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2018 (10) TMI 1498 - AT - Income TaxExemption u/s 11 - claim of set off of brought forward expenses and carry forward of current year expenditure incurred in excess of its income for setting off against income of the succeeding years and claim it as application of income in the succeeding years - Held that - In Govindu Naicker Estate VS. ADIT 1998 (10) TMI 4 - MADRAS HIGH COURT held that the income of the trust has to be arrived at having due regard to the commercial principles, that s. 11 is a benevolent provision, and that the expenditure incurred on religious or charitable purposes in earlier year or years can be adjusted against the income of the subsequent year. 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. - Decided against revenue.
Issues:
- Whether a trust is entitled to claim set off of brought forward expenses and carry forward of current year expenditure against income of succeeding years as application of income? Analysis: 1. The appeal by the Revenue was against the order of the CIT(Appeals) relating to the assessment year 2012-13, focusing on the issue of whether the trust could claim set off of brought forward expenses and carry forward of current year expenditure against income of succeeding years as application of income. 2. The Assessing Officer (AO) denied the claim of the Assessee, a trust registered u/s. 12A of the Act, stating there was no provision for carry forward of excess expenditure of earlier years to be adjusted against income of subsequent years. 3. The CIT(A) allowed the claim of the Assessee, citing a decision of the ITAT, Bangalore, in a similar case. The CIT(A) worked out the quantum of carry forward to be allowed at a specific amount. 4. The Revenue appealed to the Tribunal, arguing that there is no provision in the Act for computing loss from excess application of income for charitable trusts under sections 11, 12, and 13. 5. The Tribunal considered the submissions and referred to various judicial pronouncements to support its decision. It held that the set-off of excess expenditure incurred over income of earlier years against income of later years can be considered as application of income for later years. 6. Citing cases like CIT Vs. Maharana of Mewar Charitable Foundation, the Tribunal emphasized that expenditure on religious or charitable purposes in earlier years can be adjusted against income of subsequent years for trusts, ensuring that the income remains exempt under section 11. 7. The Tribunal concluded that the appeal by the Revenue lacked merit based on the legal principles and precedents discussed. Consequently, the appeal was dismissed, upholding the decision of the CIT(A) in favor of the Assessee trust. 8. The judgment was pronounced on September 24, 2018, by the members of the Tribunal, and the appeal by the Revenue was dismissed.
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