COMMISSIONER OF INCOME TAX vs. VED PARKASH MUKAND LAL EDUCATIONAL SOCIETY, RADUR

The revenue has preferred the present appeal under section 260A of the Income Tax Act, 1961(in short, “the Act”) against the order dated 28.4.2011, Annexure A.3 passed by the Income Tax Appellate Tribunal, Chandigarh Bench 'B' (for brevity, “the Tribunal) in ITA No.240/CHD/2011, for the assessment year 2007-08, claiming following substantial question of law:- “Whether on the facts and in the circumstances of the case and in law, the learned Income Tax Appellate Tribunal was justified in restoring the issue regarding set-off of brought forward losses for verification and consequential allowance despite the fact that the income of the assessee to be computed under sections 11 to 13 of the Income Tax Act, 1961; whereas, there is no provision to set off the brought forward losses against exempt income and exemption in each year is based upon the application of prescribed percentage of receipts for charitable purposes?”

Briefly, the facts as narrated in the appeal may be noticed. The assessee is a trust registered under section 12AA of the Act and running educational institution. In the return of income filed for the assessment year 2007-08, the assessee claimed depreciation of Rs.2,77,33,836/- but the same was disallowed on the ground that the entire cost of the capital assets had been claimed as the assessee's application of income towards charitable purposes in the year of acquisition of the relevant assets and claim of depreciation was double deduction. The claim of the assessee for carry forward of the brought forward losses/excess of expenditure over the income in the earlier years and also for the assessment year under consideration was not entertained. Feeling aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (A) [CIT(A)]. The said appeal was accepted by the CIT (A) vide order dated 16.12.2010, Annexure A.2 allowing the claim of depreciation and carry forward of brought forward losses for set off. The revenue feeling aggrieved filed an appeal before the Tribunal which was dismissed vide order dated 28.4.2011, Annexure A.3 impugned herein.

We have heard learned counsel for the revenue and perused the record.

The issue in the present appeal relates to whether while computing the income of the assessee, it was entitled for set-off of brought forward losses or in other words, excess of expenditure in earlier years against income of the current year.

The Tribunal had adjudicated the issue against the revenue in view of the judgment of the Bombay High Court in Commissioner of Income Tax v. Institute of Banking, (2003) 264 ITR 110. The Division Bench of the Bombay High Court in Institute of Banking's case (supra) while relying upon decision of the Gujarat High Court in Commissioner of Income Tax v. Shri Plot Swetamber Murti Pujak Jain Mandal, (1995) 211 ITR 293 had recorded as under:- “Now coming to question No.3, the point which arises for consideration is : whether excess of expenditure in the earlier years can be adjusted against the income of the subsequent year and whether such adjustment should be treated as application of income in the subsequent year for charitable purposes? It was argued on behalf of the Department that expenditure incurred in the earlier years cannot be met out of the income of the subsequent year and that utilisation of such income for meeting the expenditure of earlier years would not amount to application of income for charitable or religious purposes. In the present case, the Assessing Officer did not allow carry forward of the excess of expenditure to be set off against the surplus of the subsequent years on the ground that in the case of a charitable trust, their income was assessable under self-contained code mentioned in section 11 to section 13 of the Income Tax Act and that the income of the charitable trust was not assessable under the head “Profits and gains of business” under Section 28 in which the provision for carry forward of losses was relevant. That, in the case of a charitable trust, there was no provision for carry forward of the excess of expenditure of earlier years to be adjusted against income of the subsequent years. We do not find any merit in this argument of the Department. 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 has been made having regard to the benevolent provisions contained in section 11 of the Act and that such adjustment will have to be excluded from the income of the trust under Section 11(1) (a) of the Act. Our view is also supported by the judgment of the Gujarat High Court in the case of CIT v. Shri Plot Swetamber Murti Pujak Jain Mandal, [1995] 211 ITR 293. Accordingly, we answer question No.3 in the affirmative, i.e., in favour of the assessee and against the Department.”

In view of the judgment of the Gujarat High Court in Shri Plot Swetamber Murti Puja jain Mandal's case (supra) and Bombay High Court in Institute of Banking's case (supra), it is held that the issue herein stands concluded against the revenue. Accordingly, no question of law much less substantial question of law arises for consideration in this appeal.

Consequently, the appeal is dismissed.