellant.

3. Non-Allowance of Carry Forward of Net Deficit:
The appellant claimed a net deficit of Rs. 17,71,228/- to be carried forward for set-off in subsequent years. The AO and CIT(A) denied this, stating that since the appellant had applied more than 85% of its income, there was no deficit on account of excess application, and thus nothing could be carried forward. The Tribunal found that the lower authorities' interpretation was incorrect, as the appellant should be allowed to carry forward the excess application of income for subsequent years. This was supported by precedents from various High Courts, including the Madras High Court in CIT vs. Matriseva Trust and the Gujarat High Court in CIT vs. Shri Plot Swetamber Murti Pujak Jain Mandal.

Conclusion:
The Tribunal concluded that the AO's and CIT(A)'s interpretation of section 11(1)(a) was incorrect. The appellant's claim for 15% accumulation based on total income and the carry forward of the net deficit was justified and allowed. The appeal was thus allowed in favor of the appellant.

Order Pronounced:
The appeal of the assessee was allowed, and the order was pronounced in the open Court on 05th December, 2022.

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