2021 (4) TMI 266 - HC - Income Tax

Assessment of trust - Brought forward of excess application and carry forward of excess application of income of current year to subsequent years - HELD THAT - Excess application of a charitable fund in a particular year is allowed to be carried forwarded to subsequent year for set off against any shortfall in spending in that year under the provisions of fact - expenses incurred by the trust in earlier years against the income earned by the trust in subsequent year will have to be regarded as application of income of trust. Identical issue has been considered by Hon ble Karnataka High Court in case of CIT (E) vs Ohio University Christ College 2018 (11) TMI 1055 - KARNATAKA HIGH COURT wherein allowed claim of assessee - Decided against revenue.

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Entitlement of the assessee to claim brought forward and carry forward of excess application of income.
3. Whether such claims amount to double deduction when the income is already exempt.

Detailed Analysis:

1. Condonation of Delay:
The court addressed the delay of 65 days in filing the appeal. After considering the reasons mentioned in the application, the court allowed the delay, stating, "I.A.No.1/2020 stands allowed for the reasons mentioned in the application for condonation of delay."

2. Entitlement to Claim Brought Forward and Carry Forward of Excess Application:
The primary issue was whether the assessee, an educational society, could claim the brought forward of excess application and carry forward of excess application of income to subsequent years. The Tribunal had dismissed the revenue's appeal, relying on the Karnataka High Court's decision in CIT (E) vs. Ohio University Christ College (2018) 99 taxman.com 377.

The Tribunal noted that the issue had been considered in various cases and that the excess application of a charitable fund in a particular year is allowed to be carried forward to subsequent years. The Tribunal referenced the decision in CIT v. Society of the Sisters of St. Anne (1984) 146 ITR 28 (Kar.), which held that depreciation, even if it does not involve cash outflow, is considered an expenditure and thus an application of income for charitable purposes.

The Tribunal's findings were based on the principle that income should be understood in its commercial sense, as supported by CBDT Circular No.5-P (LXX)-6 of 1968. The Tribunal concluded that the amortization of expenses was justified and upheld the CIT (A)'s decision to allow the claim.

3. Double Deduction and Exemption of Income:
The court examined whether allowing the brought forward and carry forward of excess application amounted to double deduction, given that the income was already exempt. The Tribunal had found that the application of income for charitable purposes must be during the relevant previous year, and the trust is required to utilize 85% of the income of the previous year for charitable purposes. However, the Tribunal held that the adjustment of expenses incurred in earlier years against the income of subsequent years is permissible under commercial principles.

The court agreed with the Tribunal's reliance on the decision in CIT v. Society of the Sisters of St. Anne and the CBDT Circular, which supported the view that such adjustments are valid. The court also referenced the Bombay High Court's decision in CIT Vs Institute of Banking Personnel Selection (IBPS) 2003 264 ITR 110/131 Taxman 386, which held that income derived from trust property should be computed on commercial principles, allowing for the adjustment of expenses incurred in earlier years.

Conclusion:
The court concluded that the controversy had already been decided by the Division Bench in the case of Ohio University Christ College. Therefore, the Tribunal was justified in its decision. The substantial question of law framed in the present appeal was decided against the revenue and in favor of the assessee. Consequently, the appeal was dismissed: "In the light of the facts that the controversy involved has already been decided, the question of law framed in the present appeal is decided against the revenue and in favour of the assessee. Appeal stands dismissed."

← Previous Next →