THE ITO, (EXEMPTIONS), WARD, SURAT vs. SHREE AMBIKA NIKETAN TRUST, SURAT

आयकर अपील�य अ�धकरण, सूरत �यायपीठ IN THE INCOME TAX APPELLATE TRIBUNAL, ‘’SURAT’’ BENCH, SURAT BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER अपील सं./ITA No.667/Ahd/2017 �नधा�रण वष�/Asstt. Year:2013-2014 Income Tax Officer, Shree Ambika Niketan Trust, [Exemption] Ward, Surat, H.No.13/52, Vs. Surat. C/0 Ambika Niketan Mandir, Khan Saheb Ni Wadi, Athwalines, Surat-395001. PAN AABTS2849C (Applicant) (Responent) Revenue by : Shri Prasanjit Singh, CIT,DR : Assessee by Kruti Kothari, C.A सुनवाई क� तार�ख/Date of Hearing : 15/11/2018 घोषणा क� तार�ख /Date of Pronouncement: 16/11/2018 आदेश/O R D E R PER AMARJIT SINGH, ACCOUNTANT MEMBER:

This revenue’s appeal for A.Y. 2013-2014, arises from the order of the Learned Commissioner of Income Tax (Appeals)-3, Surat, dated 30/12/2016 in proceedings under section 143(3) of the Income Tax Act, 1961; in short ‘’the Act’’.

ITA No.667/Ahd/2017 A.Y.2013-2014 2 3. Briefly stated fact of the case is that assessee has filed its return of income declaring income of Rs.Nil on 02/06/2004. Subsequently, the case was selected for scrutiny by issuing notice u/s.143(2) of the Act, on 04/09/2015. During the course of assessment proceedings the AO has noticed that assessee has claimed carry forward of the excess application/expenditure of Rs.5,15,71,748/- pertaining to different period. The details of such expenditure is reproduced below:

Sr. A.Y Amount Rs. 1. 2002-03 23,35,825 2. 2003-04 15,00,929 3. 2004-05 63,06,441 4. 2005-06 1,07,02,292 5. 2006-07 1,02,74,573 6. 2013-14 2,04,51,688 Total 5,15,71,748

The AO was of the view that the provisions of section 70 to 80 do not apply in the cases covered by the provisions of section 11,12 and 13 of the Act. He has further stated that there was no mention of carry forward excess application and set off against surplus of any subsequent year under the provisions of section 11,12 & 13 of the Act. The AO also stated that no carry forward excess application is allowed in the case of the assessee for any period. Therefore assessee claim to carry forward losses/excess application of total amounting to Rs.5,15,71,748/- was disallowed.

‘’(4) Therefore, all the High Courts have taken identical view in favour of the assessee. This has not to be confused with the normal carry forward of business loss. The view taken is that assessee trust is entitled to get set off of excess expenditure of earlier years in subsequent assessment years as application of income. Therefore, it is respectfully submitted that such adjustment may be made in the above case by granting such carry forward of excess expenditure not only for A. Y.2013-14 but also for earlier years.

ITA No.667/Ahd/2017 A.Y.2013-2014 3

8.1 I have perused the assessment order o : Id AO and submission of AR and the oral arguments made. The only issue involved here is set off of excess expenditure /application of earlier years against the income of current year. 8.2.1 Section 11 (1)( a) does not contain any words of limitation to the effect that the income should have been applied for charitable or religious purpose only in the year, in which the income has arisen. The application for charitable purposes as contemplated in section 11(1 )(a) takes place in the year, in which the income is adjusted to meet the expenses incurred for charitable or religious purposes. Hence, even if the expenses for such purposes have been incurred in the earlier years and the said expenses are adjusted against the income of a subsequent year, the income of such subsequent year can be said to be applied for charitable purposes in the year, in which such adjustment fakes place. In other words, the set off of excess of expenditure incurred over the income of earlier years against the income of a later year will amount to ' application of income ' of such later year (CIT v/s Maharana of Mevar Charitable Foundation ( 1987) 60 CTR (Raj) 40: (1987) 164 ITR 439 ( Raj) RC 23 R 1198 followed in CIT v/s Shni Plot Setambr Murti Pujak Jain Mandal ( 1994) 119 CTR ( Guj) .In CIT v/s Institute of Banking Personnel Selection 264 ITR 110 ( Bom) , it was held that in case of charitable trust whose income is exempt u/s 11 excess of expenditure in the earlier years can be adjusted against income of subsequent years and such adjustment would be application of income for subsequent years. In Govindu Naicker Estate v/s ADIT (2001) 167 CTR (Mad) 303 (2001) 248 ITR 368 ( Mad),it was held that the income of the Trust has to be arrived at having due regard to the commercial principles, sec. 11 is a benevolent provision , and the expenditure incurred on religious or charitable purposes in earlier year or years can be adjusted against the income of the subsequent year. The principle that the loss incurred under one head can only set off against the income from the same head is not of any relevance, if the expenditure incurred was for religious or charitable purposes. The expenditure adjusted against the income of the Trust in a subsequent year, would not amount to an incidence of loss of an earlier year being set off against the profit.of a subsequent year. The object of the religious and charitable Trust can only be achieved by incurring expenditure and in order to incur that expenditure , the Trust should have an income. So long as the expenditure incurred is on religious or charitable purposes, it is the expenditure properly incurred by the Trust and the income from out of which that expenditure is incurred would, not be liable to tax. The expenditure, if incurred in an earlier year s adjusted against the income of a later year, it has to be held that the Trust has incurred expenditure on religious and charitable purposes from the income of the subsequent year , even though the actual expenditure was in the earlier years if in the books of account of the trust such earlier expenditure had been set off against the income of the subsequent year. The expenditure that can be so adjusted can only be expenditure on religious and charitable purposes and no other. The High Court relied on the following decisions CIT v/s Trustees of H.E.H. The Nizam's Supplemental Religious Endowment Trust (1981) 127 ITR 378 ( AP) TC 23 R 083 CIT v/s Society of the Sisters of St Anne ( 1984) 39 CTR ( kar) 9; (1984) 146 ITR 28 (Kar) TC 2 R 978 CIT v/s Maharana of Mewar Charitable Foundation (1987) 60 CTR (Raj) 40; | (1987) 164 ITR 439 ( Raj) TC 23 R 1198 CIT v/s Shri Plot Swetamber Murti Pujak Jain Mandal ( 1994) 119 CTR ( Guj) 114; (1995) 211 ITR 293 ( Guj) TC 23R 1228 and CIT v/s Rao Bahadur Calavala Cunnan Chetty Charities ( 1982) 135 ITR 485 (Mad) TC 23 R 965 and distinguished the decision in CIT vs S.S. Thiagarajan (1981) 129 ITR 115 (Mad) : TC 32 R 334.' 8 2.1 In the case of DIT V/s Raghuvanshi Charitable Trust ( 2011) 197 Taxman 170 ( Delhi) the High Court of Delhi held that a Trust can be allowed to carry forward deficit of current year and to set off same against income of sub sequent years

ITA No.667/Ahd/2017 A.Y.2013-2014 4 .Adjustment of deficit of current year against income of subsequent year would amount to application of income of Trust for charitable purposes in subsequent year within meaning of section 11(1)(a). The cases Siddaramanna Charities Trust v/s CIT (1974) 96 ITR 275 ( Mys) and CIT v/s Matrisva Trus (2000) 242 ITR 20/ (2003) 128 Taxman 261 ( Mad) are also relevant. This issue was debated in CIT vs Fylaharana of Mewar Charitable Foundation (1987) 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 Thus, a distinction between actual expenditure and application, for the purposes of section 11(1)(a) was made. 8.2.2 The Court referred to a CBDT Circular dt 24.1.1973 wherein it was clarified that the Repayment of loans taken for meeting certain expenditures of earlier years would be considered as application. The Court v/as of the opinion that in the light of the aforesaid circular, if set off of past years' deficit was not allowed then, it would lead to an anomalous situation, where if the trust took a loan for the purposes of incurring expanses for charitable and religious purposes in a particular year and the said loan was repaid put of the income of the subsequent year, the said repayment would be entitled to exemption for tax u/s 11(1) (a) of the Act. On the contrary, if the trust, instead of taking a loan, incurred expenditure for charitable and religious purposes out of the corpus of the trust and sought to reimburse the said amount of the income of the subsequent year, the trust would not be entitled to claim exemption in respect of such reimbursement u/s 11(1)(a) of the Act. 8.2.3 The Hon 'ble jurisdictional High Court of Gujarat in the case of CIT v/s Shri Plot Swetamber MUrti Pujak Jain Mandal (1994)119 CTR (Guj) has referred to Circular no. 100 dt 24. 1. 1973 which allowed repayment of loan taken in earlier years for fulfillment of charitable objects as application and held that the same principle should apply if instead of taking loan the organization spends money out of its j corpus and it is reimbursed in subsequent years. There is nothing in sec. 11 (1 )(a) which shall indicate that the expenditure incurred in the earlier year cannot be met out of the income of the subsequent years. Some relevant extracts are as under “ According to the above referred circular, if a trust wants to spend more money for charitable and religious purposes, in a particular year,' it can take a loan and he said current year and the repayment of the r would amount to ' application of 1(1 )(a) of the Act. The contention should be excluded which was the relevant assessment year in as it would lead to an anomalous loan can be repaid ,out of the income of the subsequent and the repayment of said loan out of the income of the subsequent year income ’ for charitable and religious purposes u/s T that only that part of the income of a charitable trust applied for charitable and religious purposes during which the income was earned, cannot be accepted , situation . 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 u/s 11(1 )(a) o f the Ac in view of the above referred to circular. 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 the contention advanced by the to such an anomaly has got to be such reimbursement u/s 11(1 )(a) of the Act, if Revenue is accepted. The construction which leads avoided . There is noting 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 or that utilization of such income earlier year, would not amount to such income religious purposes: 8.2.4 The Hon 'ble High Court of Bombay in CIT v/s Institute of Banking Personnel Selection ( 2003 ) 246 “ income derived from the trust property has also got to be computed on commercial principles and if commercial principles are applied, then adjustment

ITA No.667/Ahd/2017 A.Y.2013-2014 5 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 sec. 11 and such adjustment will have to be excluded from the income of the trust u/s 11(1)(a). Accordingly, on the facts and in the circumstances of the instant case, the Tribunal deficit of earlier year and set itwas justified in law in allowing carrying forward of the off against the surplus of subsequent years. Similarly, in the case of CIT v/s (MP) (HC) , it was held that Shri Gujarati Samaj ( Regd) (2011) 64 DTR 76 u/s 11 (1 )(a) expenditure incurred in 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, assesee is entitled for carry forward and set off excess of expenditure incurred during the year over its income. 8.3 In view of the above discussion, it is clear that the Charitable Trusts are entitled to set off the excess expenditure of the earlier years against the income of current year. Set off of excess expenditure of earlier years amounts Io application for the purposes of section 11 of the Act. Hence, the Id assessing officer is directed to allow the set off. This ground is decided in favour of the appellant.’’

ITA No.667/Ahd/2017 A.Y.2013-2014 6 elaborated in the order of ld.CITA, we do not find any merit in the appeal of the revenue, therefore the same is dismissed.

Order pronounced in the Court on 16/11/2018 at Surat.

-Sd- -Sd- (RAJPAL YADAV) (AMARJIT SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER Tue copy Surat; Dated 16 /11/2018