M/S SINDHI YOUTH ASSOCIATION,BANGALORE vs. ASSISTANT DIRECTOR OF INCOME TAX (EXEMPTIONS), CIRCLE-17(2), BANGALORE

There is a delay of 264 days in filing the appeal before the Tribunal. The assessee has filed application for condonation of delay

After hearing both the parties, from the explanation of the delay submitted by the assessee, we are of the view that there was sufficient and reasonable cause for the delay and following the judgment of the Hon'ble Apex Court in the case of Collector, Land Acquisition Vs. MST. Katiji and Others (1987) 167 ITR 471, delay in filing the appeal before the Tribunal is condoned and the appeal is admitted.

The sole issue involved in this appeal is the claim of excess application of income of Rs.61,04,954 in the earlier assessment years i.e., 1999-2000, 2000-01 & 2001-02 against the current year’s surplus.

The assessee is a charitable trust registered u/s. 12A of the Act engaged in running hospital for charity. The assessee during the year has made a gross receipt of Rs.6,09,02,224 and claimed application of income u/s. 11 on account of revenue and capital expenditure at Rs.4,56,61,936. The AO after allowing accumulation of income u/s. 11(1)(a) at 15% noted that there was a taxable surplus of Rs.61,04,954 which the assessee adjusted against the excess utilization in the preceding years 1999-2000 to 2001-02. The AO called for explanation from the assessee as to why the set off should not be disallowed. The assessee relied on the decision of Govindu Naicker Estate v. ADIT (2004) 248 ITR 368 (Mad) where it was held that the expenditure incurred in advance for charitable purpose in an earlier year out of income of subsequent year should be taken to account in reckoning the amount applied for subsequent year, as otherwise there may be shortfall in application of income resulting in liability which cannot be correct. The AO was of the view that this decision is in respect of interest paid in advance and hence not applicable to present case of set off of earlier years excess application. The AO observed that the application of income for charitable purpose must be during the relevant previous year and 85% of the income of the previous year should be utilized for charitable and religious purposes during the year. Since the income of the trust is itself exempt from tax, the question of loss or deficit cannot be allowed to be carry forward. The AO relied on the CBDT Circular No.29 dated 28.3.1969 and observed that section 11(1)(a) allows exemption upto 85% of income which is applied for

On appeal in the first round, the CIT(Appeals) observed that the as per provisions of sections 11 to 13, there is no scope for computing any loss from property held under trust wholly for charitable and religious purposes. There is no provision for set off of loss from one source against income from another source. The CIT(A) agreed with the AO that carry forward and set off of loss against income of subsequent years as per section 70 to 79 of the Act is also not provided for. As per section 11, computation of total income by the AO is a first step and application of income for charitable purposes is thereafter made and considered for exemption. If the loss or deficit arose in the computation of total income in the first stage, that alone could be carried forward. He noted that in the instant case, the deficit arises as a result of excess spending for charitable purposes. Such excess cannot for part of the total income/loss and hence the same cannot be allowed. He relied on the Hon’ble Delhi High Court decision in the case of CIT v. Indian National Theatre Trust (2008) 305 ITR 459 and observed that the exemption u/s. 11(1)(a) and 11(2) are independent and assessee can claim exemption under either of these two provisions. The same ratio applies equally when a Trust seeks exemption on the basis of application of income as it is the same income which is sought to be accumulated. When income accumulated in an earlier year cannot

Against the order of the CIT(Appeals) allowing the appeal of the assessee, the revenue preferred appeal before the Tribunal. The Tribunal in the first round of proceedings vide common order dated 04.04.2017 for AYs 2008-09, 2009-10 & 2011-12 held that there was no finding by the CIT(A) whether expenditure incurred in earlier years were on account of charitable or religious purposes. Therefore, the matter was remanded the issue to the CIT(Appeals) for examining this issue and for fresh decision in the light of the Tribunal’s order in the case of DDIT v. Karnataka Food & Civil Supplies Ltd. in ITA No.124/Bang/2014 for AY 2010-11 dated 20.10.2015.

Accordingly, in the second round of proceedings, the CIT(Appeals) noted that the expenditure was less than 85% of current year’s income and to reach the mandatory 85%, the assessee claimed adjustment of brought forward expenses. The assessee also claimed

The ld. AR submitted that certain details in support of the assessee’s claim could not be furnished/uploaded on the portal in the proceedings before the CIT(Appeals) which were voluminous and the assessee had sought leave to furnish copies of annual reports of AYs 1999-2000 to 2001-02 showing the deficits. However, the CIT(Appeals) passed the order without providing opportunity to furnish the documents. The ld. AR submitted that these documents are now filed before the Tribunal as additional evidence which are as follows:-

The ld. AR submitted these documents are required to demonstrate the brought forward deficits of earlier years incurred for objectives of the trust and hence the same may be admitted for

On the other hand, the ld. DR relied on the orders of the lower authorities. He further submitted that the in the second round of proceedings the assessee was unable to demonstrate before the CIT (A) for the AY 1999-2000 to 2001-02 that the assessee had carried out charitable activities as per direction of the Hon’ble Tribunal.

We have heard both the parties and perused the material on record. The assessee has claimed set off of excess application of income for the AYs 1999-2000 to 2001-02 of Rs.61,04,954 in the impugned assessment year. The assessee is granted registration u/s. 12A of the Act w.e.f. 01.02.1999 and since then, as per submission of the ld. AR, the assessee has not amended its objects clause and continuously availing the benefit of exemption u/s. 11 of the Act. The AO has allowed exemption u/s. 11 of the Act in the present year also.

Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore.