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2021 (1) TMI 476 - AT - Income TaxAssessment of trust - denial of carry forward of deficit - carrying forward of the losses for being set off against the income of the charitable trust - CIT-A allowed claim - as per revenue there is no express provision in the income tax act allowing such claim and Ld. CIT (A) granted double benefit to assessee 1st as accumulation of income or corpus donation in previous year/current year and exemption under section 10 (34) and then as application of income under section 11 (1) (a) - HELD THAT - The issue stands covered by order of CIT vs Ohio University Christ College 2018 (11) TMI 1055 - KARNATAKA HIGH COURT and decision CIT vs Institute of Banking 2003 (7) TMI 52 - BOMBAY HIGH COURT .These decision upholds the carry forward of losses for being set off against income of charitable trust for subsequent assessment years. We note that an identical issue has been decided by coordinate bench of this Tribunal in case of ITO vs Shraddha trust 2017 (4) TMI 1289 - ITAT BANGALORE wherein, it was held that set-off of excess of expenditure incurred over the income of earlier years can be adjusted against income of subsequent years and such adjustment would not be application of income in subsequent years. - Decided against revenue.
Issues Involved:
1. Whether the CIT(A) erred in allowing the claim of the assessee for carry forward of deficit. 2. Whether there is an express provision in the Income Tax Act, 1961 allowing such a claim. 3. Whether allowing the carry forward of deficit results in granting double benefit to the assessee. Detailed Analysis: Issue 1: Allowing the Claim for Carry Forward of Deficit The revenue appealed against the CIT(A)'s order, which allowed the assessee, a charitable trust, to carry forward a deficit of ?26,60,73,678/- for subsequent years. The assessee had claimed deductions under section 11(1)(a) and total application of income, resulting in a deficit. The CIT(A) relied on the jurisdictional ITAT judgment in ITO vs. Shraddha Trust and the Karnataka High Court's decision in Pr. Commissioner of Income Tax (Exemption) vs. Manipal Academy of Higher Education, which supported the carry forward of the deficit. Issue 2: Express Provision in the Income Tax Act The revenue argued that there is no express provision in the Income Tax Act, 1961, allowing the carry forward of a deficit. The CIT(A) countered this by citing the Karnataka High Court's judgment, which interpreted the Act to permit such carry forward based on commercial principles. The court referred to the case of CIT vs. Society of the Sisters of St. Anne and the CBDT Circular No. 5-P(LXX)-6 of 1968, which support the understanding of income in its commercial sense, thereby allowing the carry forward of expenses. Issue 3: Double Benefit to the Assessee The revenue contended that allowing the carry forward of the deficit would grant double benefits to the assessee—first as accumulation of income or corpus donation in the previous/current year, and then as application of income under section 11(1)(a) in subsequent years. The CIT(A) and the Tribunal found that this interpretation was consistent with the judgments of the Karnataka High Court and the Bombay High Court. The Tribunal upheld the CIT(A)'s decision, noting that the issue was covered by the decisions in CIT vs. Ohio University Christ College and CIT vs. Institute of Banking, which allowed the set-off of excess expenditure against future income without it being considered as application of income in subsequent years. Conclusion: The Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s order allowing the carry forward of the deficit. The judgment was based on the interpretation of the Income Tax Act in light of commercial principles and supported by precedent cases from the Karnataka and Bombay High Courts. The decision emphasized that the carry forward of the deficit did not result in double benefits and was in accordance with legal precedents. Order Pronounced: The appeal filed by the revenue stands dismissed, and the order was pronounced in the open court on 12th January 2021.
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