2016 (2) TMI 399 - AT - Income Tax

Carry forward of the deficit being the excess application of income to be set off against the income from property - whether the excess application of income during the year for charitable purposes can be carries forward and allowed to be set off in future years? - Held that - AO directed to allow the carry forward of the amount of excess income applied during the year to the future year for set off against the income. - Decided in favour assessee.

Summary

Issues involved:
1. Denial of carry forward of deficit for excess application of income for charitable purposes.
2. Interpretation of provisions related to carry forward of excess application of income for charitable purposes.
3. Comparison of decisions by different Tribunals and High Courts regarding the treatment of excess application of income.

Detailed Analysis:
Issue 1: The assessee raised grounds of appeal against the denial of carry forward of the deficit due to excess application of income for charitable purposes. The CIT(A) upheld the denial, citing precedents from the Mumbai Bench and another case. The assessee contended that the carry forward of the deficit for set off against future incomes from property held under trust is permissible and not prohibited under the Act. The Tribunal was approached by the assessee against the lower authorities' decision.

Issue 2: The main issue in appeal was whether the excess application of income for charitable purposes during a year can be carried forward and allowed to be set off in future years. The Tribunal referred to a Co-ordinate Bench decision in a similar case, which held that such excess application can be regarded as application of income for future years and can be adjusted accordingly. The Tribunal emphasized that the income of charitable trusts should be computed on commercial principles, and there is no limitation in the relevant section regarding the timing of application of income.

Issue 3: The Tribunal compared decisions from different High Courts and Tribunals regarding the treatment of excess application of income for charitable purposes. It noted that while the Delhi High Court emphasized current year's income for investment under a specific section, the Bangalore Tribunal consistently followed the view that excess application can be adjusted against future incomes based on precedents from the Bombay High Court and Gujarat High Court. The Tribunal directed the Assessing Officer to allow the carry forward of the excess income applied during the year for set off against future incomes, in line with the Co-ordinate Bench decision.

In conclusion, the Tribunal allowed the appeal filed by the assessee, directing the Assessing Officer to permit the carry forward of the amount of excess income applied during the year for set off against future incomes. The decision was based on the interpretation of provisions related to charitable trusts and the treatment of excess application of income, following relevant judicial precedents and principles.