9911796707
TMI Blog2019 (2) TMI 1133X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of income to the tune of 15% of its income as is provided under second limb of Section 11(1)(a) of the 1961 Act as its expenditure towards the objects of the trust has already exceeded its income from property held for charitable purposes. As provided by Hon ble Bombay High Court in the case of Institute of Banking Personnel Selection(IBPS)(supra), the assessee will be entitled for carry forward of excess of expenditure incurred towards objects of the trust in excess of income from property held for charitable purposes , as is allowable as provided under first limb of provisions of Section 11(1)(a). Both Revenue appeal as well assessee's CO stood dismissed. X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,93,620 as against the actual deficit of ₹ 8,05,52,838 claimed by the assessee. 2. Ground No. 2 - reg. - No Opportunity of being heard: 2.1 The learned CIT(A) erred in not providing the assessee an opportunity of being heard before making the re-computation of deficit to be carried forward. 3. The Respondent craves leave to add, amend or alter the grounds of cross-objection either before or at the time of hearing of the appeal." 4. The solitary issue raised by Revenue in their appeal is with respect to part relief granted by learned CIT(A) while adjudicating first appeal of the assessee by allowing carry forward of deficit being excess of expenditure over income to the tune of ₹ 5,23,93,620/- to subsequent years , as against deficit of ₹ 8,05,52,838/- claimed by the assessee in return of income filed with Revenue to be carried forward to subsequent years which earlier was disallowed by AO in entirety , vide assessment order dated 17.03.2015 framed by the AO u/s 143(3). The brief facts of the case are that the assessee is a trust registered as a Charitable Organization with DIT(E), Mumbai u/s. 12A vide Registration no. 2362 and the trust is also registered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legislature to allow carry forward of any loss or deficit under section 11 of I.T. Act. 3. If the income of the trust is computed on Commercial principles, then the same shall be treated as Income from Other Sources. As per the provisions of Section 74A of the Income Tax Act, loss under the head "Income from Other Sources" can be set off only in respect of income from owning and maintaining race horses. 4. There is no provision which allows determination of loss/ deficit while computing taxable income u/s. 11. This is so because Section 11 prescribes certain conditions for claiming exemption. If 85% or more of the income is applied to objects of the trust during the year, the entire income is to be assessed as exempt. The assessee has a choice to spend a portion of the current income in the succeeding year which it could not spend as per procedure laid down in Section 11(2). 5. The express wording of Section 11 indicates that in order to satisfy the requirements of section 11(2)(b) the investment must necessarily come out of the current years income. An investment made in the past obviously cannot satisfy this requirement. As per the ratio decidendi of decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shewnarain Tantia Trust [1993] 199 ITR 215 has held that heads of income under section 14 have no relevance and question of allowing statutory deductions will not arise. The 'income' contemplated by the provisions of section 11 is the real income and not the income as assessed or assessable. Since the income from property held under trust has to be arrived at in a normal commercial manner and when the income from property held under trust as such is excluded, there is no scope of computing the income from property by applying the provisions of section 14 of the Act. Accordingly Hon'ble Calcutta High Court held that the question of allowing any statutory deductions as contemplated by the different provisions of the Act dealing with different heads of income in computing the income accumulated did not arise. This decision also does not support the contention of the assessee that excess expenditure incurred in earlier year will be set off against the current year's income, in the absence of any provision similar to set off of losses. 6. Hon'ble 1TAT Delhi in the case of Pushpawati Singhania Research Institute for Liver, Renal & Digestive Diseases Vs. DDIT(Exem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed by the AO in its entirety vide assessment order dated 17.03.2015 passed u/s 143(3) of the 1961 Act. The Ld. CIT(A) vide appellate order dated 28.08.2017 allowed part relief by holding as under:- " 7. I have considered the facts of the case and the submissions of the appellant and also discussed the case with the AR of the appellant. On perusal of the facts, I find that the case of appellant is squarely covered in its favour by the judgement of the Hon'ble Bombay High Court in the case of Institute of Banking Personal 264 ITR 110 wherein the Hon. Jurisdictional High Court has observed as under - ..........."5. Now coming to question No, 3, the point which arises for consideration is: whether excess of expenditure in the earlier years can be adjusted against the income of the subsequent year and whether such adjustment should be treated as application of income in subsequent year for charitable purposes? It was argued on behalf of the department that expenditure incurred in the earlier years cannot be met out of the income of the subsequent year and that utilization of such income for meeting the expenditure of earlier years would not amount to application of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overed in favour of the assessee by the Hon'ble Jurisdictional High Court. 7.2 Having held so, I am of the opinion that although the deficit of the year is to be carried forward to the subsequent year in view of the judgment of the Hon'ble Bombay High Court referred to above, the computation of the deficit made by the assessee is not correct. I find that the gross income of the assessee as per the computation is ₹ 18,77,28,122/- and the expenditure on the objects and application of income is ₹ 24,01,21,742/-. Therefore, the real deficit works out to ₹ 5,23,93,620/- and not ₹ 8,05,52,838/- as claimed by the assessee. The assessee has arrived at this figure of deficit after taking into consideration the 15 percent accumulation of income allowed in case the assessee is not able to spend the entire receipts for charitable purposes during the year. This action of the assessee, in my opinion, is not as per the provisions of law. There is no provision in the Act which lays down that even when the entire income has been spent and there is excess of expenditure over income, accumulation at the rate of 15% is to be allowed. The present case before us is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the assessee has argued that accumulation u/s 11(1)(a) was absolute and unfettered irrespective of the fact whether some income was left for application or not. Reliance has been placed on the judgment of Hon'ble Supreme Court in case of additional CIT Vs. ALN Rao Charitable Trust (Supra) and on the judgment of Hon'ble High Court of Bombay in case of CIT Vs. Trustees of Bhat Family Research Foundation (Supra). We have carefully perused the said judgments but do not found any ruling to the effect that accumulation u/s 11 (1) (a) has to be allowed even if the entire income has already been applied during the year. In case of additional CIT Vs. ALN Rao Charitable Trust (Supra) the issue was whether conditions prescribed u/s 11(2) have to be fulfilled even in respect of accumulation mentioned in section 11(1) (a). Hon'ble Supreme Court observed that if the entire income was spent on charitable purposes, then it will never taxable but in case there was saving, 25% or ten thousand whichever was more could not be included in the total income. Hon'ble Supreme Court also observed that section 11(2} further enlarged and liberalized the exemption. The section 11(2 )was pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f special bench of Tribunal in case of Bai Sonabai Hirji Trust Vs. ITO (85 TTJ 907). The Tribunal had not discussed the issue as to whether accumulation can be allowed even if there is no income left. However, on perusal of decision of special bench of Tribunal (Supra) we find, that the issue in the case was not whether the accumulation can be allowed even if the entire income has already been applied, The issue was whether the percentage of accumulation had to be computed with respect to the gross income or net income. Thus the Tribunal in the assessee's own case in assessment year 2005-06 has allowed the claim of the assessee without any discussion on the issue and under the impression that the issue had been decided by the special bench of Tribunal (Supra), in case of Bai Sonabai Hirji Trust Vs. ITO The decision was thus based on incorrect assumption of facts. Such subsistentio order of the Tribunal cannot be considered as binding precedent. The said decision of Tribunal was also followed by another bench of Tribunal in the assessee's own case in the assessment years 97-98 & 98-99 (Supra) in which the Tribunal also referred to the judgment of Hon'ble Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of 25 per cent of the total income is hypothetical situation and it was not envisaged by the legislature. The Hon'ble Bombay High Court in the case of Institute of Banking (supra) have examined the situation where the assessee has incurred or applied the expenditure more than the total income of the trust in a particular year and claimed carry forward of the excess expenditure to succeeding year for its set off against the income of the trust and their Lordships have held that the income derived from the trust property has also got to be computed on commercial principles and if the commercial principles are applied then the adjustments of expenses incurred by the trust for charitable and religious purposes in earlier years against the 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 subsequent years in which the adjustments have been made having regard to the benevolent provisions contained in Section 11 of the Act, but in the instant case, the assessee has claimed the accumulation or set apart of 25 per cent of total income first and thereafter carry forward of the exce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred in appreciating the fact that the provisions of sec. 11 contemplate such income to be from the current year which is to be applied on the objects of the trust and the earlier years accumulation or otherwise cannot be expanded on the objects of the trust resulting into deficit. Such deficit cannot be allowed to be carried forward to the subsequent years as the same being against the principle and law laid down under the Act." 6. The appellant prays that the order of the Commissioner of Income-tax (Appeals)-XXX, Mumbai be set-aside and that of the Assessing Officer be restored. 7. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary," 7.6 The facts in that case were that the assessee-trust, filed its return of income at Rs. NIL on 30-10-2005. As per the criteria of CDBT Circular, the case was selected for scrutiny and was finalized u/s. 143(3) of the Income-tax Act, 1961(Act) by the Assessing Officer (AO). During the year under consideration, assessee-trust had received gross-receipts amounting to ₹ 10.35 Crores and had incurred a sum of ₹ 11.58 Crores for the purposes of the trust. As per the claim made by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on is permissible only when the expenditure is less than the income which is not so in this case. Therefore, the deficit available for carry forward to the subsequent year will be only ₹ 75,58,503/-. This view is also supported by the decision of the Tribunal in the case of the L.N.M. Foundation in ITA No. 4422/M/05 It is, therefore held that the assesses would be entitled for carry forward of deficit of ₹ 75,58,503/- which would be treated as application of income in the subsequent year. We hold, accordingly. " 7.7. In view of the aforesaid reasons, and in view of the decision of the Hon. ITAT in the case of Lakshmi and Usha Mittal Foundation and in the case of Dawat Institute of Dawoodi Bohra Community, Through his holiness Dr. Syedna Mohammed Burhanuddin Saheb, ITA No. 4309/Mum/2005 dated 30.04.2013, and the decision of the Hon'ble ITAT Mumbai Bench in 116 TTJ Mum 673, I am of the view that the accumulation of 15% as claimed by the assessee is not allowable to it. Therefore, the deficit which is allowed to be carried forward to the subsequent year is ₹ 5,23,93,620/- and not ₹ 8,05,52,838/- as claimed by the assessee. 8. In the result the appeal is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wherein Hon‟ble Bombay High Court has decided the issue in favour of the tax-payer. It was submitted that tribunal in assesse‟s own case for AY 2010-11 in ITA no. 5442/Mum/2015 in DCIT(E) v. The Executive Board of the Methodist Church in India vide order dated 24.10.2017 has decided this issue of allowability of excess of expenditure over income being deficit/losses to be carried forward to subsequent year to be set off against surplus/income of subsequent years in favour of the assessee. With Respect to second issue before the Bench which is infact agitated by assessee in its CO is with respect to allowability of accumulation of 15% of income of the assessee within provisions of Section 11(1)(a) despite having left with no surplus after adjusting expenditure against income for the impugned assessment year, the assessee has placed reliance on the tribunal decision in the case of Lalji Velji Charitable Trust v. ITO(E)in ITA no. 5322 & 5323/Mum/2016 vide orders dated 28.02.2018. 9. The Ld. DR fairly agreed that so far as first issue is concerned which is infact agitated by Revenue in its appeal viz. excess of expenditure over income is concerned, the same is to be allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry forward to the tune of ₹ 8,05,52,838/- , both u/s 11(1)(a) towards accumulation of income being 15% of total income to the tune of ₹ 2,81,59,218/- and also carry forward of excess of expenditure over income to the tune of ₹ 5,23,93,620/- as was claimed by the assessee. The learned CIT(A) however allowed the claim of carry forward of ₹ 5,23,93,620/- towards excess of expenditure over income to be carried forward to subsequent years to be set off against surplus/income of subsequent years , keeping in view decision of Hon‟ble Bombay High Court in the case of Institute of Banking Personnel Selection(IBPS) (supra). Revenue is aggrieved by the decision of learned CIT(A) in allowing this part relief to the assessee. We have considered the entire factual matrix of the case and we are of the considered view, that excess of expenditure over income of the assessee for the impugned assessment year to the tune of ₹ 5,23,93,620/- is to be allowed to be carried forward to subsequent years to be set off against surplus of subsequent years, keeping in view decision of Hon‟ble Bombay High Court in the case of Institute of Banking Personnel Selection(IBPS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is also observed that in a decision passed recently by ITAT-Mumbai wherein one of us ( Accountant Member) was part of the Division Bench has allowed the tax-payer carry forward of the excess of expenditure over income being deficit/loss to subsequent years to be adjusted against surplus/income of subsequent years in the case of ITO v. Kaivalya Education Foundation in ITA No. 5575/Mum/2017 vide orders dated 08th February 2019, by holding as under: "6. We have considered rival contentions and perused the material on record including cited case laws. We have observed that the assessee is a Charitable Trust which is registered with the Director of Income Tax (Exemption), Mumbai u/s. 12A and u/s. 80G of the Act. The assessee had claimed an amount of ₹ 2,33,03,449/- as excess expenditure over income being deficit to be carried forward for setting it off in subsequent years. The AO has denied the said carry forward of the excess of expenditure of income which has been later allowed by the Ld. CIT(A) based upon the decision of Hon'ble Bombay High Court in the case of CIT v. Institute of Banking Personnel Selection(IBPS)(supra), wherein following substantial question of law was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made having regard to the benevolent provisions contained in section 11 of the Act and that such adjustment will have to be excluded from the income of the Trust under section 11 (1){a) of the Act. Our view is also supported by the Judgment of the Gujarat High Court in the case of CIT v. Shri Plot Swetamber Murti Pujak Jain Mandal [1995] 211 ITR 293. Accordingly, we answer question No. 3 in the affirmative i.e., in favour of the assessee and against the Department." Further , we have also observed that Hon'ble Bombay High Court in ITA no.1087 of 2014 vide judgment dated 16.12.2016 in DIT (Exemptions) v. M/s. Aditya Vikram Memorial Trust has decided the issue by relying on the decision of Hon'ble Bombay High Court in the case of CIT v. Institute of Banking Personnel Selection(IBPS) (2003) 264 ITR 110(SC) that no substantial question of law arises as the issue is settled by decision of Hon'ble Bombay High Court in 264 ITR 110, by holding as under: "This Appeal under Section 260A of the Income Tax Act, 1961 (the Act), challenges the order dated 27th November, 2013 passed by the Income Tax Appellate Tribunal (the Tribunal). The impugned order dated 27th November,2013 relate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ein stands concluded by the decision of this Court in CIT v/s. Institute of Banking 264 ITR 110 and the order of this Court in Director of Income Tax (Exemption) v/s. M/s. Gem & Jewellery Exports Promotion Council (Income Tax Appeal No.610 of 2011) decided on 15th February, 2011. (b) In view of the above submission, question no.(ii) as proposed also does not give rise to any substantial question of law. Thus not entertained." Further , we have also observed that Hon'ble Bombay High Court in the case of DIT (Exemption) v. Mumbai Education Trust in ITA no. 11 of 2014 vide judgment dated 03.05.2016 wherein Revenue raised following substantial question of law, as under:- "(b) Whether on the facts and in the circumstance of the case and in law, the Tribunal was justified in confirming the order of the CIT(A) to allow to carry forward of deficit of earlier years relying on the decision of this Court in the case of CIT v/s. Institute of Banking Personnel Services reported in 264 ITR 110 (Bom)while the revenue did not file SLP against the case of CIT v/s. Institute of Banking Personnel Services reported in 264 ITR 110 (Bom)due to low tax effect?". The Hon'ble Bombay High Court deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Banking Personnel Services reported in 264 ITR 110 (Bom) while the revenue did not file SLP against the case of CIT v/s. Institute of Banking Personnel Services reported in 264 ITR110 (Bom) due to low tax effect?" stand on the same footing as are being canvassed before us in the instant case. Thus, there is no error on the part of the CIT(A) in following the decision of the Hon'ble Bombay High Court in the case of Institute of Banking Personnel Selection (supra) as well as the decision of the Tribunal dated 10.09.2013 (supra) in assessee's own case and allowing the stand of the assessee. The other argument taken by the Revenue that its SLP filed before the Hon'ble Supreme Court is pending on a similar issue is of no consequence inasmuch as the binding judgments of the Hon'ble Bombay High Court in the case of Institute of Banking Personnel Selection (supra) as well as in the case of M/s. Mumbai Education Trust (supra) continue to subsist. Apart from the aforesaid, the Ld. Representative for the assessee also pointed out that the Hon'ble Bombay High Court has approved the stand of the assessee in the case of DIT (Exemption) vs. M/s. Gem & Jewellery Exports Promotion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure incurred in the earlier years cannot be met out of the income of the subsequent year and that utilization of such income for meeting the expenditure of earlier yeas would not amount to application of income for charitable or religious purposes. In the present case, the Assessing Officer did not allow carry forward of the excess of expenditure to be set off against the surplus of the subsequent years on the ground that in the case of a Charitable Trust, their income was assessable under self-contained code mentioned in section 11 to section 13.of the Income-tax Act and that the income of the Charitable Trust was not assessable under the head "profits and gains of business" under section 28 in which the provision for carry forward of losses was relevant. That, in the case of a Charitable Trust, there was no provision for carry forward of the excess of expenditure of earlier years to be adjusted against income of subsequent years. We do not find any merit in this argument of the Department. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to deviate from the consistent stand taken by the Hon'ble Courts/ Tribunal and Respectfully following aforesaid decision(s) as enumerated in preceding para's of this order, we allow the carry forward of excess expenditure over income of ₹ 2,33,03,449/- to be carried forward to subsequent years . Thus, we confirm/affirm decision of learned CIT(A) and dismiss the appeal of the Revenue. We order accordingly." We have also observed that the AO has relied upon the decision of Hon‟ble Bombay High Court in the case of DIT(E) v. MIDC in ITA no. 2652/Mum/2011 wherein the Hon‟ble Bombay High Court granted relief to the tax-payer by following the decision of Hon‟ble Bombay High Court in the case of Institute of Banking Personnel Selection(IBPS)(supra) wherein the AO noted that the Revenue has filed an SLP with Hon‟ble Apex Court against decision of Hon‟ble Bombay High Court. We have observed that the SLP filed by Revenue has been dismissed by Hon‟ble Supreme Court vide orders dated 13.12.2017, in CA No. 009813/2014 registered on 13.10.2014 in SLP(C) no. 009891/2014 in DIT v. MIDC. It is also noted that the tribunal in assesse‟s own case for AY ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reated as application of income in the subsequent year for charitable purposes? It was argued on behalf of the Department that expenditure incurred in the earlier years cannot be met out of the income of the subsequent year and that utilisation of such income for meeting the expenditure of earlier years would not amount to application of income for charitable or religious purposes. In the present case, the Assessing Officer did not allow carry forward of the excess of expenditure to be set off against the surplus of the subsequent years on the ground that in the case of a charitable trust, there income was assessable under self-contained code mentioned in section 11 to section 13 of the Income Tax Act and that the income of the charitable trust was not assessable under the head "Profits and Gains of Business" under section 28 in which the provision for carry forward of losses was relevant. That, in the case of a charitable trust, there was no provision for carry forward of the excess of expenditure of earlier years to be adjusted against income of the subsequent years. We do not find any merit in this argument of the Department. Income derived from the trust property has also bou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome keeping in view second limb of Section 11(1)(a) of the 1961 Act despite the fact that the assessee had infact incurred expenditure towards the objects of the trust in excess of its income and there being deficit/losses for the impugned assessment year. The main thrust of reliance of the assessee in this grievance is the order passed by tribunal in ITA no. 5322 & 5323 /Mum/2016 , dated 28.02.2018 in the case of Lalji Velji Charitable Trust v. ITO . We have observed that tribunal in this order in the case of Lalji Velji Charitable Trust had held that the tax-payer will be entitled for accumulation of income to the tune of 15% of income despite the fact that there has been deficit and it was held that there is no bar in law and there is no specific provision in the 1961 Act which stipulates that such deduction of 15% of income as accumulation will not be allowed in case of deficit/losses wherein expenditure incurred towards the objects of the trust has already exceeded income of the turst. The tribunal while adjudicating appeal in the case of Lalji Velji Charitable Trust(supra) held as under: "4.We have heard the rival contentions and gone through the facts and circumstances o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f ₹ 1,70,369/levying a balance of ₹ 87,010/-and on this the Hon‟ble Supreme Court said as per section 11(1)(a)that the assessee trust was entitled to accumulate 25% of the gross income of ₹ 2,57,376/-and not merely 25% of the balance of ₹ 87,000/-. 6.We are of the view that even though the entire income has been applied on the object of the Trust as application of income and there is no income left to be accumulated rather there is deficit even though assessee is entitled for accumulation or setting apart under section 11(1)(a)of the Act at the rate of 15% of the gross income. We are of the view that exemption available under section 11(1)(a)i.e. 15% of income is invested and not subject to any condition. According to us, there is no bar in law and there is no specific provision in the act which says that such deduction of 15% for accumulation will not be allowed in case of deficit but such 15% accumulation is allowable irrespective of whether 15% of income have been applied or not. Similar is the position in the case of ACIT vs. A.L.N. Rao Charitable Trust (1995) 216 ITR 697 (SC) here the meaning of applied in this context means that the income is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e total amount of income computed in the manner laid down in this Act". It would, accordingly, be incorrect to assign to the word "income", used in section 11(1)(a), the same meaning as has been specifically assigned to the expression "total income" vide section 2(45). 3. In the case of a business undertaking, held under trust, its "income" will be the income as shown in the accounts of the undertaking. Under section 11(4), any income of the business undertaking determined by the ITO, in accordance with the provisions of the Act, which is in excess of the income as shown in its accounts, is to be deemed to have been applied to purposes other than charitable or religious, and hence it will be charged to tax under sub-section (3). As only the income disclosed in the account will be eligible for exemption under section 11(1), the permitted accumulation of 25 per cent will also be calculated with reference to this income. 4. Where the trust derives income from house property interest on securities, capital gains, or other sources, the word "income" should be understood in its commercial sense, i.e., book income, after adding back any app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts and in the circumstances of the case, should not the Tribunal have accepted the view of the revenue expressed in the circular, the same being consistent with the relevant provisions of the Income-tax Act, 1961 ? 3. Whether, on the facts and in the circumstances of the case, and also considering the scope of the earlier order of the Commissioner (Appeals) dated 18-11-1983 the Tribunal is right in law in holding that the Commis-sioner (Appeals) has rightly interfered with the order of the Income-tax Officer ?" 2. The answers being in favour of the assessee, the revenue is in appeal by special leave. 3. The question that really requires consideration is whether, for the purposes of section 11(1)(a) of the Income-tax Act, 1961 ('the Act'), the amount for the grant of exemption of twenty-five per cent should be the income of the trust or it should be its total income determined for the purposes of assessment to income-tax. This question has to be answered in the light of these facts: the assessee-trust received donations in the aggregate sum of ₹ 2,57,376. It applied thereout for its charitable purposes the aggregate sum of ₹ 1,70,369 leaving a bal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court in the case of ACIT v. A.L.N.Rao Charitable Trust (1995) 216 ITR 697(SC). The Hon‟ble Supreme Court has in detailed manner explained the inter-play between provisions of Section 11(1)(a) and 11(2) of the 1961 Act, by holding as under: "10. Before we proceed to deal with the rival contentions centering round the true scope and ambit of section 11(1)(a) and section 11(2) as applicable to the assessment year in question, namely, 1969-70, it would be apposite to refer to these provisions at the outset. These provisions, as they stood at the relevant time, read as under : "11. Income from property held for charitable or religious purposes.-(1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income : (a)income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated for application to such purposes in India, to the extent to which the income so accumulated is not in excess of 25 per cent of the income from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r by the trust from property held by it wholly for charitable and religious purposes and if ₹ 20,000 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 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 income-tax exemption as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 10,000 whichever is higher, as the case may be, is invested as laid down by section 11(2) after following the procedure laid down therein. Therefore, sub-section (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 sub-section (1)(a) of section 11. If the 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 otios. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the 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. 12. 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 lakh 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 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 lakh, ₹ 45,000 in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 11(1)(a). Thereafter, out of the remaining unspent income after adjusting expenditure , further exemption of accumulation of income to the extent of 25% or ₹ 10000 (now 15%) which ever is higher to be computed on „income‟ shall be provided by invoking second limb of Section 11(1)(a) of the 1961 Act. Say for example , income derived by tax-payer from property held under charitable purposes is ₹ 1,00,000/- and an amount of expenditure towards object of the trust was ₹ 20,000/-. The unspent amount is ₹ 80,000/- , then in that case further exemption shall be provided to the tune of ₹ 15,000/- so as to reduce taxable income to ₹ 65,000/-. Thus , it is only out of the unspent amount of income after exhausting first limb of Section 11(1)(a), the second limb of Section 11(1)(a) shall come into play and in case expenditure of the tax-payer trust is already more than its income which exhausted its income, then only first limb of Section 11(1)(a) shall come into play and second limb of Section 11(1)(a) can never be applied. This was the mandate of aforesaid decision of Hon‟ble Supreme Court in the case of ACIT v. A.L.N.Rao Charitable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n expenditure incurred towards objects of the trust has exceeded its income from property held for charitable pruposes, no further accumulation of 15% of income as is provided in second limb of provisions of Section 11(1)(a) can be allowed . The learned CIT(A) while deciding the issue in favour of Revenue has relied upon following orders of the tribunal: a) Dawat Institute of Dawoodi Bohra Community in ITA No. 4309/Mum/2005 , order dated 30.04.2013 (2008) 116 TTJ 673 (Mum-trib.) b) ITO(E) v. Lakshmi and Usha Mittal( Formerly known as LNM Foundation) in ITA no. 5383/Mum/2011 The tribunal in the case of Dawat Institute of Dawoodi Bohra Community (supra) has held in favour of Revenue by holding that further exemption by way of accumulation of income to the tune of 15% of income cannot be allowed in case expenditure of the trust has already exceeded its income from property held for charitable purposes, by holding as under: "7. Having heard the rival submissions and from careful perusal of the record, we find that section 11 relates to the computation of income from property held for charitable or religious purposes. In order to support a claim for exemption of income under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te to encourage the trust to apply its income derived from property for the religious or charitable purposes of the trust in the same year and if not possible they can accumulate or set apart the income but it is restricted to 25 per cent of the total income for its application for the religious and charitable purposes of the trust. If entire income is applied for the purpose of the trust and nothing is left out, nothing can be accumulated or set apart for its application for the purposes of the trust in succeeding year. We, however, for the sake of reference extract the provisions of section 11(1)(a) of the Act as under : "11. Income from property held for charitable or religious purposes : (1) (a) Income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India, and where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of twenty-five per cent of the income from such property." 9. We have carefully examined the judgments referred to by the parties and we fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bombay High Court in the case of Institute of Banking Personnel Selection (supra). One more issue has been raised before the jurisdictional High Court with regard to the carry forward of the excess of the expenditure for its set off against the surplus of the subsequent years. The Hon'ble High Court has examined this issue in the light of the revenue's argument that the expenditure incurred in earlier years cannot be met out of the income of the subsequent years and that utilization of such income for meeting the expenditure of earlier year would not amount to application of income for charitable or religious purposes. In that case, the Assessing Officer did not allow carry forward of the excess of expenditure to be set off against the surplus of the subsequent years on the ground that in the case of a charitable trust, their income was assessable under self contained code mentioned in sections 11 to 13 of the Act and that the income of the charitable trust was not assessable under the head "Profits and gains of business" under section 28 of the Act under which the provision for carry forward of losses was relevant. Their Lordships did not agree with the revenue&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for its set off against the income of the trust and Their Lordships have held that the income derived from the trust property has also got to be computed on commercial principles and if the commercial principles are applied then the adjustments of expenses incurred by the trust for charitable and religious purposes in earlier years against the 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 subsequent years in which the adjustments have been made having regard to the benevolent provisions contained in section 11 of the Act, but in the instant case, the assessee has claimed the accumulation or set apart of 25 per cent of total income first and thereafter carry forward of the excess expenditure incurred for charitable purposes to succeeding year for its set off against the income of the trust. This proposition of the assessee cannot be accepted as the exemption is to be allowed on application of the income of the assessee and not for its accumulation. The accumulation of 25 per cent of the total income is permissible when the assessee failed to apply the total income of the tru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rward of deficit to subsequent year, which would be treated as application of income in that year. However, in computing the deficit, addition @ 15% of the gross receipt cannot be allowed as such accumulation is permissible only when the expenditure is less than the income which is not so in this case. Therefore, the deficit available for carry forward to the subsequent year will be only ₹ 75,58,503/-. This view is also supported by the decision of the Tribunal in the case of the L.N.M. Foundation in ITA No. 4422/M/05 It is, therefore held that the assessee would be entitled for carry forward of deficit of ₹ 75,58,503/- which would be treated as application of income in the subsequent year. We hold, accordingly." Keeping in view our detailed discussions in the preceding para‟s of this order and Respectfully following the aforesaid decision of Hon‟ble Supreme Court in the case of ACIT v. A.L.N.Rao Charitable Trust(supra), Hon‟ble Bombay High Court decision in the case of Institute of Banking Personnel Selection(IBPS)(supra) and decisions of Mumbai tribunal in the case of Dawat Institute of Dawoodi Bohra Community (supra) and ITO(E) v. Lakshmi and Ush ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
