2020 (10) TMI 238 - AT - Income Tax

Exemption u/s 11 - 15% of gross receipts allowed to be accumulated u/s 11(1)(a) ought to be reduced from the amount allowed to be carried forward as deficit - whether where a trust has incurred shortfall due to its excess spending on the objects of the Trust in a particular year, such deficit or shortfall could be allowed to be carried forward in full for set off against the incomes generated in the subsequent years or the quantum of carry forward of deficit for set off against income of subsequent years is to be restricted to a recalibrated amount after deduct ion of 15% of receipts contemplated under s.11(1)(a) and Sect ion 11(1) (b)? - HELD THAT - Where an assessee trust has made excess application of its income, the option or entitlement vested upon an assessee to accumulate 15% for indefinite period in our view cannot operate as an obligation enforceable against it in the absence of accumulation. The method of computation of deficit to be truncated artificially 15% based on an entitlement (opposed to an obligation) as suggested by first appellate authority is totally devoid of any logic. This would tantamount to application of concession conferred on assessee in a reverse manner and thus put the assessee in a worser position in the event of accelerated application of receipts for salutary purposes. The action directed by CIT(A) has the effect of deprivation of concession granted and is repugnant to the intended outcome. The Pune Bench of Tribunal in Maharshi Karve Stree Shikshan Samstha Karvenagar vs. ITO 2019 (1) TMI 1260 - ITAT PUNE has also essentially held that relaxations conferred u/s 11(1)(a) /(b) r.w. Section 11(2) of the Act to the extent of 15% of income would not nullify the entitlement of such absolute nature by way of reduction in quantum of deficit. We thus have no hesitations to quash the observations of the first appellate authority towards exclusion of 15% of income for the purposes of determination of quantum of deficit to be carried forward for set off in ensuing years in accordance with law. - Decided in favour of assessee.

Summary

Issues Involved:
Appeal against order of CIT(A) reducing quantum of deficit eligible for carry forward and set off in subsequent years by 15% of income under s.11(1)(a) of the Income Tax Act, 1961.

Detailed Analysis:

1. Background and Appeal:
The appeal was filed by the Assessee against the order of the Commissioner of Income Tax (Appeals) concerning the assessment order passed by the Assessing Officer under s. 143(3) of the Income Tax Act, 1961 for AY 2015-16.

2. Assessee's Claim:
The Assessee, a public charitable trust, claimed carried forward deficit for the year under consideration along with deficits of other assessment years. The Assessing Officer denied the carry forward of excess application over contributions as 'deficit.' The CIT(A) allowed carry forward of excess expenses but directed to exclude 15% of income from the deficit eligible for carry forward.

3. Grounds of Appeal:
The Assessee appealed against the reduction in the deficit to the extent of 15% of income allowed to be accumulated by a trust under s.11(1)(a) of the Act.

4. Arguments and Decision:
The Assessee contended that the trust should be entitled to the whole deficit without any reduction. The Tribunal analyzed the statutory provisions under s.11 of the Act, emphasizing the trust's entitlement to accumulate 15% of income without any time limit. The Tribunal held that the reduction of deficit by 15% based on an entitlement, not an obligation, was illogical and deprived the Assessee of a concession granted by law.

5. Legal Interpretation:
The Tribunal observed that the law on accumulation of income cannot be extended to its application. It noted that the Assessee had not availed the entitlement of accumulating 15% of income, making it unjust to artificially reduce the deficit. Referring to previous judgments, the Tribunal quashed the CIT(A)'s decision to exclude 15% of income from the deficit for carry forward.

6. Conclusion:
The Tribunal allowed the Assessee's appeal, emphasizing that the reduction in the quantum of deficit by 15% of income for carry forward and set off in subsequent years was contrary to law. The decision was based on the principle that the Assessee, having spent in excess for charitable purposes, should not be penalized by reducing the deficit eligible for carry forward.

This comprehensive analysis highlights the key legal arguments, statutory provisions, and the Tribunal's decision in favor of the Assessee, ensuring a detailed understanding of the judgment.