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Income Tax Appellate Tribunal, “A” BENCH, AHMEDABAD
Before: SHRI RAJPAL YADAV & SHRI PRADIP KUMAR KEDIA
आदेश/O R D E R
PER PRADIP KUMAR KEDIA - AM:
The captioned appeal has been filed at the instance of the Revenue against the order of the Commissioner of Income Tax (Appeals)-9, Ahmedabad (‘CIT(A)’ in short), dated 11.12.2017 arising in the assessment order dated 23.12.2016 passed by the Assessing Officer (AO) under s. 143(3) of the Income Tax Act, 1961 (the Act) concerning AY 2014-15.
ITA No. 470/Ahd/18 (DCIT(Exemp.) vs. Nirman Foundation charitable Trust.) A.Y. 2014-15 - 2 - 2. The ground of appeal raised by Revenue reads hereunder:
“1. The Ld. CIT(A) has erred in the law and on facts in allowing the benefit of the deficit of Rs.1,30,49,125/- for earlier years against the income of subsequent year in absence of any express provision in the Act regarding the same and also by overlooking the decisions in favour of revenue in this regard.”
Briefly stated, the assessee, a public charitable trust, has been formed for the purposes of education and is running School at Vastrapur, Ahmedabad. The trust has been granted registration under s.12A(a) of the Act. In the course of scrutiny proceedings, it was noticed by the AO that during the F.Y. 2013-14 under consideration, the assessee has claimed set off of unabsorbed/excess application of earlier years amounting to Rs.5,66,96,948/-. The AO while passing the assessment order under s.143(3) of the Act denied the carry forward of excess application over contributions received being ‘deficit’ for the purposes of set off of against contributions to be received in the subsequent assessment years.
In the first appeal, the CIT(A), however, reversed the action of the AO and restored the claim of carry forward of excess application of funds by the assessee. The relevant operative para of the order of the CIT(A) is reproduced hereunder:
“5.2 I have carefully considered rival contentions and observations made by the A.O, in the assessment order. It is seen from the order of assessment that A.O. has disallowed carry forward of deficit of Rs.1,30,49,125/- to be set off against current year's income. The appellant has relied upon the order of jurisdictional High Court in the case of CIT vs Shri Plot Shwetambar Murtipujak Jain Mandal 211 ITR 293(Guj.), CIT vs Maharana of Mewar Charitable Foundation (1987) 164 ITR 439 476 (Raj) etc. Hon'ble Gujarat High Court in the case of Shri Plot Shwetambar Murtipujak Jain Mandal has held as follows :- "A bare perusal of section 11 of the Income-tax Act, 1961, shows that the 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 is to be excluded for the purposes of computing the income of the trust for the purpose of assessment. There are no words of limitation in this section providing that the income should have been applied for charitable or religious purposes only in the year in which the income had
ITA No. 470/Ahd/18 (DCIT(Exemp.) vs. Nirman Foundation charitable Trust.) A.Y. 2014-15 - 3 -
arisen. The word "apply" means "to put to use" or "to turn to use" or "to make use" or "to put to practical use". Having regard the provisions of section 11 of the Act, it is clear that when the income of a trust is used or put to use to meet the expenses incurred for religious or charitable purposes, it is applied for charitable or religious purposes. 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 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 in which such adjustment has been made 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)." I agree with the contention of the appellant as well as the reliance placed on the decision of Jurisdictional Gujarat High Court and hereby direct the A.O to allow the set off of excess expenditure incurred during the earlier years to be set off against the income of the year under consideration and future income. While giving effect of this order, AO is directed to allow deficit of earlier years first. Thereafter the excess of expenditure of current year would be allowed. No accumulation u/s 11(1)(a) @ 15% and u/s. 11(2) of the Act would be allowed alongwith carry forward of deficit. Accordingly, ground of appeal is allowed subject to these remarks.”
The Revenue has preferred appeal against the aforesaid directions of the CIT(A).
We have carefully considered the rival submissions on the legal controversy on whether a charitable institution is allowed to carry forward and set off of deficit (that is excess to expenses over income) and set it off against income of subsequent year.
ITA No. 470/Ahd/18 (DCIT(Exemp.) vs. Nirman Foundation charitable Trust.) A.Y. 2014-15 - 4 - 7. The issue of allowability of claim of loss under s.11 of the Act and carry forward of the same to subsequent year to be set off against income of subsequent year by the charitable trust is no longer res integra. The CIT(A) has correctly applied the law laid down in CIT vs. Shri Plot Shwetamber Murti Pujak Jain Mandal (1995) 211 ITR 0293 (Guj). The Hon’ble Supreme Court in the case of CIT(Exemption) vs. Subros Education Society (2018) 303 CTR 1 (SC) has dismissed the SLP of the Revenue against the order of the Hon’ble High Court where identical issue was adjudicated in favour of assessee by the Hon’ble Delhi High Court in IT No. 382 of 2015 dated 23.09.2015.
We thus see no error in the order of the CIT(A). We thus endorse the view of the CIT(A) that excess expenses incurred in earlier years have to be adjusted against the income of subsequent year and it will have to be regarded as application of income in the subsequent year, in which, such adjustment has been made having regard to benevolent provisions contained in Section 11 of the Act. We thus decline to interfere.
In the result, the appeal of the Revenue is dismissed.
This Order pronounced on 04/03/2021
Sd/- Sd/- (RAJPAL YADAV) (PRADIP KUMAR KEDIA) ACCOUNTANT MEMBER VICE PRESIDENT Ahmedabad: Dated 04/03/2021 True Copy S. K. SINHA आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. राज�व / Revenue 2. आवेदक / Assessee 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त- अपील / CIT (A)
ITA No. 470/Ahd/18 (DCIT(Exemp.) vs. Nirman Foundation charitable Trust.) A.Y. 2014-15 - 5 -
�वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाइल / Guard file.
By order/आदेश से,
उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद ।