DCIT (EXEMPTIONS), CIRCLE-2,, AHMEDABAD vs. PADMA EDUCATION & WELFARE SOCIETY,, GANDHIDHAM

"A bare perusal of section 11 of the Income-tax Act, 1961, shows that the income derived from properly 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 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 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)." Respectfully following the decision of Jurisdictional Gujarat High Court in the case of Shri Plot Shwetambar Murtipujak Jain Mandal (supra) I hereby direct the A,O to allow the benefit of deficit of current A.Y. 2014-15 for Rs.3,52,62,944/- against the future incomes. Accordingly, ground of appeal No.4 raised by the appellant is allowed…” 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:

4 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 allow ability 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” 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 5 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 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 herein above which has been decided in favour of the assessee by allowing carry forward deficit and carefully following the same we find no infirmity in the order passed by the 6 ''Ld.CIT(A)” in allowing the appeal preferred by the assessee so as to warrant interference. Hence, the Revenue’s appeal fails and thus dismissed.