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Income Tax Appellate Tribunal, BANGALORE BENCH ‘A’
PER SHRI JASON P BOAZ, ACCOUNTANT MEMBER :
This appeal by the Revenue is directed against the order of the CIT(A) - 14, LTU, Bangalore dated 28/4/2017 for asst. year 2013-14.
Briefly stated, the facts of the case relevant for disposal of this appeal are as under:- 2.1 The assessee trust, registered u/s 12A of the Income-tax Act, 1961 (in short ‘the Act’) vide order dated 11/9/1985, field its return of income for asst. year 2013-14 on 22/8/2013 declaring NIL income after claiming exemption u/s 11 of the Act. The return was processed u/s 143(1) of the Act and the case was subsequently taken up for scrutiny. The assessment was concluded u/s 143(3) of the Act vide order dated 11/6/2015 wherein the assessee’s income was determined at Nil, but after (i) disallowance of depreciation and (ii) disallowance of claim for carry forward of excess expenditure for adjustment against income of years where surplus income would be available, by holding that exemption u/s 11(1)(a) of the Act is allowable only for application of the current years income. 2.2 Aggrieved by the order of assessment , dated 11/6/2015 for asst. year 2013-14, the assessee filed an appeal before the CIT(A)-14, LTU, Bangalore. The ld CIT(A) disposed off the appeal vide the impugned order dated 28/4/2017 allowing the assessee partial relief by (i) allowing the assessee’s claim for carry forward of excess expenditure for application against surplus income of subsequent years (ii) upholding the AO’s disallowance of the assesseee’s claim for depreciation. 3.1 Revenue, being aggrieved by the order of the CIT(A)-14, LTU, Bangalore dated 28/4/2017 for asst. year 2013-14, has filed this appeal before the Tribunal, raising the following grounds therein:- a) The CIT (A) has erred in directing the assessing officer to allow set-off of excess expenditure/application pertaining to current asst. year and earlier years against the income of the future asst. year without appreciating the fact that as per the scheme of taxation of charitable or religious trust/institution as codified u/s.11,12 and 13, is no provision for computing loss from property held under trust/institution on account of excess application of income/funds of the trust. b) The CIT (A) has failed to appreciate 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 sec.11, 12 and 13 and, therefore, the provisions relating set-off of loss from one source against the income from another source, set-off of I 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. c) The CIT (A) has failed to discuss the issue in detail bringing out the facts and applying the relevant provisions of the Act, but came to a conclusion that excess expenditure/excess application shall be allowed to be carried forward and set-off against the income of the future assessment years and, thereby, rendering the order perverse.”
3.2 Ground No.1(a)( to (c) – Carry forward of excess expenditure of Rs.98,87,901/- for adjustment against income of subsequent years 3.2.1 The ld DR submitted that carry forward of excess expenditure for application against income in subsequent years is not permissible since there is no specific provision in this regard in either sections 11 and 13 of the Act which are in respect of assessment of trusts and, therefore, contended that assessee’s claim be rejected. Strong support was placed to the orders of the A.O on this issue. 3.3 According to the ld AR for the assessee, the assessee is entitled to carry forward the excess/expenditure for application against surplus income of subsequent years. It is submitted that the said issue is covered by various decisions of the Co-ordinate bench of this Tribunal in the following cases : (i) ACIT Vs. City Hospital Charitable Trust (2015) 42 ITR (Trib) 583, Bangalore (ii) DDIT VS. Jyothi Charitable Trust (60 taxmann.com 165) (iii) Shraddha Trust (ITA No.899/Bang/2016 dated 7/4/2017; (iv) DCIT Vs. Manipal Academy of Higher Education (2015) 44 ITR (Trib) 18 (Bang) 3.4.1 We have heard the rival contentions and perused and carefully considered the material on record, including the judicial pronouncements cited. We find that the issue before us of carry forward of excess expenditure for adjustment against income of subsequent years is covered by the decisions of the Co-ordinate Benches of this Tribunal in the case of Jyothi Charitable Trust (60 taxmann.com 165) and the case of ITO (Exemption) Vs. Shraddha Trust in dated 7/4/2017. In the case of Shraddha Trust (Supra) the Co-ordinate bench at para 8 of its order has held as under:- “8. The final grounds of appeal relates to carry forward of excess application of income to subsequent years This issue is covered against the revenue by co- ordinate bench of Tribunal in the case of Deputy Director of Income-tax vs. Jyothy charitable Trust (60 taxmann.com 165). The relevant part of the order is reproduced below:
14. We have considered his submission. 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 1 1(l)(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 he said to be applied for charitable or religious purposes in the year in which such adjustment takes 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. The above is the position of law as held in the case of CIT v. Maharana of Mewar Charitable Foundation [1987] 164 ITR 439/[1986] 29 Taxmann 476 (Raj) and CIT Vs. Plot Swetamber Marli Pujak Jain Mandal [1995] 211 ITR 293 (Guj.). In CIT Vs. Institute of Banking Personnel Selection [2003] 264 ITR 110/131 Taxman 386 (Bom.) it was held that in case of charitable trust whose income is exempt under s. 11, excess of expenditure in the earlier years can be adjusted against income at subsequent years and such adjustment would be application of income for subsequent years and that depreciation is allowable on the assets the cost of which has been fully allowed as application of income under 11 in past years. in Govindu Naickcr Estate v. Asst. DIT [2001] 248 ITR 368/[1999] 105 Taxman 719 (Mad), the Hon'ble Madras High Court held that the income of the trust has to be arrived at having due regard to the commercial principles, that s. Ii is a benevolent provision, and that the expenditure incurred on religious or charitable purposes in earlier year or years can be adjusted against the income of the subsequent ear. The principle that the loss incurred under one head can only be set off against the income from the same head is not of any relevance, if the expenditure incurred was for religious or charitable purposes, and 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 is adjusted against the income of a later year, it has to be held that the trust had 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