ITO, BANGALORE vs. SRI. VIDYA MANDIR EDUCATION SOCIETY, BANGALORE

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ITA 708/BANG/2016Status: DisposedITAT Bangalore31 May 2017AY 2010-1111 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the carry forward of excess application of income for set-off against income of subsequent assessment years is allowable. The Tribunal relied on the decision in ACIT Vs. City Hospital Charitable Trust (2015) 42 ITR (Trib) 583 (Bangalore), which was followed by the CIT(A). The Tribunal further cited various High Court decisions, including CIT Vs. Maharana of Mewar Charitable Foundation (164 ITR 439) and CIT Vs. Shri Plot Swetamber Murti Pujak Jain Mandal (211 ITR 293), which held that Section 11(1)(a) does not restrict application of income only to the year it arises. The adjustment of earlier year's excess expenditure against a subsequent year's income constitutes application of income in the subsequent year. The Tribunal also referred to CIT Vs. Institute of Banking Personnel Selection (264 ITR 110) (Bom) and Govindu Naicker Estate VS. ADIT (248 ITR 368) (Mad), emphasizing that income should be computed on commercial principles and that expenditure on religious or charitable purposes in earlier years can be adjusted against subsequent years' income. The principle of set-off of loss under one head against another is not relevant when the expenditure is for charitable purposes. The Tribunal found no reason to interfere with the CIT(A)'s order. The issue of depreciation was also discussed in relation to charitable trusts, with the Tribunal holding it allowable for determining funds applied for charitable objects, citing CIT v. Market Committee, Pipli (330 ITR 16) (P&H) and CIT v. Society of Sisters of St. Anne (146 ITR 28) (Kar).

What were the facts?

The Revenue is in appeal against the order of the CIT(A) for Assessment Year 2010-11. The core issue is the allowability of carry forward of excess application of income under Section 11(1) of the Income Tax Act, 1961, to be adjusted against the income of subsequent assessment years. The assessee, M/s. Sri Vidya Mandir Education Society, is a charitable trust. The CIT(A) allowed the assessee's claim by following various jurisdictional ITAT orders. The Revenue's appeal challenges the CIT(A)'s decision, arguing that the normal computation of income and set-off of losses under Sections 70 to 79 are not applicable to charitable trusts claiming exemption under Sections 11, 12, and 13. The Revenue contends that excess application of funds, especially from borrowed or corpus donations, cannot be converted into a loss to be carried forward.

What were the issues?

1. Whether, in the given facts and circumstances, the CIT(A) is correct in allowing the carry forward of excess application of income for set-off against income of subsequent assessment years, considering that normal computation of income and set-off of losses under Sections 70 to 79 are not applicable to charitable trusts claiming exemption under Sections 11, 12, and 13 of the Income Tax Act, 1961. Assessee's Contention: The assessee, through written submissions, relied on ITAT and Bombay High Court decisions, including CIT Vs. Institute of Banking Personnel Selection (264 ITR 110), supporting the carry forward and set-off of excess application of income. Revenue's Contention: The Revenue argued that the normal computation of income under Sections 15 to 59 and provisions relating to set-off of losses under Sections 70 to 79 are not applicable to charitable trusts for claiming exemption under Sections 11, 12, and 13. They contended that excess expenditure incurred out of borrowed funds, corpus donations, or prior year's set-aside income cannot be termed as application of income earned in a particular assessment year and that excess application cannot be converted into a loss to be carried forward.

Which sections of the Income-tax Act were involved?

Section 11,Section 12,Section 13,Section 11(1)(a),Section 15,Section 59,Section 70,Section 71,Section 72,Section 73,Section 74,Section 75,Section 76,Section 77,Section 78,Section 79,Section 32,Section 35(1)(iv),Section 11(1)(d),Section 11(6)

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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE

Before: SHRI A.K. GARODIA & SHRI VIJAY PAL RAO

For Appellant: Smt. Swapna Das, JCIT(DR)

Date of hearing : 09.05.2017 Date of Pronouncement : 31.05.2017 O R D E R

Per Vijay Pal Rao, Judicial Member

1.

This appeal by the revenue is directed against the order dated 29.01.2016 of CIT(A) for the assessment year 2010-11 and revenue has raised the following grounds:

Page 3 of 11 2. The only issue arises in this appeal of the revenue is allowability of carry forward of excess application of income u/s. 11(1) to be adjusted against the income of the subsequent assessment years.

3.

None has appeared on behalf of the assessee when this appeal was called for hearing. However the assessee has failed the written submission in support of its claim and relied upon the decisions of this Tribunal as well as Hon’ble Bombay High Court in case of CIT Vs Institute of Banking Personnel Selection (264 ITR 110).

4.

We have heard the ld. DR and considered the written submissions filed by the assessee as well as the impugned orders passed by the authorities below. The CIT(A) has allowed the claim of the assessee in para 4.9 as under. “4.9 However, jurisdictional ITAT order in the case of ACIT Vs City Hospital charitable trust (2015) 42 ITR(Trib) 583 (Bangalore) and DCIT Vs Manipal Academy of Higher Education (2015) 44 ITR (Trib) 18 (Bangalore) has considered the issue in favour of the assessee. However, the Department filed appeal on similar issue in Karnataka High Court and is pending. Respectfully following the jurisdictional ITAT order in the above cases, this ground of appeal is allowed.” Thus it is clear that the CIT(A) has allowed the claim of the assessee by following the decisions of this Tribunal. At the outset we note that this issue is covered by the decision of this Tribunal in case of ACIT Vs City

Page 4 of 11 Hospital charitable trust 42 ITR (Trib) 583(supra) wherein the tribunal has considered and decided this issue in para 7 to 14 as under.

5.

Accordingly, following the order of the coordinate bench of this Tribunal we do not find any reason to interfere with the impugned order of the CIT(A).

6.

In the result the appeal of the revenue is dismissed.

Pronounced in the open court on this 31st day of May, 2017

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