2019 (2) TMI 989 - AT - Income Tax

Exemption u/s 11 - Claim of the assessee for carry forward of the said deficit - Held that - The question no.(ii) as proposed does not give rise to any substantial question of law as it stands concluded by the decision of this Court in M/s. Gem & Jewellery Exports Promotion Council 2011 (2) TMI 1511 - BOMBAY HIGH COURT as well as CIT v/s. Institute of Banking Personnel Services 2003 (7) TMI 52 - BOMBAY HIGH COURT . Also see COMMISSIONER OF INCOME TAX (EXEMPTION) NEW DELHI VERSUS SUBROS EDUCATIONAL SOCIETY 2018 (4) TMI 1622 - SUPREME COURT OF INDIA - decided against revenue

Summary

Issues Involved:
1. Allowance of carry forward of deficit for adjustment in subsequent years.
2. Double benefit to the assessee.
3. Reliance on the judgment of the Hon'ble Bombay High Court.
4. Absence of express provision in the Income Tax Act, 1961 permitting such allowance.

Detailed Analysis:

1. Allowance of Carry Forward of Deficit for Adjustment in Subsequent Years:
The primary issue revolves around whether the assessee can carry forward a deficit of ?9,76,12,251 for adjustment in subsequent years. The assessee claimed this deficit based on the decision of the Hon'ble Mumbai ITAT in the case of Sir Ratan Tata Trust for AY 2008-09, which was upheld by the Bombay High Court. The Tribunal in that case held that "income derived from the trust property has also got to be computed on commercial principles," and thus, the adjustment of expenses incurred by the Trust for charitable purposes in earlier years against the income earned in subsequent years should be regarded as an application of income for charitable purposes. The CIT(A) followed this precedent and allowed the carry forward of the deficit.

2. Double Benefit to the Assessee:
The Revenue argued that allowing the carry forward of the deficit would result in a double benefit to the assessee. The first benefit would be the 'accumulation' of income under section 11(1)(a) or as corpus donation under section 11(1)(d) in earlier years/current year, and the second benefit would be the 'application' of income under section 11(1)(a) in subsequent years. However, the CIT(A) and the Tribunal found this argument unmeritorious, as the Hon'ble Bombay High Court had already settled the issue in favor of the assessee, stating that such adjustments should be treated as an application of income in subsequent years.

3. Reliance on the Judgment of the Hon'ble Bombay High Court:
The CIT(A) relied on the judgment of the Hon'ble Bombay High Court in the case of CIT vs. Institute of Banking Personnel Selection, which allowed the carry forward of the deficit. The Revenue contended that the Department had not accepted this decision on merit but had not appealed due to the smallness of the tax effect. The CIT(A) noted that similar views were upheld in various other cases, including the Director of Income-tax (Exemption) vs. Gem & Jewellery Exports Promotion Council and ITO(Exemption)-1(1) Mumbai vs. Bombay Natural History Society. The Tribunal affirmed that the CIT(A) was bound to follow the jurisdictional High Court's decision.

4. Absence of Express Provision in the Income Tax Act, 1961 Permitting Such Allowance:
The Revenue argued that there was no express provision in the Income Tax Act, 1961 permitting the allowance of such a claim. The Tribunal, however, noted that the Hon'ble Bombay High Court had interpreted the Act to allow such a carry forward based on commercial principles. The Tribunal also referenced the case of Dawat Institute of Dawoodi Bohra Community, where it was held that if the entire income has been applied for charitable purposes, the question of accumulation does not arise.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order allowing the carry forward of the deficit. The Tribunal noted that the issue was covered by the decision of the Hon'ble Bombay High Court and that the Revenue's SLP against this decision had been dismissed by the Hon'ble Supreme Court. Therefore, the CIT(A)'s decision was in accordance with the law, and the appeal of the Revenue was dismissed on all grounds.