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TMI Blog2016 (1) TMI 444X X X X Extracts X X X X X X X X Extracts X X X X ..... BER Appellant by : Shri. Raghavan. M, Advocate Respondent by : Shri.Sunil Kumar Agarwala, JCIT ORDER PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : These are appeals filed by Revenue directed against an order dt.25.02.2014 of CIT (A) V, Bengaluru, for the impugned assessment years. 02. Grounds taken by the Revenue are as under : 1) The CIT(A) has erred in interpreting the provisions of section 11(1)(a) and coming to the conclusion that expenditure incurred in excess of 85% of the income or to the extent of accumulation permitted u/s 11(1)(a) can be allowed as excess application of income/ deficit/ loss and the same is eligible for carry forward and set off against the income of subsequent years. 2) The CIT(A) has failed to appreciate the fact that the question of allowing accumulation/ set apart of income u/s 11(1)(a) would come into picture only in the event of assessee s failure to utilize/ apply 100% of the income in the same year itself and in such case the unutilized/ applied portion of the income varying from 15% to 0% of income, as the case may be, shall be allowed as income accumulated/ set apart u/s 11(1)(a). 3) The CIT(A) has erred in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and carry forward and set off of the same against the income of subsequent assessment years. 03. A careful perusal of the above grounds show that Revenue is aggrieved on calculation of the deficit carry forward after considering 15% of the receipts as exempt while computing the income of assessee trust. There is no dispute that assessee trust was registered u/s.12A of the Income-tax Act, 1961 ( the Act in short), and eligible for claiming exemption u/s.11 and 12 of the Act. During the impugned assessment years it had filed nil return and had also claimed carry forward of deficit. AO did not allow the claim of depreciation as a part of its application of income since, according to him the entire amount of capital expenditure incurred by the assessee for acquiring the assets on which depreciation was claimed were already allowed as utilisation. Though there remained a deficit even after such disallowance, it was not allowed to be carried forward by the AO. 04.Assessee moved in appeal before the CIT (A) assailing both disallowance of depreciation and also not allowing it the benefit of carry forward of deficit. CIT (A) reworked the income of assessee trust for the relevant pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Less Deficit (PY) 7509933 10213422 Total Income 68089478 101953533 15% (u/s.11(1)(a) 10213422 15293030 Balance (85%)* 57876056 86660503 Expenditure Revenue expenditure 50985934 63967450 (incl.depreciation on assets (8964755) (11612545) Utilisation on assets (incl WIP) 48321761 47754189 Loan repayment 6400000 Total expenditure 105707695 111721639 Surplus /deficit 478331639 25061136 He directed the AO to allow the deficit as per the above table. It appears, CIT (A) allowed the claim of depreciation to the assessee. 06.Now before us, the Ld. DR submits that 15% accummulat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000 are actually applied during the previous year by the said trust to such charitable or religious purposes the income of ₹ 20,000 will get exempted from being considered for the purpose of income-tax under the first part of section 11(1). So far as the remaining ₹ 80,000 are concerned if they could not be actually applied for such religious or charitable purposes during the previous year then as per section 11 (1) (a) at least 25 per cent, of such total income from property or ₹ 10,000, whichever is higher, will also earn exemption from being considered as income for the purpose of income-tax, that is, ₹ 25,000 will thus get excluded from the tax net. Thus out of the total income of ₹ 1,00,000 which has accrued to the trust ₹ 25,000 will earn exemption from payment of income-tax as per section 11(1) (a), second part. Then follows sub-section (2) which states that the ceiling or the limit or the restriction of accumulation of income to the extent of 25 per cent, of the income or ₹ 10,000, whichever is higher, for earning incometax exemption as engrafted under section 11(1) (a) will get lifted if the money so accumulated is invested as laid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , is invested as laid down by section 11(2) after following the procedure laid down therein. Therefore, subsection 20 (2) only will have to operate qua the balance of 75 per cent, of the total income of the previous year or income beyond ₹ 10,000, whichever is higher, which has not got the benefit of tax exemption under subsection (l)(a) of section 11. If learned counsel for the Revenue is right and if 100 per cent, of the accumulated income of the previous year is to be invested under sub-section (2) of section 11 to get exemption from income-tax, then the ceiling of 25 per cent, or ₹ 10,000, whichever is higher, which is available for accumulation of income of the previous year for the trust to earn exemption from income-tax as laid down by section 11(1) (a) would be rendered redundant and the said exemption provision would become otiose. It has to be kept in view that out of the accumulated income of the previous year an amount of ₹ 10,000 or 25 per cent, of the total income from property, whichever is higher, is given exemption from income-tax by section 11(1) (a) itself. That exemption is unfettered and not subject to any conditions. In other words, it is an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e scope of exemption, removes the restriction imposed by section 11(1) (a), but it does not take away the exemption allowed by section 11(1) (a). On the express language of sections 11(1) and 11(2) as they stood on the statute book at the relevant time, no other view is possible. In the light of the aforesaid discussion and keeping in view the illustration which we have given earlier, the combined operation of section 11(1) (a) and section 11(2) as applicable at the relevant time would yield the following result: (i) If the income derived from property held under trust wholly for charitable or religious purposes during the previous year is ₹ 1,00,000 and if ₹ 20,000 therefrom are actually applied to such purposes in India then those ₹ 20,000 will get exempted from payment of income-tax as per the first part of section 11(1)(a). (ii) Out of the remaining accumulated income of ₹ 80,000 for the previous year, a further sum of ₹ 25,000 will get exempted from payment of income-tax as per the second part of section 11(1) (a). Thus, out of the total income derived from property as aforesaid during the previous year, that is, ₹ 1,00,000, ₹ 45 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st the subsequent years' surplus. Though the assessee has not specifically sought for any carry forward benefit, for the assessment years up to 2005-06 the assessee filed the return of income where the surplus was determined and the application was made during the years have been declared. In the earlier years the assessee had not specifically sought for any carry forward benefit. Surplus is being determined for the purpose of section 11 and not u/s.28. While processing the assessment for the Assessment Year 2006-07 the Assessing Officer raised the issue and in order to enable the Assessing Officer to ascertain the excess application in the preceding year the assessee filed application u/s.154 to enable the Assessing Officer to quantify such excess application in the relevant year. The assessee filed the application u/s.154 up to assessment years 2004-05 in fact to enable the officer to ascertain the actual surplus of the application which was required to be set off against the surplus against the Assessment Year 2006-07. For Assessment Years 2004-05 and 2005-06 in the returns itself the claim was made and the excess surplus was shown. For this assessment year the assessment ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he revenue is to be dismissed. 13. Considering the rival submissions we are of the view that all the appeals preferred by the revenue is to be allowed. The assessee is relying on the decision of the Bombay High Court in the case of Institute of Banking (supra) whereas the revenue is relying on the decision of the Tribunal, Bombay Bench in VII ITO v. Trustees of Sathya Sai Trust in (1990) 33 ITD 320. In this case the Tribunal held the deficit arising as a result of excess spending for charitable purposes will not form part of the income and the same cannot be carried forward. With regard to the point whether excess spending will form or not form part of the total income and, therefore, it could be carried forward or not is decided by the Hon'ble Bombay High Court in the case Institute of Banking (supra) in assessee's favour. In that case, however, it was a regular assessment and not 154 order as in the instant case of the assessee. There was no specific claim as such by the assessee in the instant case. Therefore, the facts are distinguishable. No doubt in the above case, Revenue succeeded for a reason that the order assailed by the assessee was one u/s.154 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X
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