DCIT (EXEMPTIONS) CHENNAI CIRCLE, CHENNAI vs. THE COUNCIL OF SEVENTH DAY ADVENTIST EDUCATIONAL INSTITUTIONS, CHENNAI

आदेश / O R D E R PER INTURI RAMA RAO, ACCOUNTANT MEMBER There are appeals filed by the Revenue directed against common order of the Commissioner of Income Tax (Appeals)-17, Chennai (‘CIT(A)’ for short) dated 12.01.2018 for the Assessment Years 2008-09, 2009-10 & 2010-2011. Since, the identical facts and issues are involved in these 2.

appeals, we proceed to dispose the same vide this common order.

ITA Nos.1012 t0 1014 /2018 :- 2 -:

For the sake of convenience and clarity the facts relevant to the 3.

appeal in ITA No.1012/Chny/2018 for assessment year 2008-09 are

stated herein.

The Revenue raised the following grounds of appeal: 4.

‘’1. The order of the learned CIT(A) is contrary to the law and facts of the case. 2.1 The Id. CIT (A) erred in holding that the assessee is eligible to set off of brought forward excess application of funds to subsequent years. 2.2 The Id. CIT (A) failed to observe that there is no provision in the Income Tax Act which allows for determination of loss u/s 11 and carry forward of the same to subsequent year to be set off against income of the subsequent year. 2.3. The CIT(A) failed to observe that the income of the trust is not computed on the principles of business income which contains the provisions of carry forward of losses of earlier year and set off such losses against the income of the current year. 2.4 The Id. CIT(A) failed to consider the decision of ITAT, Delhi in the case of Pushpawati Singhania Research Institute for Liver, Renal & Digestive Diseases vs Dy.DIT (2009)29 SOT 316, ITAT, Chennai decisions in the case of Anjuman-E-Himayath-lslam vs.ADIT(Exemption) - IV, Chennai for the A.Y. 2009-10 reported in[2015] 59 taxmann.com 379 and M/s Inter Church Service Association in ITA NO.1253/Mds/2014 dated 05/02/2016. 2.5 The ld.CIT(A) failed to observe that carry forward of excess application of funds would result in notional application of income in subsequent year which is not permissible in law. 3. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(Appeals) may be set aside and that of the Assessing Officer be restored’’.

The brief facts of the case are as under: 5.

The respondent-assessee namely ‘’M/s. The Council of Seventh

day Adventist Educational Institutions’’ is a trust duly registered

under the provisions of Section 12A of the Income Tax Act, 1961 (in

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short ‘the Act’) and it is running educational institutions. The return of

income for the assessment year 2008-09 was filed on 26.05.2009

disclosing total income of �42,07,29,087/- before claiming

exemption u/s.11 of the Act. Against the said return of income, the

assessment was completed by the Income Tax Officer, (OSD)

Exemptions III, Chennai (hereinafter called “AO”) vide order dated

31.12.2010 passed u/s. 143(3) of the Act without allowing the

depreciation on application of income, placing reliance on the decision

of Hon’ble Supreme Court in the case of CIT vs. Escorts, 199 ITR 43.

Being aggrieved, an appeal was preferred before the ld. 6.

CIT(A), contending that depreciation should be allowed on commercial

principles and excess application of income on earlier years should be

allowed to be carried forward and set off against subsequent year

income. Ld. CIT(A) placing reliance on the decision of Hon’ble

Jurisdictional High Court in the case of Medical Trust of the Seventh

Day Adventists vs. DIT, Exemption-III, Chennai in TCA No.949 of

2015 and 771 of 2016 dated 08.08.2017 directed the Assessing Officer

to allow depreciation as application of income and also directed the

Assessing Officer that excess application of income in earlier years

should be allowed set off against current year income placing reliance

on the judgment of Hon’ble Jurisdictional High Court in the case of

CIT vs. Matriseva Trust, 242 ITR 20 and Hon’ble Madhya Pradesh High

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Court in the case of CIT vs. Gujrati Samaj, 213 Taxman 182, allowed

the appeal of the assessee.

off of excess application of income in earlier years, the Revenue is in

appeal before us in the present appeal.

Act allowing excess application of income to carry forward and set off

against income of the trust in the subsequent years. Therefore, it is

submitted that the ld. CIT(A) ought not have allowed set off of excess

application of income of earlier years against the current year income.

on the decisions of Hon’ble Jurisdictional High Court in the cases of

CIT vs. Matriseva Trust, (2003) 128 Taxman 261 and DIT, Exemption

II and Chennai vs. Medical Trust of the Seventh Day Adventists,

(2017) 84 taxmann.com 202.

record. The issue in the present appeal is whether or not excess

application of income in earlier years can be carried forward for the

purpose of set off against income of the trust in the subsequent years.

Though there is no provision under the Income Tax Act to allow such

excess application of income forward to the charitable trust in the

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subsequent years. However, the Jurisdictional High Court in the case

of Matriseva Trust (Trust) decided the issue in favour of the assessee

and the relevant position of the judgment held as follows:

‘’5. With regard to the second question, the Tribunal has held that the trust is entitled to set off the amount of excess application of the last year against the deficiency of Rs. 82,516 of the present assessment year.

When similar questions came up before the Rajasthan High Court and the Gujarat High Court in the cases of CIT v. Maharana of Mewar Charitable Foundation [1987] 164 ITR 439 and CIT v. Shri Plot Swetamber Murti Pujak Jam Mandal [1995] 211 ITR 239, respectively, both the Rajasthan High Court and the Gujarat High Court have answered the questions in favour of the assessee and against the revenue.

Even the Hon’ble Supreme Court in the case of CIT (E) vs. Subros

Educational Society, (2018) 166 DTR 257 upheld the same proposition

of law. However, from the perusal of the assessment order, we do not

find any taxable income which is required to be set off, against

excess application of income in the earlier years. Similarly, there is no

material shown to us showing the availability of excess application of

income which is eligible to be carried forwarded to the subsequent

years. Further, material point that to be noted that excess application

of income is required to be determined in the years of application of

income in the earlier years. Therefore, we remand the matter back to

the file of the Assessing Officer for limited purpose of verifying

availability of excess application of income in the earlier years, if so

available the same should be allowed to be carry forward to the

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subsequent years for set off against the income in the subsequent year. In the result, the appeal filed by the Revenue is partly allowed for statistical purposes.

ITA Nos.1013 & 1014/Chny/2018, for A.Y 2009-10 and 10-11

facts in ITA No.1012/Chny/2018, for the reasons mentioned therein,

we partly allow the appeals for statistical purpose on the above lines

indicated in appeal ITA No.1012/Chny/2018 supra. Hence, the above

captioned appeals filed by the Revenue are partly allowed for statistical

purposes.

allowed for statistical purposes.

Order pronounced on 25th day of July, 2019, at Chennai.

Sd/- Sd/- (इंटूर� रामा राव) (धु�वु� आर.एल रे�डी) (DUVVURU RL REDDY) (INTURI RAMA RAO) लेखा सद�य/ACCOUNTANT MEMBER �या�यक सद�य/JUDICIAL MEMBER चे�नई/Chennai �दनांक/Dated: 25th July, 2019. KV आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 3. आयकर आयु�त (अपील)/CIT(A) 5. �वभागीय ��त�न�ध/DR 2. ��यथ�/Respondent 4. आयकर आयु�त/CIT 6. गाड� फाईल/GF