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TMI Blog2021 (1) TMI 402X X X X Extracts X X X X X X X X Extracts X X X X ..... sible.?" Brief facts of the case are as under: 2. Assessee is a charitable trust and it filed its return of income on 27/10/2017. In the said return assessee had claimed total income referred to under section 11 and 12 at Rs. 46,69,64, 213/-and claimed deduction under section 11 (1) (a) of the act amounting to Rs. 7,00,44,632/-and total application of Rs. 66,29,93,259/-thereby seeking carry forward deficit of Rs. 26,60,73,678/-for subsequent years. The Ld. AO denied the carry forward deficit to subsequent years to the extent of Rs. 26,60,73,678/-. 3. Aggrieved by the order of Ld. AO, assessee preferred appeal before Ld.CIT(A). Ld.CIT while considering the issue alleged by assessee observed and held as under: "4.2 Disallowance of carry forward of Deficit: The appellant contented that the AO has erred in not allowing the deficit incurred by the appellant to be carry forward to subsequent years. The appellant relied upon the decision of the jurisdictional hAT judgment in the case of ITO vs. Shraddha Trust (ITA No. 889/Bang/2016) and decision of the CIT(A) in his own case for AY 2013-14. The appellant in his submission dated 29/08/2020 mentioned that the Assessment order was p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of expenditure of earlier years being brought forward and set off during the year. 5.2 On appeal, the learned CIT (Appeals) allowed the amortization of the expenditure as claimed by the assessee and deleted the disallowance made by the Assessing Officer by placing reliance on the decision of the Hon'ble Karnataka High Court in the case of CIT Vs. Society of the Sisters of St. Anne reported in 146 ITR 28 (1984) and CBDT Circular No. 5-P(LXX)-6 of 1968. 5.3.1 We have heard the rival contentions of both the learned Departmental Representatives for Revenue and the learned Authorised Representative for the assessee and perused and carefully considered the material on record, including the judicial pronouncements cited. The facts of the issue before us is that the assessee had incurred certain preliminary expenditure in the year of setting up of the trust. The same is amortised by the assessee trust over a period of 5 years from the year of incurring of expenditure. The fact of amortization was not disputed by the Assessing Officer in the assessment proceedings for Assessment Year 2007-08 where the entire amount was added back claiming 115th of the expenditure. The un-amortized ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ends support to the contention of the assessee that account/rig need not only be on cash basis. Section 11(4) is not intended to explain how the accounts of the business undertaking should be maintained. It is intended only to bring to tax the excess income computed under the provisions of the Act in respect of business undertaking. 12. The depreciation if it is not allowed as necessary deduction for computing the income from the charitable institutions, then there is no way to preserve the corpus of the trust for deriving the income. The Board also appears to have understood the 'income' under section 11(1) in its commercial sense. The relevant portion of the Circular No.5XX-6 of 1968, dated 19-6- 1968 (See Taxmann's Direct Taxes Circulars, Vol. 1, 1980 edn. P.85) reads.' "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 appropriations or applications thereof towards the purposes of the trust or otherwise, and also after adding back any debits made for capital expenditure incurred for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be business assets. In all such cases, section 32 of the Act providing for depreciation, for computation of income derived from business or profession is not applicable. However, the income of the trust is required to be computed under section 11 on commercial principles after providing for allowance for normal depreciation and deduction thereof from the gross income of the trust. 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 had been made having regard to the benevolent provisions contained in section 11 of the Act and such adjustment will have to be excluded from the income of the trust under section 1 1(1a)." In view of the controversy covered by the above decisions of this Court, we are of the opinion that the substantial questions of law as suggested by the appellant do not no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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