DCIT, BANGALORE vs. M/S B S & G FOUNDATION,, BANGALORE

“Net receipts Vs. Gross receipts i) Whether, in the given facts and circumstances, the CIT(A) is correct in law in not considering the Board Circular on this issue i.e. Board Circular no. 12-(PXX- 7 of 1968) dated 26.11.1968, on which the AO placed reliance for disallowance of accumulation /set apart of income u/s 11(1)(a), wherein it is clearly explained that if a trust fails to comply with accumulation provisions u/s 11(2), then the entire income accumulated would be liable to assessment u/s 11(3), including 15% of income set apart or accumulated u/s 11(1)(a), and, therefore, rendered a perverse decision. ii) Whether, in the given facts and circumstances, the CIT(A) is correct in law in holding that the provisions of sub-section (1) and (2) of section 11 operate independently, and, therefore, disallowance of accumulation u/s 11(2) has no effect on allowance of set apart/accumulation u/s 11(1)(a). iii) Whether, in the given facts and circumstances, the CIT(A) is correct in law in ignoring the fact that in case the assessee is claiming 15% of income set-apart/ accumulation on the basis of gross receipts, the assessee shall produce evidence that such amount is invested in the modes specified u/s 11(5) r.w,s.

13(1)(d)(i). However, as the net surplus available in the hands is less than 15% of gross receipts, the assessee will not be in a position to invest higher amount/more than net surplus in the modes specified u/s 11(5). iv) Whether, in the given facts and circumstances, the CIT(A) is correct in law in not considering the fact that if the gross receipts are considered as income within the meaning of Section 11(1)(a), then in the event of assessee losing the exemption due to violation of conditions stipulated u/s 13, then the entire gross receipts being the income is liable to be taxed, which is grossly unjustified and unviable and beyond the purview of Section 11(i)(a). On the other hand, it is not the case of the assessee to argue that for the purpose of claiming 15% of income set-apart/accumulation, income to be reckoned on the basis of gross receipts, but in the event of assessee losing the exemption, the income will be recognized on the basis of net surplus/book profits rather than gross receipts. Disallowance of depreciation: (i). The CIT(A) has failed to appreciate the fact that the Hon'ble Kerala High Court in the case of Lissie Medical Intuitions Vs. CIT (348 ITR 344) has held that depreciation cannot be allowed on assets, where cost of such assets has already been allowed as application of income in the year of acquisition/ purchase of asset.

(ii). The CIT(A) has failed to appreciate that the Hon'ble Supreme Court in the case of Escorts Ltd. & another Vs. Union of India (199 ITR 43), while dealing with the issue of allowance of expenditure on scientific research u/s 35(1)(iv) [corresponding to section 10(2) (xiv) of the I.T. Act, 1922] held that any expenditure of a capital nature (or incurred towards purchase of capital assets) on scientific research allowed as deduction u/s 35(1)(iv) cannot be allowed once again as deduction in the form of depreciation on such capital assets. While doing so, it was observed by the Hon'ble Supreme Court that no legislature could have at all intended a double deduction in regard to the same business outgoing and if it is intended, it would be clearly expressed in the statute itself. Accordingly, it was held that even in absence of clear statutory indication to contrary, statute should not be read so as to permit an assessee two deductions i.e. once in the form of expenditure incurred towards purchase of capital assets and secondly, in the form of depreciation on such capital assets. It was also held that even before the amendment of the Act in the form of insertion of clause (iv) of sub section (2) of section 35 by Finance Act, 1980, prohibiting allowance of depreciation, the Act did not permit a deduction for depreciation in respect of cost of capital asset acquired for the purpose of scientific research to the extent such cost had been written off/ claimed as deduction u/s 35(1)(iv) on the ground that the amendment only set out more clearly and categorically what the provision intended even earlier. iii). The CIT(A) has failed to appreciate the fact that the issue involved in respect of capital expenditure on scientific research u/s 35(1)(iv) is similar to that of issue involved in respect of allowance of expenditure incurred towards purchase of capital assets for charitable purposes as application of income u/s 11(1)(a). Accordingly, the Law laid down by the Hon'ble Supreme Court is squarely applicable to taxation of charitable/ religious trust or institution u/s 11, 12 and 13 of the I.T. Act.

(iv). Though the Finance Act, 2014 has amended the Income Tax Act, 1961 with regard to non-allowance of depreciation to charitable/ religious trust or institution on the value of assets which has already been allowed as application of income u/s 11(1) by inserting sub- section (6) of Section 11, w.e.f 01.04.2015, such amendment cannot be construed as effective prospectively inasmuch as in accordance with the ratio laid down by the Hon'ble Supreme Court in the case of Escorts Ltd. & another Vs. Union of India (Supra), the amendment only set out more clearly and categorically what the legislature had intended and conveyed u/s 11(1) even earlier to the said amendment. As such, the amendment shall be considered as clarificatory in nature making it clear that the assessee is not entitled to claim double deduction in respect of same expenditure u/s 11(1) as application of income and also depreciation simultaneously. Carry forward of excess application: i). Whether, in the given facts and circumstances, the ClT(A) is correct 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 horn 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. ii) Whether, in the given facts and circumstances, the CIT(A) is correct in law without appreciating the fact that the issue of application of income more than the come computed does not arise, except in a case where the assessee has incurred huge amount of capital expenditure sourced out of borrowed or corpus donations or 15% of income set apart over a period of time. However, expenditure incurred out of the above sources cannot be termed as application of funds out of the income earned in a particular assessment year inasmuch as loan borrowed does not fall under the category of income earned by the assessee, corpus fund donation does not come under income by virtue of section 11(1)(d) and 15% of income set apart in earlier assessment year cannot be construed as income of the current year and 15% set apart out of the current year income is also excluded from income available for application. As such, the concept of application is only to show that the income is fully utilized rather than claiming excess expenditure either revenue or capital over and above the income so as to claim excess application or deficit/loss to be carried forward to subsequent assessment years. Even in the case of excess application by virtue of borrowed funds/corpus fund donations/15% set apart of earlier years, the income of the assessee cannot be converted to loss but at best it can be made Nil. Hence, the carry forward of excess application of income as claimed by the assessee cannot be allowed.” / 4. Net receipts Vs. Gross receipts for computation of Accumulation 4.1 The ld DR for Revenue was heard in support of the grounds raised (Supra). 4.2 Per contra, the ld. AR for the assessee submitted that there was no error on the part of the ld. CIT(A) in holding that accumulation of income u/s. 11(1)(a) of the Act is to be allowed at 15% on gross receipts as claimed by the assessee and not on net receipts as contended by Revenue. It is submitted that this very issue has been considered by a co-ordinate bench of this Tribunal in the case of Mary Immaculate Society v DDIT(Exemptions), Bangalore in its order in & 241/Bang/2015 dated 23.06.2015 and the decision rendered therein on this issue is squarely covered in favour of assessee and against revenue.

4.3.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements referred to. The issue for adjudication before us is whether the ld. CIT(A) was right in directing the AO to allow the assessee accumulation of income for application to the extent of 15% of gross receipts u/s. 11(1)(a) of the Act. 4.3.2 The assessee claimed accumulation of income for application for charitable purposes u/s. 11(1)(a) of the Act at 15% of gross receipts for the year under consideration. The Assessing Officer (‘AO’) however, was of the view that accumulation will be allowed only to the extent of 15% of the net receipts i.e.; gross receipts less revenue expenditure and not on the gross receipts as claimed by the assessee. On appeal, the ld. CIT(A) allowed the assessee’s claim that it is to be allowed accumulation of income for application for charitable purposes to the extent of 15% of gross receipts u/s. 11(1)(a) of the Act and not 15% of net receipts as held by the AO. 4.3.3 The issue to be decided by us is as to whether for the purpose of accumulation of income for application for charitable purposes u/s. 11(1)(a) of the Act is to be allowed at 15% of gross receipts or net receipts i.e.; gross receipts less Revenue expenditure. We find that the issue in question was considered and adjudicated by a co-ordinate bench of the Tribunal in the case of Mary Immaculate Society and in its order in & 241/Bang/2015 dated 23.06.2015 held that the assessee is to be allowed accumulation of income for application for charitable purposes u/s. 11(1)(a) of the Act at 15% of gross receipts following the decision of the ITAT Special Bench in the case of Bai Sonabai Hirji Agiary Trust v ITO, 93 ITD 0070 (SB). In its order (supra), the co-ordinate bench has held as under at paras 15 and 16 thereof:- “15. The issue to be decided is therefore as to whether for the purpose of computing accumulation of income of 15% under Sec.11(1)((a) of the Act, one has to take the gross receipts or gross receipts after expenditure for charitable purpose i.e., the net receipts. This is issue is no longer res integra and has been decided by the Special Bench Mumbai in the case of Bai Sonabai Hirji Agiary Trust Vs. ITO, 93 ITD 0070 (SB). The facts in the aforesaid case were that the assessee was a public charitable trust enjoying exemption under s. 11 of the IT Act. As per the requirement of s. 11(1) of the IT Act, as it prevailed at that point of time, the assessee had to apply 75 per cent of its income for the objects and purposes of the trust and the assessee was permitted to accumulate or set apart up to 25 per cent of its income, which was subject to fulfillment of other conditions. While calculating the aforesaid 25 per cent, the important question which arose was as to whether for this purpose, the gross income earned by the assessee is relevant or the income as computed in accordance with the provisions of IT Act. In other words, whether outgoings from out of gross income which are in the nature of application of income, should be first deducted from the gross income and 25 per cent of only the remaining amount should be allowed to be accumulated or set apart. The Special Bench of the ITAT on the issue held as follows:-

"9. Coming to the merits of the issue, we are of the view that the same is clearly covered by the decision of the Hon’ble Supreme Court in the case of CIT vs. Programme for Community Organization (supra). In the decision, their Lordships, after taking note of provisions of s. 11(1)(a), have held as under:

“Having regard to the plain language of the above provision, it is clear that a charitable or religious trust is entitled to accumulate twenty-five per cent of its income derived from property held under trust. For the present purposes, the donations the assessee received, in the sum of Rs. 2,57,346/- would constitute its property and it is entitled to accumulate twenty-five per cent thereout. It is unclear on what basis the Revenue contended that it was entitled to accumulate only twenty five per cent of Rs. 87,010.

For the aforesaid reasons, the civil appeal is dismissed.

It is clear from the above that deduction of twenty-five per cent was held to be allowable not on total income as computed under the IT Act. Any amount or expenditure, which was application of income, is not to be considered for determining twenty five per cent to be accumulated. Their Lordships, as noted earlier affirmed the decision of Kerala High Court in (1997) 141 CTR (Ker) 502: (1997) 228 ITR 620 (Ker) (supra) wherein it is held as under:

At the outset, the statutory language of s. 11(1)(a) of the IT Act, 1961, relates to the income derived by the trust from property. The trust is required to be wholly for charitable or religious purposes, and the income is expected to have relation to the extent to which such income is applied to such purposes in India. It is thereafter the statutory provision proceeds further that such income is not to be understood to be in excess of 25 per cent of the income from such properties. It other words, the very language of the statutory provision under consideration sets apart 25 per cent of the income from the source of property with reference to the extent to which such income is applied for such purposes, charitable or religious, In other words, for the purpose of s. 11(1)(a) of the Act, the income in terms of relevance would be the income of the trust from and out of which 25 per cent is set apart in accordance with the spirit of the statutory provision.” This means that, when it is established that trust is entitled to full benefit of exemption under s. 11(1), the said trust is to get the benefit of twenty-five per cent and this twenty-five per cent has to be understood as income of the trust under the relevant head of s. 11(1), In other words, income that is not to be included for the purpose of computing the total income would be the amount expended for purposes of trust in India. Their Lordships in the above case have emphasized on the clear and unambiguous language of s. 11(1)(a) and decided the matter on the basis of the same. It has been held that as per the statutory language of the above section the income which is to be taken for purpose of accumulation is the income derived by the trust from property.

If both the decisions are carefully read, it becomes evident that any expenditure which is in the shape of application of income is not to be taken into account. Having found that trust is entitled to exemption under s. 11(1), we are to go to the stage of income before application thereof and taken into account 25 per cent of such income. Their Lordships have pointed that the same has to be taken on “commercial” basis and not “total income” as computed under the IT Act. Their Lordships in the decided case rejected the contention of the Revenue that the sum of Rs. 1,70,369 which was spent and applied by the assessee for charitable purposes was required to be excluded for purpose of taking amount to be accumulated.

Having regard to the clear pronouncement of their Lordships of the Supreme Court, it is difficult to accept that outgoings which are in the nature of application of income are to be excluded. The income available to the assessee before it was applied is directed to be taken and the same in the present case is Rs. 3,42,174. Twenty five per cent of the above income is to be allowed as a deduction. Similar view has also been taken by the Hon’ble Madhya Pradesh High Court in Parsi Zorastrian Anjuman Trust vs. CIT (supra). No reason whatsoever has been given by the Revenue authorities for deducting Rs. 2,17,126 in this case for purposes of s. 11(1)(a). The decision cited on behalf of the Revenue did not take into account the decision of the Supreme Court referred to above. The circular of CBDT has also been considered by the Hon’ble Kerala High Court in its decision referred to above. Accordingly the question referred to is answered in the affirmative and in favour of the assessee.”

4.3.4 Respectfully following the decision of the co-ordinate bench in the case of Mary Immaculate Society (supra), we hold and direct the AO that the accumulation u/s. 11(1)(a) of the Act is to be allowed at 15% of gross receipts, as claimed by the assessee. Consequently, grounds raised by the Revenue are dismissed.

5. Claim for Depreciation 5.1 In the year under consideration, the assessee had claimed depreciation on fixed assets. On examination thereof, the AO was observed that the assessee had claimed double deduction by first showing the outlay for acquisition of the capital assets as application of income and thereafter, also claimed depreciation on the capital assets. The AO rejected the assessee’s claim of depreciation placing reliance on the decisions of the Hon’ble Court in the case of Escorts and Another Vs. UOT & Others (199 ITR 43) and the decision of the Hon’ble Kerala High Court in the case of Lissie Medical Institutions (348 ITR 344) (Kerala). On appeal, the ld CIT(A) allowed the assessee’s claim following, inter alia, the decision of the co-ordinate bench of this Tribunal in the cases of Karnataka Reddy Janasangha in Jyothi Charitable Trust in 60 taxmann.com 165, Bangalore and City Hospital Charitable Trust in 42 ITR (Trib) 583, Bangalore. 5.2 The ld DR for Revenue was heard in support of the ground raised (Supra) and placed reliance on the order of the AO on this issue. It was submitted that the expenditure incurred on acquisition of the capital asset has already been claimed as exempt on account of application of income and therefore depreciation on claimed on capital assets cannot be allowed as it would amount to allowing the assessee double deduction. 5.3.1 According to the ld AR for the assessee the issue in respect of the claim of depreciation is covered by the decision of the Hon’ble Karnataka High Court in the case of DIT(E) Vs. Al-Ameen Charitable Trust and Others (383 ITR 517) (Kar) vide order dated 22/2/2016. The ld AR also inter alia placed reliance on the following decisions of the Co-ordinate Bench: (i) Moogambigai Charitable Trust Vs. Addl. CIT (Exemption) in ITA No.1224/Bang/2015 dated 13/7/2016; (ii) ITO Exemption Vs. Sharaddha Trust in ITA No.899/Bang/2016 dated 7/4/2017, (iii) Jyothi Charitable Trust Vs. DCIT (Exemption) in ITA No.622/Bang/2015 dated 14/8/2015.

5.3.2 It was submitted that the issue in dispute i.e claim of depreciation on fixed assets is also covered by the above orders of the various Co-ordinate benches of this Tribunal. 5.4.1 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 of claim of depreciation by a charitable trust u/s 11 of the Act has been considered and held in favour of the assessee by various Co-ordinate benches of this Tribunal as cited (Supra) and also by the Hon’ble Karnataka High Court, in the case of DIT(Exemption) Vs. Al-Ameen Charitable Fund Trust & Others (383 ITR 517) (Kar). In the case of Moogambigai Charitable and Education Trust Vs. ADIT (Exemption), the Co-ordinate bench in its order in dated 13/7/2016 at para 11 thereof has held as under:- “11. We have considered the rival submissions as well as the relevant material on record. At the outset, we note that this issue has been considered by this Tribunal in a series of decisions. In the case of M/s CMR Janardhana Trust (supra), the Tribunal has again considered and decided this issue in paras 15 to 17 asunder:

“15. We have heard the submissions of the Id. OR, who relied on the order of CIT)A) and the decision of the Hon’ble Delhi High Court in the case of DIT(E) Vs. Charanjiv Charitable Trust (2014) 83 taxmann.com 300 (Delhi). We have considered the order of the CIT(A). Identical issue came up for consideration before ITAT Bangalore Bench in the case of DDIT(E) v. Cutchi Memon Union (2013) 60 SOT 260 Bangalore ITAT, wherein similar issue has been dealt with by this Tribunal, in the aforesaid case, the assessee claimed depredation and the AO denied depreciation on the ground that at the time of acquiring the relevant capital asset, cost of acquisition was considered as application of income in the year of Its acquisition. The AO took the view that allowing depredation would amount to allowing double deduction and placed reliance on the decision of Hon’ble Supreme Court in Escorts Ltd. (supra), The CIT(A) however, allowed the claim of assesses. On further appeal by the Revenue, the Tribunal held as follows:- "20. We have considered the rival submissions. If depreciation is not allowed as a necessary deduction for computing income of charitable institutions, then there is no way to preserve the corpus of the trust for deriving the income as it is nothing but a decrease in the value of property through wear, deterioration, or obsolescence, Since income for the purposes of section 11)1) has to be computed in normal commercial manner, the amount of depreciation debited in the books is deductible while computing such income, It was so held by the Hon'ble Karnataka High Court in the case of CIT Vs. Society of Sisters of St. Anne 146 ITR 28 (Kar). It was held in CIT vs. Tiny Tots Education Society (2011) 330 ITR 21 (P&H), following CIT vs. Market Committee, Pipli (2011) 330 ITR 16 (P&H) (2011) 238 CTR (P&H) 103 that depreciation can be claimed by a charitable institution in determining percentage of funds applied for the purpose of charitable objects. Claim for depreciation will not amount to double benefit, The decision of the Hon'ble Supreme Court In the case of Escorts Ltd. 199 ITR 43 (SC) have been referred to and distinguished by the Hon'ble Court in the aforesaid decisions.

is thus no longer res Integra and has been decided by the Hon'ble Punjab & Haryana High Court in the case of CIT Vs. Market Committee, Pipli, 330 ITR

16. (P&H). The Hon'ble Punjab & Haryana High Court after considering several decisions on that issue and also the decision of the Hon'ble Supreme Court in the case of Escorts Ltd. (supra), came to the conclusion that depreciation is allowable on capital assets on the income of the charitable trust for determining the quantum of funds which have to be applied for the purpose of trusts in terms of section 11 of the Act. The Hon'ble Punjab & Haryana High Court made a reference to the decision of me Hon'ble Supreme Court in the case of Escorts Ltd. (supra) and observed that the Hon'ble Supreme Court was dealing with a case of two deductions under different provisions of the Act, one u/s. 32 for depreciation and the other on account of expenditure of a capital nature incurred on scientific research u/s. 35(1)(iv) of the Act. The Hon'ble Court thereafter held that a trust claiming depreciation cannot be equated with a claim for double deduction The Hon'ble Punjab & Haryana High Court has also made a reference to the decision of the Hon'ble Karnataka High Court in the case of CIT Vs. Society of Sisters of Anne, 146 ITR 28 (Kar), wherein it was held that u/s. 11(1) of the Act, Income has to be computed In normal commercial manner and the amount of depreciation debited in the books is deductible while computing such income. In view of the aforesaid decision on the issue, we are of the view that the order of the CIT(A) on the above Issue does not call for any interference.

22. Consequently, ground No.5 raised by the revenue is dismissed."

16. It is no doubt true that the Hon'ble Delhi High Court in the case of Charanjiv Charitable Trust (supra) has taken a contrary view but then when two views are possible on an issue, the view favourable to the Assessee has to be followed, The decision of the Hon'ble Punjab & Haryana High Court is in favour of the Assessee and has followed the decision of the Hon’ble Karnataka High Court in the case of Society of Sisters of Anne (supra). The interpretation to the contrary given by the CIT(A) on the decision of the Hon'ble Karnataka High Court in the case of Society of Sisters of Anne (supra) cannot therefore be accepted. We may also add that the legal position has since been amended by a prospective amendment by the Finance (No.2) Act, 2014 w.e.f 1.4.2015 by insertion of subsection (6) to section 11 of the Act, which reads as under:- "(6) In this Section where any income is required to be applied or accumulated or set apart for application, then, for such purposes the income shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of any asset, acquisition of which has been claimed as an application of income under this section in the Same or any other previous year.”

17. As already stated, the aforesaid amendment is prospective and will apply only from AX. 201546. In view of the above legal position, we are of the view that the order of the CIT(A) has to be reversed. Consequently grounds No,4 & 5 raised by the Assessee are allowed.

There is no dispute that the amendment of section 11(6) of the Act by the Finance Act, 2014 is prospective w.ef. 1.42015 and therefore the said amended provision is not applicable for the assessment year under consideration. Following the earlier decisions of this Tribunal, we decide this issue in favour of the assessee and against the revenue.

5.4.2 Respectfully following the decision of the Hon’ble Karnataka High Court in the case of Al-Ameen Charitable Fund Trust & Others (383 ITR 517), wherein the Hon’ble High Court has distinguished the decision of the Hon’ble Kerala High Court in Lissie Medical Institutions (Supra) and also following the decision of the co-ordinate Bench in the case of M/s Moogambigai Charitable & Educational Trust, in dated 13/7/2016, we find no merit in the ground raised by Revenue on this issue and consequently uphold the order of the ld CIT(A) in directing the AO to allow the assessee’’s claim for depreciation.

6. Carry forward of excess application of income for set off as application against income of subsequent years 6.1 The ld DR for Revenue was heard in support of the ground raised (Supra) and submitted that carry forward of surplus funds 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 AO on this issue. 6.2 According to the ld AR for the assessee, there is no error in the impugned order of the ld CIT(A) on this issue, as the assessee is entitled to carry forward the excess/surplus application of funds for set off as application against income of subsequent years. It is submitted that the said issue is covered in favour of the assessee by the decision of the Co-ordinate bench of this Tribunal in the case of ITO (Exemption) Vs. Shraddha Trust in ITA No.899/Bang/2016 dated 7/4/2017 City Hospital Charitable Trust (2015) 42 ITR (Trib) 583 Bangalore and Joythi Charitable Trust in 60 taxmann.com 165, Bangalore. 6.3.1 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 surplus application of income to 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 ITA No.899/Bang/2016 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 coordinate bench of Tribunal in the case of Deputy 1)/rector of Income-tax vs. Jyothy charitable Trust (60 taxrnamm.com 165). The relevant part of the order, is reproduced below: “14. We have considered hi 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 a 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 sear, the income of such subsequent year can be said to be applied for charitable or religion in the year in which such adjustment takes place. In other words, the setoff 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 sear. 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 Taxman 476 (Raj) and CIT Vs. Plot Sweatamber Murli Pujak Jain Mandal [1995[ 211 ITR 293 (Guj.). In CIT v, 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 tie 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 s. II in past years. In Govindu Naicker Estate Vs. 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 he adjusted against the income of the subsequent year. The principle that the loss incurred tinder 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 he 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 the subsequent year. The expenditure that can be so adjusted can only he expenditure on religious and charitable purposes and no other. The High Court relied on the decision in the case of Society of Sister of St. Anne (Supra). Respectfully following the ratio laid down in the above decision we dismiss the ground of appeal raised by the revenue.

6.3.2 Following the aforesaid decision of the co-ordinate bench in the case of Shraddha Trust in dated 7/4/2017, we uphold the order of the ld CIT(A) in directing the AO to allow the assessee’s claim for carry forward of surplus application of income for set off as application against income of subsequent years. Consequently, finding no merit in this ground raised by Revenue, we dismiss the same.

7. In the result, Revenue’s appeal for asst. year 2011-12 is dismissed. Order pronounced in the open court on 4th October, 2017.