2019 (3) TMI 386 - AT - Income Tax

Carry forward of deficit on account of excess expenditure - Accumulation of income u/s.11(1)(a) - whether double benefit to the assessee, first as accumulation of income u/s.11(1)(a) or as corpus donation u/s 11(1)(d) in earlier years/current year and then as application of income u/s 11(1)(a) in the subsequent years - HELD THAT - Consistent view taken by Hon ble Courts and co-ordinate Benches of the tribunal in favour of the tax-payer on this issue of carry forward of excess of expenditure incurred towards the object of the trust over income of the tax-payer trust from property held for charitable purposes to the subsequent years to be set off against income/surplus of the subsequent years, we dismiss the appeal of the Revenue by adjudicating this issue in favour of the assessee. Pendency of revenue SLP - HELD THAT -SLP in the case of MIDC was dismissed by the Hon ble Supreme Court vide orders dated 13.12.2017, in CA No. 009813/2014 reported in CIT VERSUS RAJASTHAN AND GUJARATI CHARITABLE FOUNDATION POONA 2017 (12) TMI 1067 - SUPREME COURT No hesitation in holding that the assessee would be entitled to carry forward excess of expenditure incurred towards objects of the trust over income from property held for charitable purposes being deficit for the impugned year to be carried forward to subsequent years to be set off against income of the subsequent years. The Revenue fails in its appeal.

Issues Involved:
1. Allowance of carry forward of deficit of ?14,30,11,390/-.
2. Applicability of double benefit to the assessee.
3. Applicability of the Bombay High Court's judgment in the case of Institute of Banking Personnel Selection.
4. Existence of express provision in the Income Tax Act for such claims.

Detailed Analysis:

1. Allowance of Carry Forward of Deficit:
The primary issue was whether the assessee’s expenditure exceeding its income by ?14,30,11,390/- for the assessment year 2010-11 could be allowed to be carried forward to subsequent years. The assessee trust, registered under Section 12A of the Income Tax Act, claimed exemption under Section 11. The Assessing Officer (AO) disallowed the carry forward of the deficit, but the CIT(A) allowed it. The CIT(A) relied on the Bombay High Court's judgment in the case of CIT vs. Institute of Banking Personnel Selection, which held that excess expenditure in earlier years could be adjusted against the income of subsequent years and should be treated as application of income for charitable purposes in the subsequent year. This view was supported by several other judgments, including those of the Gujarat High Court and the ITAT, Mumbai Bench.

2. Applicability of Double Benefit:
The Revenue argued that allowing the carry forward of the deficit would result in double benefit to the assessee. The first benefit would be the accumulation of income under Section 11(1)(a) or as corpus donation under Section 11(1)(d) in earlier/current years, and the second as the application of income under Section 11(1)(a) in subsequent years. The CIT(A) and the ITAT rejected this argument, stating that the income derived from trust property should be computed on commercial principles, allowing the adjustment of expenses incurred for charitable purposes in earlier years against the income earned in subsequent years.

3. Applicability of the Bombay High Court's Judgment:
The CIT(A) and the ITAT relied heavily on the Bombay High Court's judgment in the case of CIT vs. Institute of Banking Personnel Selection. The High Court had held that the excess of expenditure in earlier years could be adjusted against the income of subsequent years, and such adjustment should be treated as application of income for charitable purposes. This judgment was consistently followed in other cases, including those of the Bombay High Court and the ITAT.

4. Existence of Express Provision in the Income Tax Act:
The Revenue contended that there was no express provision in the Income Tax Act permitting the allowance of such claims. The CIT(A) and the ITAT, however, held that the Act should be interpreted in a manner that aligns with commercial principles and the benevolent provisions contained in Section 11. They concluded that the adjustment of expenses incurred for charitable purposes in earlier years against the income of subsequent years should be regarded as application of income for charitable purposes.

Conclusion:
The ITAT upheld the CIT(A)'s decision, allowing the carry forward of the deficit of ?14,30,11,390/- to subsequent years. The tribunal dismissed the Revenue's appeal, affirming that the assessee was entitled to carry forward the excess expenditure over income to be set off against the income of subsequent years, in line with the Bombay High Court's judgment and other supporting case laws. The tribunal also noted that the Revenue's SLP in a similar case (MIDC) had been dismissed by the Supreme Court, reinforcing the decision.

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