2021 (7) TMI 1434 - AT - Income Tax

Carry forward of the deficit/loss for trust - assessment of trust - as per AO CIT(A) has erred in law in allowing the assessee s claim of carry forward of current year s loss and set-off of excess deficit pertaining to earlier years without appreciating the fact that the scheme of taxation of charitable or religious trust/institution as codified u/s 11, 12 and 13 there is no provision for computing loss from property held under trust/institution on account of excess application of income/funds of the trust - HELD THAT - In the case of DIT v. Raghuvanshi Charitable Trust 2010 (7) TMI 158 - DELHI HIGH COURT held that a trust can be allowed to carry forward deficit of current year and to set of same against income of subsequent years. It was further held that adjustment of deficit of current year against income of subsequent year would amount of application of income of trust for charitable purposes in subsequent year within meaning of section ll(l)(a). It has been held that excess of expenditure over income of charitable or religious nature incurred in earlier years can be adjusted against the income of the current year. This issue was debated in CIT v. Maharana of Mewar Charitable Foundation 1986 (7) TMI 56 - RAJASTHAN HIGH COURT and it was opined that application could be considered to have taken place in the year of adjustment where the earlier year s income was not adequate to absorb the actual expenditure made. It would be incorrect to view the term application from a narrow perspective so as relate it with the actual movement of funds. In CIT v. Shri Plot Swetamber Murti Pujak Jain Mandal 1993 (11) TMI 17 - GUJARAT HIGH COURT held that there is nothing in section 11(l)(a) which indicates that the expenditure incurred in the earlier year cannot be met out of the income of subsequent years. The Hon ble Bombay High Court in CIT v. Institute of Banking Personnel Selection 2003 (7) TMI 52 - BOMBAY HIGH COURT held that income derived from a trust property should be computed on sound commercial principles and this included carrying forward and set-off of deficit in the earlier years. In our opinion there is no infirmity in the order of the Ld. CIT(A) on the issue in dispute in following binding judgments of Hon ble High Court and judgment of the Tribunal in the case of the assessee itself for assessment year 2008-09 - Accordingly we uphold the order of the Learned CIT(A) on the issue in dispute and the grounds raised by the Revenue are dismissed.

Summary

Issues:
1. Allowance of carry forward of losses for a charitable trust.
2. Applicability of provisions of Income Tax Act for charitable trusts.
3. Interpretation of provisions related to set-off and carry forward of losses for charitable trusts.
4. Compliance with judicial decisions regarding the treatment of deficits in charitable trusts.

Issue 1: Allowance of Carry Forward of Losses for a Charitable Trust:
The appeal by the Revenue was against the order of the Commissioner of Income Tax (Appeals) for allowing the claim of carry forward of losses by a charitable society. The Assessing Officer denied the carry forward of the loss amount, but the CIT(A) allowed the claim based on various judicial decisions and the Tribunal's decision for a previous assessment year. The Revenue contended that the provisions of the Income Tax Act did not provide for such carry forward. However, the CIT(A) observed that while the Act did not explicitly allow for the adjustment of brought forward losses, various High Courts had held that it should be allowed. The CIT(A) cited the case law of DIT v. Raghuvanshi Charitable Trust and other cases to support the allowance of carry forward of deficits for charitable trusts.

Issue 2: Applicability of Provisions of Income Tax Act for Charitable Trusts:
The Revenue argued that the normal computation of income under the Income Tax Act was not applicable to charitable trusts for claiming exemptions. The CIT(A) disagreed, stating that while the Act did not specifically address the carry forward of losses for charitable trusts, judicial decisions had allowed it based on commercial principles. The CIT(A) referred to various High Court decisions and the Tribunal's order in the appellant's own case for a previous year to support the allowance of carry forward of deficits for charitable trusts.

Issue 3: Interpretation of Provisions Related to Set-Off and Carry Forward of Losses for Charitable Trusts:
The Revenue contended that the provisions of sections 70 to 79 of the Income Tax Act, which relate to the set-off and carry forward of losses, were not applicable to charitable trusts. The CIT(A) disagreed, citing judicial decisions that supported the carry forward and set-off of deficits for charitable trusts based on the application of income for charitable purposes in subsequent years. The CIT(A) referred to case law such as CIT v. Shri Plot Swetamber Murti Pujak Jain Mandal and CIT v. Institute of Banking Personnel Selection to justify the interpretation of provisions for charitable trusts.

Issue 4: Compliance with Judicial Decisions Regarding Treatment of Deficits in Charitable Trusts:
The Tribunal upheld the order of the CIT(A) based on the binding precedent of the Tribunal's decision in the appellant's own case for a previous assessment year. The Tribunal found no infirmity in the CIT(A)'s order, as it followed the binding judgments of High Courts and the Tribunal regarding the treatment of deficits in charitable trusts. Therefore, the appeal by the Revenue was dismissed, and the benefit of carry forward of deficits for the charitable trust was allowed.

In conclusion, the judgment upheld the allowance of carry forward of deficits for a charitable trust based on judicial decisions and the Tribunal's previous order, emphasizing the application of income for charitable purposes in subsequent years. The decision highlighted the importance of following binding precedents and interpreting provisions of the Income Tax Act in the context of charitable trusts.