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TMI Blog2019 (2) TMI 1139X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions contained in section 11 of the Act and that such adjustment will have to be excluded from the income of the trust u/s 11(1)(a) of the Act. - Decided in favour of the assessee. - ITA No. 6755/Mum/2017 - - - Dated:- 15-2-2019 - Shri Sandeep Gosain (Judicial Member) And Shri G Manjunatha (Accountant Member) For the Appellant : Shri Arvindkumar For the Respondent : None ORDER PER G MANJUNATHA, AM : This appeal filed by the revenue is directed against the order of the CIT(A)-1, Mumbai dated 14-09-2017 and it pertains to AY 2012-13. The revenue has raised the following grounds of appeal:- 1.1 Whether on the facts of the case and in law the Ld. CIT(A) erred in allowing the carry forward of deficit of earlier years and allowing set off against the income of the succeeding years. 1.2 Whether on the facts and in the circumstances of the case and in law, the Id.CIT(A) erred in allowing the claim of the assessee for carry forward of the said deficit, ignoring the fact that there was no express provision in the I T Act, 1961 permitting allowance of such claim. 1.3 Whether, on the facts and in the circumstances of the case and in law, the Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd and set off against income of subsequent years. The Ld.CIT(A), after considering submissions of the assessee and also relying upon plethora of judicial precedents including the decision of Hon ble Bombay High Court in the case of CIT vs Institute of Banking Personnel Selection (supra) held that excess application of income for charitable purpose over and above income derived from property held under trust can be carried forward to subsequent year to be claimed against income from property held under trust. However, while allowing the benefit of carry forward of excess application, the Ld.CIT(A) further held that the assessee cannot claim deduction towards 15% of income accumulation as per the provisions of section 11(1)(a) of the Income-tax Act, 1961. The relevant observations of the Ld.CIT(A) are as under:- 5.1.3 I have considered the facts of the case and the submissions made by the assessee. I find that the issue relating to carry forward of loss is covered in favor of the assessee by the decision of the Hon'ble jurisdictional Bombay High Court in the case of CIT vs. Institute of Banking and Personnel Selection (supra). In the said decision the question before the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to be excluded from the income of the Trust under section ll(l)(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 (Guj). Accordingly, we answer question No. 3 in the affirmative i.e., in favour of the assessee and against the department 5.1.5 In the Director of Income-tax (Exemption) vs. M/s, Gem Jewellery Exports Promotion Council, Income Tax Appeal (LOD) No. 1113 of 2010 dated 15th February 2011, one of the two questions raised by the Department before the Hon. Bombay High Court was Whether on the facts and circumstances of the case and in law the Tribunal was right in directing the A.O. to set off the deficit of earlier years to the surplus of this year and consider such adjustment as application of income for charitable purpose . The Hon. High Court held as follows:- 4. As regards second question is concerned, counsel on both sides agree that the said question is covered against the revenue by the decision of this Court in the case of Commissioner of Income Tax vs. Institute of Banking reported in [2003] 264 l.T.R 110. In this view of the matter, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Bombay High Court, I hold that the deficit of the current year is required to be allowed to be carried forward, if claimed by the assessee in the return of income. 5.1.9 However, for working out the deficit for the year, benefit of accumulation of 15% of the income shall not be allowed to the assessee. , the present case is not a case where the whole of the income has not been applied for charitable purposes. Rather, the present case before us is a case where more than the income derived by the assessee has been applied for charitable purposes. The question of any accumulation, therefore, would not arise. This is because if there is no income available, the question of accumulating any income would not arise. My above decision is supported by the decision of the HON. ITAT G Bench Mumbai in the case of Dawat Institute of Dawoodi Bohra Community in ITA No. 4309/Mum/2005 for the A.Y. 2001-02 dated 30.4.2013, wherein the same issue was involved. It was held by the Hon. ITAT as follows: 5. We have perused the records and considered the rival contentions carefully. The dispute raised in this appeal is whether the assessee can still be allowed statutory accumulation of 25% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ll(2)was pressed into service if there was still some accumulated income left to be dealt with i.e. beyond 25% or ten thousand whichever was more. This additional income could be accumulated u/s 11(2) subject to the fulfillment of conditions mentioned there in. but in respect of accumulation of 25% or 10 thousand whichever is more u/s ll(l)(a)f the conditions mentioned u/s 11(2) could not be applied. In other words, Hon'ble Supreme Court held that accumulation of 25% or 10 thousand whichever was more was absolute and unfettered without any conditions. Thus observations absolute and unfettered exemption was only in relation to fulfillment of conditions mentioned in section 11(2). It was not held by the Hon'ble Supreme Court that suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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. 5.1.10 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 in case of Programme for Community Organization (Supra) but as pointed out earlier the issue decided by the apex court in case of Programme for Community Organization (Supra) was not whether accumulation had to be allowed even if there was no income left for application but the issue was whether accumulation had to be computed with respect to gross income or net income. Similarly, the Tribunal allowed the claim of the assessee in the assessment years 2002-03 and 2003-04 (Supra) in the same manner. Therefore, the decision of Tribunal in assessee's own case in earlier years in our view, cannot be considered as binding precedent. As regards the decision of CIT (A) in assessment year 2004-05 (Supra) nothing h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 trust in a particular year. If the assessee applies the entire income of the trust he is entitled to claim 100 per cent exemption and there is no question of further accumulation of 25 per cent of the total income of the assessee. If the assessee incurs more expenditure than the total income of the trust the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the accumulated/set aside sum and the additional sum spent by it over accumulation, it was entitled to carry forward the deficit of ₹ 2.78 Crores for setting off against future receipts of subsequent years. AO rejected the claim made by the trust for carry forwarding of the said deficit i.e. of ₹ 2.78 Crores. The Assessee preferred an appeal before the First Appellate Authority (FAA). After considering the submissions of the assessee and the Assessment Order, FAA held that the issue raised by the assessee-trust was covered in favour of the assessee by the decision delivered by the jurisdictional High Court in the case of Institute of Banking Personnel (264 ITR 110). He further mentioned that in the assessee's own case for the Assessment Year 2002-03, Tribunal had decided the mater in favour of the assessee. Appeal filed by the assessee-trust was allowed by the FAA. On further appeal by the Department, the Hon. ITAT held as follows: 4. On the facts and in the circumstances of the case, and in law, the Ld.CIT(A), Mumbai erred in not appreciating that there is no provision in the Act to carry forward the deficit where the expenditure which cases the deficit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dawat Institute of Dawoodi Bohra Community, Through his holiness Dr. Syedna Mohammed Burhanuddin Saneb, 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 for working out the deficit is not allowable to it. The AO shall compute the deficit for the year without giving benefit of 15% accumulation. 4. None appeared for the assessee. We have heard the Ld.DR and perused the materials available on record. The issue involved in the present appeal, i.e. whether charitable trust registered u/s 12A of the Income-tax Act, 1961 can carry forward excess application of income over and above income derived from property held under trust to subsequent year or not, is not res integra. The Hon ble Bombay High Court in the case of CIT vs Institute of Banking Personnel Selection (supra) has considered an identical issue in the light of provisions of section 11 and held that income derived from trust property has also got to be computed at commercial principles and if commercial principles are applied, then adjustment of expenses incurred by the trust for char ..... X X X X Extracts X X X X X X X X Extracts X X X X
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