2015 (10) TMI 2416 - AT - Income Tax

Carry forward of excess expenditure of earlier years against the current year income - Held that - The principle that the loss incurred under one head can only be set off against the income from the same head is not of any relevance, if the expenditure incurred was for religious or charitable purposes, and the expenditure adjusted against the income of the trust in a subsequent Year, would not amount to an incidence of loss of an earlier year being set off against the profit of a subsequent year. The object of the religious and charitable trust can only be achieved by incurring expenditure and in order to incur that expenditure, the trust should have an income. So long as the expenditure incurred is on religious or charitable purposes, it is the expenditure properly incurred by the trust, and the income from out of which that expenditure is incurred, would not be liable to tax. The expenditure, if incurred in an earlier year is adjusted against the income of a later year, it has to be held that the trust had incurred expenditure on religious and charitable purposes from the income of the subsequent year, even though the actual expenditure was in the earlier years, if in the books of account of the trust such earlier expenditure had been set off against the income of the subsequent year. The expenditure that can be so adjusted can only be expenditure on religious and charitable purposes and no other. The High Court relied on the decision in the case of CIT Vs. Society of Sisters of ST. Anne (1983 (8) TMI 44 - KARNATAKA High Court). - Decided in favour of assessee.

Summary

Issues:
1. Claim of excess expenditure of earlier years to be carried forward and claimed against the current year income for assessment year 2009-10.

Analysis:
The appeal was filed by the Revenue against the order of the CIT(A), Mysore, directing the Assessing Officer (AO) to allow the claim of excess expenditure of earlier years to be carried forward and claimed against the current year income for the assessment year 2009-10. The AO disallowed the claim of the assessee of treating earlier years brought forward expenditure as applied during the concerned assessment year and brought it to tax. The CIT(A) considered various decisions and followed the ITAT, Bangalore Bench's decision in a similar case to hold the issues in favor of the assessee. The Revenue challenged the relief given by the CIT(A) before the ITAT.

The ITAT analyzed the issue extensively, considering previous decisions and legal precedents. It noted that the Tribunal had allowed the Revenue's appeals, citing a decision by the Bombay High Court regarding the treatment of excess spending for charitable purposes. However, the ITAT also referred to its own decision in a separate case related to the application of income for charitable or religious purposes. The ITAT emphasized that the application for charitable purposes under section 11(1)(a) could occur in a subsequent year by adjusting expenses from earlier years against the income of the later year, as supported by legal precedents and judgments from various High Courts. The ITAT concluded that the order of the CIT(A) was in line with the established legal principles and precedents, leading to the dismissal of the Revenue's appeal.

In summary, the ITAT upheld the CIT(A)'s decision to allow the claim of excess expenditure of earlier years to be carried forward and claimed against the current year income for the assessment year 2009-10. The judgment was based on a thorough analysis of legal precedents and interpretations related to the application of income for charitable or religious purposes, ultimately dismissing the Revenue's appeal.