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PER RAJPAL YADAV, JUDICIAL MEMBER:
The Revenue is in appeal before the Tribunal against the order of the learned Commissioner of Income-tax (Appeals)-9, Ahmedabad dated 20.05.2016 passed for Assessment Year 2012-13.
In the first ground of appeal, revenue has pleaded that Ld. CIT(A) has erred in directing the Assessing Officer to allow carry forward of deficit amounting to Rs.2,51,34,291/- to subsequent years.
ITA No.1909/Ahd/2016 DCIT vs. Kantilal Jaikishandas Choksi A.Y. 2012-13
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The brief facts of the case are that the trust is a registered society running a dispensary in the name of “Anubhuti Homeoclinic”. It is also running educational institutions in the name of “Udgam School of Children” and a public library in the name of “Kantilal Jaikishandas Public Library”. It is enjoying registration u/s 12A of the Income Tax Act as well as approval u/s 80G (5) of the Income Tax Act. The trust has filed its return of income on 30.09.2012 declaring its income at loss (deficit of Rs.2,51,34,291). The case of the assessee was selected for scrutiny assessment and notice u/s 143(2) was issued and served upon the assessee. The Ld. Assessing Officer has confronted the assessee as to why the claim of carry forward of deficit to subsequent assessment years be note disallowed. In response to the notice, assessee has filed a reply vide letter dt. 25.02.2015, which has been reproduced by the Assessing Officer on Page Nos. 2 to 5. The assessee has contended that as per judgment of Hon’ble Gujarat High Court in the case of CIT vs. Shri Plot Swetamber Murti Pujak Jain Mandal reported in 211 ITR 293, it is entitled for carry forward of deficit to the subsequent years. Ld. Assessing Officer did not accept this contention of the assessee and he disallowed the claim and determined the taxable income at nil.
Dissatisfaction with the action of the Assessing Officer, assessee carried the matter before the Ld. CIT(A). Ld. CIT(A) gone through the record and decision of Jurisdictional High Court, allowed the claim of the assessee. The findings recorded by the Ld. CIT(A) read as under:
ITA No.1909/Ahd/2016 DCIT vs. Kantilal Jaikishandas Choksi A.Y. 2012-13
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“5.2 I have carefully considered the rival contention as well as the observation of the A.O. It is observed that the A.O has not allowed the set off of excess expenditure incurred in earlier years against the income of the relevant assessment years. In this respect the A.O has relied on the case of Pushpawati Singhania Research Institute for Liver, Renal & Digestive Diseases vs. Deputy Director of Income Tax (Exemption) [2009] 29 SOT 316 (Delhi) wherein it was held that when income accumulated in earlier years cannot qualify for exemption. U/s.11(2) the excess income applied for earlier assessment years would also not qualify for exemption. The appellant in its return for A.Y.2012-13 had reflected a deficit of Rs.2,51,34,291/- as per the computation of total income. 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.), CIT Maharana of Mewar Charitable Foundation 29 Taxman 476 (Raj) and GoviNDU Naicker Estate v. Asstt.DIT [2001] 248 ITR 368 (Mad). Hon'ble Gujarat High Court in the case of Shri Plot Shwetambar Murtipujak Jain Mandal has held as follows :-
"A bare perusal of section 11 of the Income-tax Act, 1961, shows that income derived from property 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 limitation in this section providing that the income should have been applied for charitable or religious purposes only in the year in which income had arisen. The word "apply" means "to put to use" or "to turn to use" or "to make use" or "to put 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
ITA No.1909/Ahd/2016 DCIT vs. Kantilal Jaikishandas Choksi A.Y. 2012-13
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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).” 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 A.O to allow the benefit of the deficit of earlier years against the future incomes. Accordingly, ground of appeal Nos.1 and 2 are hereby allowed.
Similarly, the A.O is directed to grant the appellant the claim of capital expenditure of Rs. 4,23,64,625/- incurred during the year under consideration for being set off against the appellants income of subsequent assessment years. A.O is directed to allow the carry forward of capital expenditure of Rs.4,23,64,625/- accordingly. Thus, ground of appeal no.3 is allowed.”
With the assistance of learned Representatives, we have gone through the record carefully. A perusal of the CIT(A)’s order would indicated that learned first appellate has based its finding on the decision of Hon’ble Jurisdictional High Court. The Hon’ble Gujarat High Court has specifically held that adjustment of the expenditure incurred by the trust for charitable and religious purpose in the earlier years against income earned by the trust in the subsequent years will have to be regarded as application of income of the trust for charitable and religious purpose in the subsequent years, in which such adjustment has been made. This observation of the Hon’ble High Court would indicate that if there is a deficit in earlier years then that can be carried forward
ITA No.1909/Ahd/2016 DCIT vs. Kantilal Jaikishandas Choksi A.Y. 2012-13
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for claim of set off in the subsequent year’s income. Therefore, we are of the view that learned first appellate authority has rightly followed the decision of Hon’ble Jurisdictional High Court and no interference is called for in the order of Ld. CIT(A). First ground of appeal is rejected.
In the next ground of appeal, grievance of the revenue is as under: “Whether on the facts and in the circumstances of the case the Ld. CIT(A) is justified in allowing the assessee’s appeal neglecting the finding of Assessing Officer regarding addition of Rs.4,23,64,625/- being capital expenditure claimed u/s 11 of the Act.”
While taking cognizance of the finding of Ld. CIT(A), we have noticed findings of the CIT(A) on this issue also. A perusal of the order of Ld.CIT(A) on this issue would indicate that Ld.CIT(A) has directed the Assessing Officer to grant set off capital expenditure incurred during the year under consideration against income of the assessee of subsequent years. In other words, it is also carry forward of capital expenditure for setting of against application of income of subsequent years. This is identical to the issue involved in Grounds No.1. If income of the assessee is to be computed as per commercial principles considered by the Hon’ble Gujarat High Court then this expenditure has to be set off against the income of the subsequent years and Ld. CIT(A) has rightly directed the Assessing Officer to permit the assessee for set off capital expenditure incurred in this year against the income of the assessee of subsequent years. In other words, the direction of the CIT(A) is to the effect that the assessee is entitled to carry forward of deficit in the capital expenditure for set off to the subsequent years. We do not
ITA No.1909/Ahd/2016 DCIT vs. Kantilal Jaikishandas Choksi A.Y. 2012-13
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find any error in the order of the CIT(A). This ground of appeal is also rejected.
In the result, appeal of the revenue is dismissed. Order pronounced in the Court on 16th May 2018 at Ahmedabad.
Sd/- Sd/- (PRAMOD KUMAR) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated, 16/05/2018 Priti Yadav, Sr.PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, / DR, ITAT, Ahmedabad. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER,
उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, / ITAT, Ahmedabad.