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Income Tax Appellate Tribunal, DELHI BENCH: ‘G’ NEW DELHI
Before: SHRI O.P. KANT & SHRI KULDIP SINGH
ORDER PER O.P. KANT, AM:
This appeal by the Revenue has been filed against the order of the learned Commissioner of Income Tax (Appeals)-40, Delhi [in short ‘the learned CIT(A)’] for assessment year 2013-14 raising following grounds:
1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing the claim of carry forward of losses disregarding the facts that the set-off and carry forward of losses are dealt with by the provisions of section 70,71,72,73&74 of Income Tax Act.
2. On the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in law in allowing the assessee’s claim of carry forward of current year’s loss and set-off of excess deficit pertaining to earlier years without appreciating the fact that the scheme of taxation of charitable or religious trust/institution as codified u/s 11,12 and 13 there is no provision for computing loss from property held under trust/institution on account of excess application of income/funds of the trust.
3. On the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in law in allowing the assessee’s claim of carry forward of current year’s loss and set off of excess deficit pertaining to earlier years without appreciating the fact that the normal computation of income under respective heads as envisaged u/s 15 to 59 are not applicable to the computation of income in respect of charitable trust/institution for the purpose of claiming exemption under section 11,12 and 13 and therefore the provisions relating to set off of loss from one source against the income from another source, set off of loss from one head against income from another head and carry forward and set off of loss against the income of subsequent years as envisaged u/s 70 to 79 are also not applicable to the charitable trusts/institutions.
The appellant craves leave to add, to alter or amend any ground of appeal raised above at the time of hearing.
2. Briefly stated facts of the case are that the assessee society registered under Societies Registration Act, 1860. The society is engaged in running two schools under the name and title of “Step-by-Step Nursery School” at Panchsheel Park, New Delhi and Noida. The Assessing Officer in assessment order passed on 23/03/2016 under section 143(3) of the Act for year under consideration, upheld the charitable nature of the society, however, denied carry forward of the deficit/loss amounting to ₹104,623,086/-. On further appeal, the Ld. CIT(A), however, allowed the claim following various judicial decisions and decision of the Tribunal in the case of the assessee for assessment year 2008-09. Aggrieved, the Revenue is in appeal before the Tribunal raising the grounds as reproduced above.
3. None appeared on behalf of the assessee before us. We have heard the Learned Department Representative and perused the relevant material on record. We find that the Ld. CIT(A) has allowed the appeal of the assessee of claim of carry forward of deficit/losses observing as under:
“4.2.1 I have considered the order of the Assessing Officer and submissions of the appellant. Assessing Officer has denied carry forward of deficit. Charitable trusts or institutions are governed by the provisions of sections 11, 12, 12A, 12AA and 13 under Chapter III of the Income-tax Act. These sections constitute a complete code governing the grant, cancellation or withdrawal of registration, providing exemption of income and also conditions subject to which a charitable trust or institution is required to function in order to be eligible for exemption. In these sections, there is no provision for adjustment of brought forward loss or carry forward of loss of current year to be adjusted against the income of subsequent year. However, various Hon'ble High Courts have taken a view that income is to be computed in accordance with commercial principles and as such adjustment of brought forward loss/deficit and carry forward loss/deficit is to be allowed.
4.2.2 In the case of DIT v. Raghuvanshi Charitable Trust [(2011) 197 Taxman 170 (Delhi)], the Hon'ble Delhi High Court held that a trust can be allowed to carry forward deficit of current year and to set of same against income of subsequent years. It was further held that adjustment of deficit of current year against income of subsequent year would amount of application of income of trust for charitable purposes in subsequent year within meaning of section ll(l)(a). It has been held that excess of expenditure over income of charitable or religious nature incurred in earlier years can be adjusted against the income of the current year. This issue was debated in CIT v. Maharana of Mewar Charitable Foundation [(1981) 164 ITR 439 (Raj.)] and it was opined that application could be considered to have taken place in the year of adjustment, where the earlier year's income was not adequate to absorb the actual expenditure made. The Hon'ble Court held that it would be incorrect to view the term 'application' from a narrow perspective so as relate it with the actual movement of funds and held as under:
"...there is nothing in the language of section 11(1) (a) which lends support to the contention of... 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 earlier year would not amount to such income being applied for charitable or religious purposes. In our opinion the words used in section ll(l)(a) must be given their natural meaning. The word 'applied' as defined in the Chambers Dictionary means 'to put to use' or 'to turn to use'. According to Oxford Dictionary the word 'applied' means 'to make use, or 'to put to practical use'. When the income of trust is used or put to use to meet the expenses incurred for the religious or charitable purposes it is applied for charitable or religious purposes. The said 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 if the expenses for charitable and religious purposes have been incurred in 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 be applied for charitable and religious purposes in the year in which the expenses incurred for charitable and religious purposes had been adjusted.
We are, therefore, of the opinion that the adjustment of the expenses incurred by the Trust for charitable and religious purposes in the earlier year against the income earned by the trust in the sub- sequent year would amount to applying the income of the trust for charitable and religious purposes in the subsequent year in which such adjustment has been made and will have to be excluded from the income of the trust under section 11(1)(a)."
4.2.3 In CIT v. Shri Plot Swetamber Murti Pujak Jain Mandal [(1994) 119 CTR 144 (Guj.)], the Hon'ble Gujarat High Court referred to CBDT Circular No. 100, dated 24.01.1973 which allowed repayment of loan taken in earlier years for fulfillment of charitable objects as application. The Hon'ble Court held that the same principle should apply if instead of taking loan the organization spent more out of its corpus and it is reimbursed in subsequent years. It was also held that there is nothing in section 11(l)(a) which indicates that the expenditure incurred in the earlier year cannot be met out of the income of subsequent years. Relevant extracts of the decision are as under:
According to the circular No. 100, if a trust wants to spend more money for charitable and religious purposes in a particular year, it can take a loan and the said loan can he repaid out of the income of the subsequent year and the repayment of the said loan out of the income of the subsequent year would amount to application of income for charitable and religious purposes under section 11(1)(a). If the trust takes a loan for the purposes of incurring expenses for charitable and religious purposes in a particular year and the said loan is repaid out of the income of the subsequent year, the said repayment would be entitled to exemption from tax under section 11(1)(a) in view of the circular above referred to. But, if the trust instead of taking a loan incurs expenses for charitable and religious purposes out of the corpus of the trust and seeks to reimburse the said amount out of the income of the subsequent year, the trust would not be entitled to claim exemption in respect of such reimbursement under section 11(1)(a) if the contention advanced by the revenue was accepted. The construction which leads to such an anomaly has got to be avoided. There is nothing in the language of section 11(1)(a) to indicate that the expenditure incurred in the earlier year cannot be met out of the income of the subsequent year or that 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.
4.2.4 The Hon'ble Bombay High Court in CIT v. Institute of Banking Personnel Selection [(2003) 264 ITR 110], held that income derived from a trust property should be computed on sound commercial principles and this included carrying forward and set-off of deficit in the earlier years. The relevant extracts are as under:
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 and such adjustment will have to be excluded from the income of the trust under section 11(1)(a). Accordingly, on the facts and in the circumstances of the instant case, the Tribunal was justified in law in allowing carrying forward of the deficit of earlier year and set it off against the surplus of subsequent years.
4.2.5 In the case of CIT v. Shri Gujrati Samaj (Regd.) [(2011) 64 DTR 76 (MP)] it was held that under section 11(1)(a), expenditure incurred earlier year, can be met out of the income of the subsequent year and utilization of such income for meeting the expenditure of earlier year would amount to such income being applied for charitable or religious purpose. Therefore, assessee is entitled for carry forward and set off excess of expenditure incurred during the year over its income.
4.2.6 Some other decisions on the issue are CIT vs. Matrisewa Trust, 242 ITR 20 (Mad) 2000 and Govindu Naicker Estate vs. ADIT, 248 ITR 110 (Bom) 2003. .2.7 In an appeal filed by the Department in appellant's own case on the issue of carry forward of deficit, the Hon'ble ITAT Bench "G" in vide order dated 10.12.2014 for the assessment year 2008-09 held as under: "Ground No. 2: On the issue raised in this ground, the Learned CIT(Appeals) has followed the ratios laid down by the Hon'ble Rajasthan High Court in the case of CIT vs. Maharana of Me war Charitable Foundation -164 ITR 439 (Raj.). In that case, it was held by the Hon'ble Rajasthan High Court that excess of expenditure in earlier years should be treated as application for charitable purpose against income of subsequent year so, the net deficit of the year under consideration should be allowed to be carried forward for adjustment in subsequent year as claimed by the appellant in its return of income. In view of the ratios laid down in this decision, we are of the view that the Assessing Officer was not justified in not allowing the carry forward of net deficit in the present case. The Learned CIT (Appeals) was thus justified in directing the Assessing Officer to allow carry forward of deficit. The same is upheld. The ground no. 2 is accordingly rejected."
5. Keeping into consideration all the facts of the case and respectfully following the decisions of the various Hon'ble High Courts in favour of the appellant assessee and the decision of the Hon'ble ITAT in appellant's own case, the Assessing Officer is directed to allow the benefit of carry forward of the deficit/loss. This ground of appeal is allowed.
4. We find that the Ld. CIT(A) has followed order of the Tribunal in the case of the assessee itself for assessment year 2008-09, which is a binding precedent. In our opinion, there is no infirmity in the order of the Ld. CIT(A) on the issue in dispute in following binding judgments of Hon’ble High Court and judgment of the Tribunal in the case of the assessee itself. Accordingly, we uphold the order of the Learned CIT(A) on the issue in dispute and the grounds raised by the Revenue are dismissed.
In the result, the appeal of the Revenue is dismissed. Order pronounced in the open court on 16th July, 2021.