THE DCIT (EXEMPTION), CIR-1., AHMEDABAD vs. GUJARAT STATE DISASTER MANAGEMENT AUTHORITY,, GANDHINAGAR

PAN: AAALG0094J (Applicant) (Responent) Revenue by : Shri Surendra Kumar, CIT.D.R, Assessee by : Shri Tushar Hemani, Shri P.N. Parmar & Shri Pinakin Rawal A.Rs सुनवाई क� तार�ख/Date of Hearing : 12/07/2019 घोषणा क� तार�ख /Date of Pronouncement: 06/08/2019 आदेश/O R D E R PER Ms MADHUMITA ROY, JUDICIAL MEMBER:

The instant appeal preferred by the Revenue is directed against the order dated 11.09.2017, passed by the Learned Commissioner of Income Tax(Appeals)-9, Ahmedabad ( in short “ Ld.CIT(A)”) , arising out of the order dated 23.03.2016 passed by the D.C.I.T(Exemption), Circle-1, Ahmedabad under section 143(3) of the Income Tax Act, 1961( hereinafter referred to as “the Act’’) for the Assessment Year 2013-14.

During the course of assessment proceedings it was found that the deficit for the A.Y 2009-10 of Rs.86.35 crores and Rs.1.31 crores for the A.Y 2010- 11 has been carry forwarded against the total income. Such claim of carry forward deficit for A.Y. 2009-10 of Rs.86.35 crores and for A.Y 2010-11 of Rs.1,31,30,917/- were disallowed and added back to the total income of the assessee as against total income of deficit of Rs.50,70,22,669/- after claiming exemption of Rs.14,21,95,39,029/- declared by the appellant which was in turn deleted by the ''Ld.CIT(A)” by order dated 11.09.2017, with a further direction upon the AO to allow the set off of deficit of earlier years to be adjusted against the income of the current year

“…4.4 Therefore, relying upon the above referred judgments it is principally agreed that appellant would be eligible to carry forward of deficit or excess of expenditure over income of earlier years to be allowed to be set off against current year income. However, the question remains that what quantum of deficit would be allowed to be carried forward in respect of earlier years and how the appellant has computed the said deficit. As the deficit pertains to A.Y. 2009-10 and A V. 2010-11 A.O is directed to verify and allow the correct quantum of deficit to be set off against income of A.Y. under consideration i.e. A.Y. 2013-14. A.O is hereby directed to compute the income as per the following guideline.

"If the appellant has applied more than the income during the year then A.O. is directed to allow carry forward of deficit of that year to be set off against future income of the appellant (Reliance placed on the judgment of Hon'ble Gujarat High Court in the case of CIT vs Sri Plot Swetamber Murtipijak Jain M arid a I 211 ITR 293). In that year, the AQ shall not allow any accumulation u/s.11(1)(a) of the Act @ 15%. (For example: If appellant earns Rs. 100 and applies Rs. 110 then Rs.10 would be allowed to be carried forward as deficit and there will be no accumulation U/s,11(1)(a).) In an immediate subsequent year, AO will allow, firstly, me set off of the deficit carried forward from earlier year Then, AO shall reduce the amount applied during the year If, after the adjustments of carried forward deficit and application of income, the appellant has any surplus of income over the expenditure then the appellant would eligible to accumulate to the extent of 15% u/s.11(1)(a) from the income (For example: If appellant earns Rs. 100 in immediate succeeding and applies Rs. 80 then Rs. 90, i.e. Rs. 1 D as earlier year deficit and Rs. 80 being current years application, would be allowed against income of Rs. 100, The remaining Rs. 10 win be allowed to be accumulated u/s 1 l(1)(a),) And, if there happens to be still any excess income left over, then remaining amount shall be 4 allowed by the A.O. to be accumulated u/s. 11(2) of the Act and according to the stipulations mentioned therein i.e. filing of Form 10 and purpose for which accumulation u/s,11(2) has been made etc In short, the AO will not allow accumulation of income either u/s 11(1)(a) @15% or u/s 11(2) of the Act along with carry forward of deficit. Application of income shall precede accumulation."

Based on the above referred guideline A.O. is hereby directed to allow the set off of deficit of earlier years to be adjusted against income of current year. Therefore, subject to this direction, grounds of appeal No.1 to 5 are hereby allowed for statistical purpose…”

5.1 We have also gone through the judgment passed by the Co-ordinate Bench in for A.Y. 2012-13. The relevant portion whereof is as follows: 6. We have heard the respective parties, we have also perused the relevant materials available on record. It appears from the records that the Learned CIT(A) while allowing the carry forward deficit of Rs.6,49,06,986/- relied upon the judgment passed by the Jurisdictional High Court as mentioned hereinabove. The relevant portion whereof is as follows: “4.2 I have carefully considered rival contentions, case law relied upon and the order passed by the A.O. u/s.154 of the Act. The main issue is allowability of excess expenditure of Rs.6,49,06,986/- to be allowed to be set off against further income of the appellant. 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.) and CIT vs Institute of Banking Personnel Section (IBPS) (2003) 264 ITR 110 (Bom.). Hon'ble Gujarat High Court in the case of Shri Plot Shwetambar Murtipujak 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 purpose 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 arisen. The word "apply”

5 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).” 4.3 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 AO to allow carry forward deficit of Rs.6,49,06,986/- against its future income. Accordingly, ground of appeal no.2 is allowed. The AO would recheck the quantum of deficit before giving the appeal effect.”

7. This is the well settled position that 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 6 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). Such ratio has been laid by the Jurisdictional High Court in the matter of Shri Plot Swetamber Murti Pujak Jain Mandal (supra). The order passed by the Learned CIT(A) applying such ratio while allowing carry forward deficit of Rs.6,49,06,986/- does not call for any interference. Hence, revenue’s appeal is dismissed.

We find that the assessee’s case is squarely covered by the judgment passed by the Co-ordinate Bench as mentioned hereinabove which has been decided in favour of the assessee and respectfully relying upon the ratio laid down therein we find no infirmity in the order passed by the ''Ld.CIT(A)” in allowing the appeal preferred by the assessee, by directing the Ld.AO to allow the set off of carried forward deficit against income of the year under consideration. Hence, the Revenue’s appeal fails and is thus dismissed.