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TMI Blog2018 (11) TMI 946X X X X Extracts X X X X X X X X Extracts X X X X ..... av, Judicial Member And Shri Amarjit Singh, Accountant Member For the Assessee : Kruti Kothari, C.A For the Revenue : Shri Prasanjit Singh, CIT,DR ORDER PER AMARJIT SINGH, ACCOUNTANT MEMBER: This revenue s appeal for A.Y. 2013-2014, arises from the order of the Learned Commissioner of Income Tax (Appeals)-3, Surat, dated 30/12/2016 in proceedings under section 143(3) of the Income Tax Act, 1961; in short the Act . 2. The solitary ground of revenue is against allowing set off of excess expenditure of earlier years amounts to application for the purpose of section 11 of the Act. 3. Briefly stated fact of the case is that assessee has filed its return of income declaring income of Rs.Nil on 02/06/2004. Subsequently, the case was selected for scrutiny by issuing notice u/s.143(2) of the Act, on 04/09/2015. During the course of assessment proceedings the AO has noticed that assessee has claimed carry forward of the excess application/expenditure of ₹ 5,15,71,748/- pertaining to different period. The details of such expenditure is reproduced below: Sr. A.Y Amount Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income is adjusted to meet the expenses incurred for charitable or religious purposes. Hence, even if the expenses for such purposes have been incurred in the earlier years and the said expenses are adjusted against the income of a subsequent year, the income of such subsequent year can be said to be applied for charitable purposes in the year, in which such adjustment fakes place. In other words, the set off of excess of expenditure incurred over the income of earlier years against the income of a later year will amount to ' application of income ' of such later year (CIT v/s Maharana of Mevar Charitable Foundation ( 1987) 60 CTR (Raj) 40: (1987) 164 ITR 439 ( Raj) RC 23 R 1198 followed in CIT v/s Shni Plot Setambr Murti Pujak Jain Mandal ( 1994) 119 CTR ( Guj) .In CIT v/s Institute of Banking Personnel Selection 264 ITR 110 ( Bom) , it was held that in case of charitable trust whose income is exempt u/s 11 excess of expenditure in the earlier years can be adjusted against income of subsequent years and such adjustment would be application of income for subsequent years. In Govindu Naicker Estate v/s ADIT (2001) 167 CTR (Mad) 303 (2001) 248 ITR 368 ( Mad),it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) the High Court of Delhi held that a Trust can be allowed to carry forward deficit of current year and to set off same against income of sub sequent years .Adjustment of deficit of current year against income of subsequent year would amount to application of income of Trust for charitable purposes in subsequent year within meaning of section 11(1)(a). The cases Siddaramanna Charities Trust v/s CIT (1974) 96 ITR 275 ( Mys) and CIT v/s Matrisva Trus (2000) 242 ITR 20/ (2003) 128 Taxman 261 ( Mad) are also relevant. This issue was debated in CIT vs Fylaharana of Mewar Charitable Foundation (1987) 164 ITR 439 (Raj) and it was opined that application could be considered to have taken place in the year of adjustment , where the earlier year's income was not adequate to absorb the actual expenditure made Thus, a distinction between actual expenditure and application, for the purposes of section 11(1)(a) was made. 8.2.2 The Court referred to a CBDT Circular dt 24.1.1973 wherein it was clarified that the Repayment of loans taken for meeting certain expenditures of earlier years would be considered as application. The Court v/as of the opinion that in the light of the aforesaid ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1 )(a) o f the Ac in view of the above referred to circular. But, if the trust instead of taking a loan incurs expenses for charitable and religious purposes out of the corpus of the Trust, and seeks to reimburse the said amount out of the income of the subsequent year, the Trust would not be entitled to claim exemption in respect of the contention advanced by the to such an anomaly has got to be such reimbursement u/s 11(1 )(a) of the Act, if Revenue is accepted. The construction which leads avoided . There is noting in the language of section 11(1)(a) of the Act to indicate that the expenditure incurred in the earlier year cannot be met out of the income of the subsequent year or that utilization of such income earlier year, would not amount to such income religious purposes: 8.2.4 The Hon 'ble High Court of Bombay in CIT v/s Institute of Banking Personnel Selection ( 2003 ) 246 income derived from the trust property has also got to be computed on commercial principles and if commercial principles are applied, then adjustment of expenses incurred by the trust for charitable and religious purposes in the earlier years against the income earned by the trust in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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