2019 (2) TMI 526 - AT - Income Tax

Exemption u/s 11 - AO has denied the said carry forward of the excess of expenditure of income - Held that - The assessee is a Charitable Trust which is registered with the Director of Income Tax (Exemption), Mumbai u/s. 12A and u/s. 80G of the Act. The assessee had claimed an amount of ₹ 2,33,03,449/- as excess expenditure over income being deficit to be carried forward for setting it off in subsequent years. The AO has denied the said carry forward of the excess of expenditure of income which has been later allowed by the CIT(A) based upon the decision of Hon ble Bombay High Court in the case of CIT v. Institute of Banking Personnel Selection(IBPS) 2003 (7) TMI 52 - BOMBAY HIGH COURT . We have observed that the Hon ble Courts/Tribunal had taken consistent stand that in case of Charitable Trust excess expenditure over income is to be allowed to be carried forward for setting off against income of subsequent years . We do not find any reason to deviate from the consistent stand taken by the Hon ble Courts/ Tribunal and Respectfully following aforesaid decision(s) as enumerated in preceding para s of this order, we allow the carry forward of excess expenditure over income of ₹ 2,33,03,449/- to be carried forward to subsequent years . Thus, we confirm/affirm decision of learned CIT(A) and dismiss the appeal of the Revenue. We order accordingly.

Issues Involved:
1. Carry forward of deficit and set off against income of subsequent years.
2. Absence of express provision in the Income Tax Act, 1961 for allowance of such claims.
3. Reliance on the judgment of the Hon'ble Bombay High Court in the case of Institute of Banking Personnel Selection.
4. Department's stance on the issue pending adjudication before the Hon'ble Supreme Court.

Detailed Analysis:

1. Carry forward of deficit and set off against income of subsequent years:
The primary issue in this case revolves around whether the assessee, a charitable trust, can carry forward a deficit of ?2,33,03,449/- and set it off against income in subsequent years. The Assessing Officer (AO) initially denied this claim, arguing that there is no provision in the Income Tax Act, 1961, which allows for such a determination of loss while computing taxable income under Section 11. The AO stated that the scheme of computation of business income does not apply to the determination of income under Section 11, and any excess expenditure over income cannot be carried forward for future set off.

2. Absence of express provision in the Income Tax Act, 1961 for allowance of such claims:
The AO's argument was based on the absence of an express provision in the Income Tax Act, 1961, permitting the allowance of such claims. The AO contended that allowing the carry forward of the deficit would result in double deduction, which is not permissible under the Act. The AO further noted that any excess expenditure over income is either out of accumulated income, corpus fund, or loans, and none of these can be subjected to further deduction.

3. Reliance on the judgment of the Hon'ble Bombay High Court in the case of Institute of Banking Personnel Selection:
The Commissioner of Income Tax (Appeals) [CIT(A)] allowed the appeal of the assessee, relying on the judgment of the Hon'ble Bombay High Court in the case of Institute of Banking Personnel Selection (264 ITR 110). The CIT(A) held that the assessee's case is squarely covered by this judgment, which allows the adjustment of excess expenditure of earlier years against the income of subsequent years. The CIT(A) directed the AO to allow the carry forward of the deficit in the succeeding years after due verification of facts.

4. Department's stance on the issue pending adjudication before the Hon'ble Supreme Court:
The Department, aggrieved by the appellate order, filed an appeal before the Tribunal. The Department argued that the CIT(A) erred in allowing the carry forward of the deficit, ignoring the fact that there was no express provision in the Act for such a claim. The Department also pointed out that the issue is pending adjudication before the Hon'ble Supreme Court in other cases, including the case of MIDC (SLP (Civil) 9891 of 2014).

Tribunal's Decision:
The Tribunal considered the rival contentions and perused the material on record, including cited case laws. The Tribunal observed that the issue is well-settled by the Hon'ble Bombay High Court in the case of Institute of Banking Personnel Selection (264 ITR 110), which held that excess expenditure in earlier years can be adjusted against the income of subsequent years and should be treated as an application of income for charitable purposes in the subsequent year. The Tribunal also noted that the Hon'ble Bombay High Court has consistently upheld this view in several other cases, including DIT (Exemptions) v. Aditya Birla Foundation, DIT (Exemptions) v. Mumbai Education Trust, and DIT (Exemptions) v. Gem & Jewellery Exports Promotion Council.

The Tribunal affirmed the decision of the CIT(A) and dismissed the appeal of the Revenue, allowing the carry forward of excess expenditure over income of ?2,33,03,449/- to be set off against income in subsequent years. The Tribunal emphasized that the consistent stand taken by the Hon'ble Courts/Tribunals should be followed, and there was no reason to deviate from it.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to allow the carry forward of the deficit, relying on the judgment of the Hon'ble Bombay High Court in the case of Institute of Banking Personnel Selection and other similar cases. The appeal of the Revenue was dismissed, and the order of the CIT(A) was affirmed. The Tribunal's decision reinforces the principle that excess expenditure incurred by a charitable trust in earlier years can be adjusted against income in subsequent years, aligning with commercial principles and the benevolent provisions of Section 11 of the Income Tax Act, 1961.

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