ITO (EXEMPTION)-1(3) MUMBAI, MUMBAI vs. GARWARE CHARITABLE TRUST, MUMBAI

This appeal by the Revenue is arising out of the order of Commissioner of Income Tax (Appeals)-I, Mumbai, [in short CIT(A)] in appeal No. CIT(A)-I/IT/E-11(1)/90/2013-14 dated 21-06-2016. The Assessment was framed by Asst. Director of Income Tax (Exemption)- II(1), Mumbai (in short ADIT or AO) for the assessment year 2011-12 vide order dated 06-12-2013 under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).

“1. Whether on the facts of the case and in law the Ld. CITA) erred in allowing the carry forward of deficit of Rs. 40,50, 625/-.and allowing setoff against the income of the subsequent years.

2. Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the claim of the assessee for carry forward of the said deficit, ignoring the fact that there was no express provision in the Act, 1961 permitting allowance of such claim.

3. Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the claim of the assessee for carry forward of the said deficit by relying upon the judgement of Hon’ble Bombay High Court in the case of Institute of Banking Personnel Selectin, ignoring the fact that the Department has not accepted the said decision of the jurisdictional High Court on merit of the case.”

“5.2 I have considered the facts and circumstances of the case, gone through the assessment order of the A.O and the submissions of the appellant and also discussed the case with the AR of the appellant. The contentions and submissions of the appellant are being discussed and decided here in under:

The appellant has made detailed submissions as above wherein all the issues raised by the assessing officer have been dealt with Relying upon several case laws the appellant stated that deficit of the current year is required to be carried forward to the subsequent years. On perusal of the facts I find that the case of appellant is squarely covered by the judgement of Hon'ble Bombay High Court in the case of Institute of Banking Personnel 264 ITR 110 wherein the Hon. Jurisdictional High Court has observed as under –

........"5. Now coming to question No. 3, the point which arises for consideration is: whether excess of expenditure in the earlier years can be adjusted against the income of the subsequent year and whether such adjustment should be treated as application of income in subsequent year for charitable purposes? It was argued on behalf of the department that expenditure incurred in the earlier years cannot be met out of the income of the subsequent year and that utilization of such income for meeting the expenditure of earlier years would not amount to application of income for charitable or religious purposes. In the present case, the assessing officer did not allow carry forward of the excess of expenditure to be set off against the surplus of the subsequent years on the ground that in the case of a Charitable Trust, their income was assessable under self-contained code mentioned in section 11 to section 13 of the Income Tax Act and that the income of the Charitable Trust was not assessable under the head "profits and gains of business" under section 28 in which the provision for carry forward of losses was relevant. That, in the case of a Charitable Trust, there was no provision for carry forward of the excess of expenditure of earlier years to be adjusted against income of subsequent years. we do not find any merit in this argument of the department. Income derived from the trust property has also got to be computed on commercial principles and if commercial principles are applied then adjustment 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 section 11 of the Act and that such adjustment will have to excluded from the income of the Trust under section 11(1)(a) of the Act. Our view is also supported by the judgment of the Gujarat High Court in the case of CIT v. Shri Plot Swetamber Murti Pujak fain Marda! (1995) 211 ITR 293 (Gui). Accordingly, we answer question No. 3 in the affirmative i.e., in favour of the assessee and against the department. ii. Respectfully following the ratio laid down by the Hon. High Court as above, the AO is directed to allow the carry forward of deficit in the succeeding years after due verification of facts.”

Aggrieved, now Revenue is in appeal before Tribunal.

CIT(A) is covered by the decision of Hon’ble Bombay High Court and respectively following the same, we confirm the order of CIT(A) and dismiss this appeal of Revenue.

Order pronounced in the open court on 16-02-2018.