2012 (11) TMI 983 - HC - Income Tax

Exemption u/s 11 - grant in aid received by assessee - held that - the income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution is not to be included in the total income of the previous year of the person in receipt of the income - Decided in favor of asessee. Carry forward unabsorbed application u/s 11 and 13 - excess of expenditure over income - Held that - Income derived from the trust property has to be determined on commercial principles and if commercial principles for determining the income are applied, it is but natural that the adjustment of the expenses incurred by the trust for charitable and religious purposes in the earlier year against income earned by the trust in the subsequent year will have to be regarded as application of income of the trust for charitable and religious purposes in the subsequent year in which such adjustment has been made having regard to the benevolent provisions contained in section 11 of the Act and will have to be excluded from the income of the trust under section 11(1)(1) of the Act In favor of assessee

Summary

Issues:
1. Deletion of addition under section 12(1) of the Income Tax Act, 1961
2. Carry forward of excess expenditure over income to subsequent years

Issue 1: Deletion of addition under section 12(1) of the Income Tax Act, 1961

The appellant-Revenue challenged the order of the Income Tax Appellate Tribunal (Tribunal) regarding the addition of Rs. 31,03,25,670 under section 12(1) of the Income Tax Act, 1961. The Tribunal had deleted this addition. The High Court noted that a similar issue had been addressed in a previous case where it was held that income in the form of voluntary contributions made with a specific direction to form part of the corpus of the trust should not be included in the total income. Relying on this precedent, the High Court found no reason to take a different view. Therefore, the appeal on this issue was dismissed.

Issue 2: Carry forward of excess expenditure over income to subsequent years

In another case, the respondent, a trust registered under the Societies Registration Act for promoting science and technology, had its assessment completed with a total income of Rs. 6,04,34,990. The Commissioner of Income Tax (Appeals) allowed the grant received from the Government of Gujarat amounting to Rs. 34,96,48,719 to be carried forward and set off against the income of the succeeding year. The Revenue challenged this decision before the Tribunal. The Tribunal, following a precedent set by the High Court, held that income derived from property held under trust for charitable or religious purposes, when applied for such purposes, should be excluded from the trust's income for assessment. The Tribunal further explained that adjusting expenses incurred for charitable and religious purposes in an earlier year against income earned in a subsequent year can be considered as applying income for charitable and religious purposes in the subsequent year. The High Court, noting a similar judgment by the Delhi High Court, upheld the Tribunal's decision. As no new material aspect was presented for reconsideration, the appeal was dismissed.

In conclusion, the High Court upheld the Tribunal's decisions in both issues, emphasizing the application of income for charitable and religious purposes and the exclusion of certain contributions from total income. The appeals were dismissed accordingly.