2019 (9) TMI 1025 - AT - Income Tax

Assessment of trust u/s 11 - Carry forward excess expenditure for future years against its future income in absence of any express provision in the Act regarding the same - whether the trust has incurred deficit due to excess spending on the object of the trust during the particular year and whether excess expenditure incurred in earlier years by the trust could be allowed to be set off against the income of subsequent year by invoking Section 11 - HELD THAT - The issue is no longer res integra. The Hon ble Gujarat High Court in CIT vs. Shri Plot Shwetamber Murti Pujak Jain Mandal 1993 (11) TMI 17 - GUJARAT HIGH COURT has rendered decision favourable to the assessee on the very issue. The Hon ble Gujarat High Court has held that there is nothing in the language of Section 11(1)(a) of the Act to indicate that the income from trust property should have been applied for charitable or religious trusts only in the year in which such income has arisen. The expenditure incurred in the earlier year can be met out of the income of the subsequent year and utilization of such income for meeting the expenditure of the earlier year would amount to such income being applied for charitable or religious trusts. Income derived from Trust property has to be computed on commercial principles and consequently deficit arising out of expenditure over income for the previous year should, therefore, be set off against surplus of income over expenditure relating to the subsequent year. Similar view has been expressed in CIT vs. Maharana of Mewar Charitable Foundation 1986 (7) TMI 56 - RAJASTHAN HIGH COURT and CIT vs. Matriseva Trust 1999 (3) TMI 34 - MADRAS HIGH COURT . Whatever little controversy might be existing has been put to rest by the recent decision of the Hon ble Supreme Court in the case of CIT(Exemption) vs. Subros Education Society 2018 (4) TMI 1622 - SC ORDER . Hence, the CIT(A) in our view has correctly applied the law as evolved by the judicial precedents. In the absence of any infirmity in the order of the CIT(A), we decline to interfere therewith. - Decided against revenue.

Summary

Issues:
- Allowance of carry forward excess expenditure for future years against future income in absence of express provision in the Act.

Analysis:
The appeal was filed by the Revenue against the order of the Commissioner of Income Tax (Appeals) concerning the assessment order passed by the Assessing Officer under section 143(3) of the Income Tax Act for the Assessment Year 2013-14. The ground of appeal raised by the Revenue was related to the allowance of carry forward excess expenditure for future years against future income in the absence of any express provision in the Act regarding the same. The assessee, a public charitable trust, had claimed the set off of deficits from an earlier year, which was disallowed by the Assessing Officer. However, the Commissioner of Income Tax (Appeals) allowed the carry forward of excess expenses over the next years.

The main issue for adjudication was whether the trust had incurred a deficit due to excess spending on the object of the trust during a particular year and whether excess expenditure incurred in earlier years could be allowed to be set off against the income of subsequent years by invoking Section 11 of the Act. The Tribunal referred to various judicial precedents, including a decision by the Hon'ble Gujarat High Court, which held that income derived from Trust property should be computed on commercial principles, and deficits arising from expenditure over income for the previous year should be set off against the surplus of income over expenditure in the subsequent year. The Tribunal also cited decisions from other High Courts and a recent decision of the Hon'ble Supreme Court to support the principle that such set-offs are permissible. Consequently, the Tribunal held that the Commissioner of Income Tax (Appeals) had correctly applied the law as per the judicial precedents, and there was no infirmity in the order. Therefore, the appeal filed by the Revenue was dismissed.

In conclusion, the Tribunal upheld the decision of the Commissioner of Income Tax (Appeals) to allow the carry forward of excess expenditure for future years against future income, based on established legal principles and judicial precedents, ultimately dismissing the appeal filed by the Revenue.