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TMI Blog2013 (12) TMI 781X X X X Extracts X X X X X X X X Extracts X X X X ..... Vijayaraghavan, J.M.,JJ. For the Appellant : Smt. K. Haritha For Respondent : None ORDER Per Smt. Asha Vijayaraghavan, J. M. This appeal is filed by the Revenue against the Order of the CIT(A)-IV, Hyderabad dated 22.12.2011 for the assessment year 2005-2006. 2. The assessee trust, which is engaged in carrying Scientific Research in the area of Bio Medical Science, had filed its return of income for the A.Y. 2005-06 on 4.7.2006 declaring NIL income after claiming exemption u/s. 10(21) of the Act. An assessment u/s. 143(3) of the Act was made in its case on 12.12.2007. Subsequently, it was noticed that the assessee had not filed Form No. 10. Accordingly, a notice u/s. 148 was issued and a re- assessment order was passed determining the total income at Rs.55,73,560/-. 3. During the reassessment proceedings, the Assessing Officer noticed that the assessee had declared gross receipts of Rs. 1,50,33,273/- and had arrived at a surplus of Rs. 55,73,560/ - after claiming expenditure under various heads. The Assessing Officer opined that as per sec. 11 (2)(a) of the Act, if the assessee accumulates or sets apart more than 15% of the gross receipts, the assessee has to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was alternatively argued that the assessee was not given an opportunity to file Form No. 10 during the reassessment proceedings. 7. In respect of the Assessing Officer's observation that the assessee had not produced the books of account during the course of reassessment proceedings, it was submitted that in the original assessment order which had been passed on 12.12.2007, the Assessing Officer had mentioned that the AR of the assessee appeared and furnished the books of accounts, vouchers for expenses, information called for. 8. The learned A.R. of the assessee submitted before the CIT(A) that it is an admitted position of law that excess expenditure of earlier years should be considered as application of income during the current year. This position had been laid down clearly by the Hon'ble Rajasthan High Court in the case of CIT Vs. Maharana of Mewar Charitable Foundation (164 ITR 439). It was further submitted that the Court held that there is nothing in the language of Sec.11(1)(a) which lends support to the contention that the expenditure incurred in the earlier year cannot be met out of the income of the subsequent year and utilization of such income for meeting the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound to be correct, the surplus should be arrived at after setting of the same from the surplus of Rs. 55,73,560/ - during the current year. The Assessing Officer is directed to compute the total income of the assessee accordingly". 11. Aggrieved the department is in appeal before us. 12. We have heard both the parties and perused the material available on record. The Hon'ble Madras High Court in the case of Gonvindu Naicker Estate vs. ADIT and another (2001) 248 ITR 368 (Mad.) HC) followed the decision in the case of CIT, Tamilnadu-1 vs. Rao Bahadur Calavala Cunnan Chetty Charities (1982) 135 ITR 485 (Mad.) (HC) wherein it has been held as follows : "Sec. 11 contemplates an application of the income for charitable purposes. The charity can accumulate 25 per cent of the income. The application as well as the accumulation has necessarily to be the income as accounted for in the accounts, and not as computed under the IT Act, subject of course to what is provided in sub- s. (4) of s. 11. The expression "income" has to be understood in the popular or general sense and not in the sense in which the income is arrived at for purpose of assessment to tax by the application of some a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... some surplus but the surplus would be referable to the educational institutions as such. Sec. 10(22) would exempt the whole of the income. Though the schools themselves do not appear to be held in trust, they are institutions brought into existence by the trust and, therefore, the income would be eligible for exemption. In fact, in the present case, there is a finding by the Tribunal that the trust was not carrying on any business of running these schools. In view of this finding the exemption in its full amplitude as contemplated by s. 10(22) would apply. The question of 25 per cent accumulations would, therefore, have no relevance in the context of s. 10(22)." 13. We also find that the Gujarat High Court has in the decision of CIT vs. Shri Plot Swetamber Murti Pujak Jain Mandal (1995) 211 ITR 293 (Guj.) has held as follows : "A bare perusal of the provisions of ss. 11(1)(a), 11(2) and 11(3) shows that the income derived from the property held under trust wholly for charitable or religious purposes to the extent to which such income is applied to such purposes in India is to be excluded for the purposes of computing the income of the trust for the purpose of assessment. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied for charitable or religious purposes. That apart income derived from trust property has to be determined on commercial principles and if commercial principles for determining the income are applied, it is but natural that the adjustment of the expenses incurred by the trust for charitable and religious purposes in the earlier year against income earned by the trust in the subsequent year will have to be regarded as application of income of the trust for charitable and religious purposes in the subsequent year in which such adjustment has been made having regard to the benevolent provisions contained in s. 11 and will have to be excluded from the income of the trust under s. 11(1)(a). The deficit arising out of excess of expenditure over income during the previous year relevant to the assessment year should, therefore, be set off against the surplus of income over expenditure relating to subsequent year in computing the taxable income of the later assessment year." 14. Hence, we confirm the Order of the CIT(A) and direct the A.O. to verify the records and if the claim of the deficit of Rs.46,42,125/- is found to be correct, the surplus should be arrived at after setting of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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