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TMI Blog2019 (3) TMI 386X X X X Extracts X X X X X X X X Extracts X X X X ..... hesitation in holding that the assessee would be entitled to carry forward excess of expenditure incurred towards objects of the trust over income from property held for charitable purposes being deficit for the impugned year to be carried forward to subsequent years to be set off against income of the subsequent years. The Revenue fails in its appeal. - I.T.A. No.7131/Mum/2017 - - - Dated:- 1-3-2019 - SHRI SAKTIJIT DEY, JUDICIAL MEMBER And SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER Revenue by: Shri. B. Shriniwas (CIT-DR) Assessee by: Shri. Jayesh R. Chugh ORDER PER RAMIT KOCHAR, ACCOUNTANT MEMBER: This appeal, filed by Revenue, being ITA No. 7131/Mum/2017, is directed against appellate order dated 13.09.2017 in appeal no. CIT(A)-I/IT/E(1)/(139)/2015-16, passed by learned Commissioner of Income Tax (Appeals)-1, Mumbai (hereinafter called the CIT(A) ), for assessment year 2010-11, the appellate proceedings had arisen before learned CIT(A) from the assessment order dated 31.03.2010 passed by learned Assessing Officer (hereinafter called the AO ) u/s 144 r.w.s. 147 of the Income-tax Act, 1961 (hereinafter called the Act ) for AY 2010-11. 2. The grounds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en in this appeal before us is that the assessee s expenditure has exceeded its income by ₹ 14,30,11,390/- for impugned assessment year and we have to adjudicate whether said deficit being excess of expenditure over income for impugned assessment can be allowed to be carry forward to the subsequent years to be set off against the income/surplus of subsequent years. The assessee initially additionally claimed deduction/accumulation of 15% of the income u/s. 11(1)(a) of the 1961 Act to the tune of ₹ 1,26,43,953/- despite already having deficit of excess of expenditure over income, the AO disallowed not only the accumulation/deduction of 15% of the income u/s. 11(1)(a) of the 1961 Act to the tune of ₹ 1,26,43,953/- but also disallowed the deficit of ₹ 15,56,55,343/- computed after taking into account excess of expenditure over income as also accumulation of 15% of income u/s 11(1)(a) of the 1961 Act, which was claimed to be carried forward by the assessee to the subsequent years to be adjusted against income/surplus of the subsequent years , vide assessment order dated 30.10.2015 passed by the AO u/s. 144 r.w.s. 147 of the 1961 Act. 4. Aggrieved by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there was no express provision in the I.T. Act, 1961 permitting allowance of such claim. iii. Whether on the facts and in the circumstances of the cases and in law,the ld. CIT(A) erred in allowing the claim of the assessee for carry forward of the said deficit by relying upon the judgement of Hon ble High Court in the case of Institute of Banking Personnel Selection, ignoring the fact that the Department has not accepted the said decision of the jurisdictions/ High Court on merit of the case. 5.1.4 The Hon. ITAT, held that the ld. CIT(A) has rightly followed the judgement of the Hon'ble Bombay High Court in the case of Institute of Banking Personnel and directed the A.O. to allow the carry forward and set off of deficit after due verification of facts. The Hon. ITAT upheld the order of learned CIT(A). 5.1.5 I find that this issue is also covered in favour of the assessee by the decision of the Honourable ITAT in assessee's own case for the assessment year 2008-09 in ITA no. 3775/M/2015 dated 30.09.2015. The CIT(A) is bound to follow the order of the Hon. jurisdictional High Court and Hon. ITAT. Respectfully following the decisions of the Hon. Bombay High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the learned counsel for the assessee that this claim is already conceded by the assessee before the Ld. CIT(A) as not allowable to the assessee in view of already having deficit i.e. excess of expenditure over income which issue is decided against the tax-payer vide several decisions of the tribunal and it is also submitted that consequently the assessee has not filed any appeal against the said disallowance towards accumulation/deduction of 15% of income u/s 11(1)(a) of the 1961 Act, keeping in view the several decisions against the assessee. 6. We have considered rival contentions and perused the material on record including cited case laws. We have observed that the assessee trust is registered as a Charitable Organisation with Commissioner of Income Tax (Exemption), Mumbai u/s 12A of the 1961 Act and accordingly claimed exemption u/s 11 of the 1961 Act. The assessee has incurred expenditure in excess of income during the impugned assessment year and the assessee sought to carry forward such deficit to the subsequent years to be set off against income of subsequent years. The AO has disallowed the carry forward of such deficit to the subsequent years to be set off against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 Trust for charitable and religious purposes in the 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 the subsequent year in which adjustment has been 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 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was deficit/losses left in the hands of the assessee with no surplus left for accumulation. The AO has rejected its entire claim for carry 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 subsequen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ingly, we answer question No. 3 in the affirmative i.e., in favour of the assessee and against the Department. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication of income of the Trust for charitable and religious purposes in the subsequent year in which adjustment has been 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 Nov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y holding as under:- 4. Regarding question no.(ii):- (a) Mr. Kotangale, the learned counsel for the Revenue very fairly states that the issue arise herein 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 di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ier 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 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon ble Courts/Tribunal had taken consistent stand that in case of Charitable Trust excess expenditure over income is to be allowed to be carried forward for setting off against income of subsequent years . We do not find any reason 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gly 10.2 So far as Cross objections filed by the assessee is concerned, the main grievance of the assessee in its CO is with respect to not allowing by learned CIT(A) of the accumulation of income to the tune of 15% of income 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 alre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me for Community Organisation(2001) 248 ITR 1 (SC),wherein it is held that as the assessee trust has received donation in aggregate a sum of ₹2,57,376 and it has applied throughout for its charitable purposes the amount of ₹ 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 irrespec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the previous year. . . . The reference in clause (a) is invariably to Income and not to total income . The expression total income has been specifically defined in section 2(45) as the 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 61, the assessee is entitled to exemption at 25 per cent on ₹ 2,57,376 or only on ₹ 87,010 ? 2. Whether, on the 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 Commissioner (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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The second decision relied upon by tribunal in Lalji Velji Charitable Trust(supra) is Hon ble Supreme 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laid down by clause (a) of section 11(2) being followed by the assessee-trust. To highlight this point we may take an illustration. If ₹ 1 lakh are earned as the total income of the previous year 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) whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eby the ceiling or the limit of exemption of accumulated income from income-tax as imposed by sub-section (1)(a) of section 11 would get lifted if additional accumulated income beyond 25 per cent or ₹ 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the taxable income. Section 11(2) quoted above further liberalizes and enlarges the exemption. A combined reading of both the provisions quoted above would clearly show that section 11(2) while enlarging 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t(supra) has clearly laid down that for computing income of the trust chargeable to tax, first expenditure incurred towards the object of the trust by the tax-payer has to be reduced from income of the trust as provided in the first limb of Section 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the 1961 Act. We have also observed that learned CIT(A) while deciding this issue against assessee and in favour of Revenue had held that in case of deficit wherein 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be accepted it would result into an exemption more than the income derived from the property held by the trust and this cannot be the intention of the Legislature. These provisions are brought to the statute 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 ext ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the trust must be computed under section 11 of the Act after providing for allowance of normal depreciation and deduction thereof from the gross income of the Trust. Similar view was again expressed by the Hon'ble 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... excess expenditure in earlier year can be adjusted against income in the subsequent year and such adjustment has to be treated as application of income in the subsequent year. Thus the assessee would be entitled for carrying forward 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Banking Personnel Selection(supra) and several decisions of ITAT. We have also observed that the assessee has relied upon decision of SMC(Single Member) , ITAT, Mumbai decision in its own case in ITA no. 3775/Mum/2015 , order dated 30.09.2015 for AY 2008-09 , wherein SMC, ITAT, Mumbai held in favour of the assessee , by holding as under;- 8. Ground nos. 3 to 5 relate to the disallowance of carry forward of deficit of ₹ 65,41,073/-. In the return of income, the said amount was claimed as set-off against the accumulated carried forward deficit of earlier years. AO did not consider the same and made a disallowance. On appeal, After considering the submissions of the assessee, CIT (A) granted relief vide paras 4.3 and 4.4 of the impugned order. Aggrieved with the said decision of the CIT (A) Revenue is in appeal before the Tribunal vide ground nos. 3 to 5 of the appeal. 9. During the proceedings before the Tribunal, Ld DR relied on the order of the AO. 10. On the other hand, Ld Counsel for the assessee heavily relied on the order of the CIT (A) and reiterated the submissions made before the lower authorities. On hearing the Ld Representatives of both the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y substantial question of law which was not entertained by Hon ble Bombay High Court, by holding as under:- 1. These Appeals under Section 260A of the Income Tax Act, 1961 (the Act) challenges the common order dated 30th July, 2015 passed by the Income Tax Appellate Tribunal (the Tribunal). The common impugned order relates to Assessment Years 201011 and 201112. 2. The Revenue has urged the following reframed questions of law in both the appeals for our consideration :- (i) Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in allowing the appeal of the assessee on account of disallowing depreciation on fixed assets for A.Y. 2010-11 and 2011-12? (ii) Whether on the facts and in the circumstances of the case and in law, the Tribunal erred in allowing the carry forward of deficit for A.Y. 2010-11 and 2011-12 and allowing set off against the income of the subsequent years? 3. Mr. Kotangle, learned Counsel appearing for the Revenue very fairly states that the issues raised herein stands concluded against the Revenue and in favour of the respondent assessee by the decision of the Apex Court in Commissioner of Income T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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