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TMI Blog2020 (12) TMI 447X X X X Extracts X X X X X X X X Extracts X X X X ..... placing reliance on the decision of Mumbai Tribunal in the case of Lalji Velji Charitable Trust [ 2018 (3) TMI 1192 - ITAT MUMBAI ] and also Gnyan Dham Vapi Charitable Trust [ 2020 (10) TMI 238 - ITAT AHMEDABAD ] had ultimately held that there is no bar in law and there is no specific provision in the Act which says that deduction of 15% for accumulation will not be allowed in case of deficit to such 15% accumulation is allowable irrespective of whether 15% of income have been applied or not. Appeal of the assessee is allowed. - SHRI M.BALAGANESH, AM And SHRI RAVISH SOOD, JM Assessee by : Shri Ronak Doshi Revenue by : Ms. Shreekala Pardeshi ORDER PER M. BALAGANESH (A.M): This appeal in ITA No.3408/Mum/2018 for A.Y.2014-15 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-1, Mumbai in appeal No.CIT(A)-I/IT/ITO(E)-1(3)/147/2016-17 dated 26/02/2018 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3)of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 25/10/2016 by the ld. Income Tax Officer (E)-1(3), Mumbai hereinafter referred to as ld. AO). 2. The only issue to be decided in this appeal is as to whether the ld. CIT(A) was jus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s entitled for benefit of exemption u/s.11 of the Act. The short point that arises for our consideration are as under:- a. Whether the assessee is entitled for exemption u/s.11(1)(a) for the 15% of gross income towards accumulation as a standard deduction? b. Whether the deficit being excess of expenditure over income need to be worked out after reducing the said standard deduction? We find that the aforesaid issues are no longer res integra in view of the decision of Co-ordinate Bench of Ahmedabad Tribunal in the case of ITO vs. Utthan Sewa Sansthan in ITA No.2017/Ahd/2016 for A.Y.2012-13 dated 24/01/2019 wherein it was held as under:- 5. We have carefully considered the rival submissions. The assessee Trust filed the return of income declaring deficit (excess expenditure incurred over income) to the extent of ₹ 1,52,31,341/-. The AO however denied entitlement towards general accumulations to the extent of 15% contemplated under s.11(1)(a) of the Act as the amount applied for the object of Trust (₹ 7,99,18,102) already surpassed income derived from property held under trust. The deficit was thus restricted to ₹ 38,16,030/- by the AO. 6. The relevant facts as pres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the A.O. was not justified in denying the claim of 15% u/s 11(1)(a); It is most respectfully submitted that the assessee-trust is a law abiding person engaged in educational activities and would like to adhere to the provisions of the law as elucidated by the available judicial rulings. However, without prejudice to what is stated above, if it were to be interpreted that accumulation u/s 11(1)(a) were to be restricted to the extent of income not utilized for the objects of the trust, then the computation would be as under Gross Income including donation to corpus 7,72,02,072 Less: Exempted u/s ll(l)(d) Donation to Corpus -11,00,000 Gross Income after deducting the donation to corpus 7,61,02,072 Less: Amount applied for the objects of the trust -On Educational Object - Revenue Exp as per I E A/c (6,90,33,010 Less: Loss on sale of assets ₹ 15,445) 6,90,17,565 On Educational Object - Capital Exp as per Fixed Asset Schedule (Addition ₹ 1,53,80.156 Less Sale ₹ 44, 79, 619) 1,09,00,537 -7, 99,18,102 -38,16,030 Less: U/s 11(1)(a): @ 15% of Gross Income of ₹ 7,61,02,072 = ₹ 1,14,15,311 but restricted to...... ' _____Nil Total Income -38,16,030 7. As no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss expenses for set off in the subsequent year or not. Your honour, it is the well-settled position that income derived from the trust property has to be determined on commercial principles and if commercial principles for determining the income are applied, it is but natural that the adjustment of the expenses incurred by the trust for charitable and religious purposes in the earlier year against 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 having regard to the benevolent provisions contained in section 11 of the Act and will have to be excluded from the income of the trust under section 11(1)(a) of the Act in that subsequent year. Accordingly, the deficit / negative income determined in year- 1 will be carried forward for set off against the income of the year - 2 and so on. Accordingly, in this case, the appellant is entitled to carry forward the negative income determined for AY: 2012-1301 to the subsequent year(s). The matter is squarely covered by the judgment of the Hon. Madras High Court in the case of CIT v/s Maitriseva Trust [242 ITR 20 (Mad) as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urposes. The application of the income for charitable or religious purposes takes place in the year in which the income is adjusted to meet the expenses incurred for charitable or religious purposes. In other words, even if expenses for charitable and religious purposes have been incurred for the earlier year and the said expenses are adjusted against the income of a subsequent year, the income of that year can be said to have been applied for charitable and religious purposes in the year in which the expenses incurred for Charitable and religious purposes had been adjusted. There is nothing 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 and utilization of such income for meeting the expenditure of the earlier year, would not amount to such income being applied for charitable or religious purposes. Income derived from trust property has to be determined on commercial principles and if commercial principles for determining the income are applied, it is but natural that the adjustment of the expenses incurred by the trust for charitable and religious purposes in the ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome-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 balance of ₹ 87,010. The question is whether the assessee is entitled to accumulate twenty-five per cent of ₹ 2,57,376, as it contends, or twenty- five per cent of ₹ 87,010, as the revenue appeared to contend. Section 11(1) (a) reads thus : 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed 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 actually applied for the charitable or religious purposes of the trust but the word applied need not necessarily imply spent. Even if the income is irretrievably earmarked and allocated for the charitable or religious purposes or purposes it may be under section 11 (1)(a) of the Act. A sum of ₹ 66,24,580/- being 15% of the gross income even though the entire income has been applied on the object of the trust as an application of income and there left no income for accumulation. However, as requested by the learned Sr. DR that the facts are not cleared, the same can be verified by the AO but only verification of figures. Accordingly, we set aside the orders of the lower authorities and allow the appeal of the assessee. Consequently, the appeal for AY 2011-12 is exactly identical and hence, taking a consistent view, we allow this appeal also. 3.4. We find that the ld. CIT(A) had heavily ..... X X X X Extracts X X X X X X X X Extracts X X X X
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