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Income Tax Appellate Tribunal, BENCH- C, BANGALORE
Before: SMT. ASHA VIJAYARAGHAVAN
PER ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER:` This appeal by the Revenue is directed against the order of Commissioner of Income-tax (Appeals) - 14 Bengaluru dated 28/12/2015 and it pertains to the assessment year 2006-07.
2 2. While completing the rectification order u/s. 154 of the Income Tax Act, the Assessing Officer had allowed set off for - A.Y. 1998-99 - Rs.10,85,310 A.Y. 1999-00 - Rs. 3,65,062 Rs.14,50,372 Restricted the same to Rs.14,50,372/- without giving any reason against the eligible amounts claimed by the assessee.
Whereas the assessee had claimed set off of:-
Asst. Year Amount of deficit 2003-04 11,44,811 2002-2003 22,96,218 2001-2002 21,71,147 2000-2001 25,58,310 1999-2000 4,71,499 1998-1999 10,85,310 1997-1998 9,60,305
Aggrieved by this, the assessee has come in appeal before CIT(A) and had raised the following grounds: i. The DDIT is not correct in not setting off
brought forward loss/deficit ii. The DDIT is not correct in computing the total income without considering the loss or deficit relating to earlier.
The assessee appeared for hearing and filed his written submissions and had relied on:
CIT Vs.Maharana of Mewaar Charitable Foundation 164 ITR 39 (RAJ)
DI Vs. Raghuvanshi Charitable Trust, 197 Taxman 170 (Del.)
Trustees of Balkanji Bari (1979) 10 CTR (Trib.) 22 CIT Vs. Sacred Heart Church 278 ITR 180 (Guj)
CIT Vs. Institute of Banking Personnel Selection 264 ITR 110 (Bom)
Gem & Jewellery Export Promotion Council Vs. ITO (68 ITD 95) IT Appellate Tribunal Mumbai
4 Dy. Director of Income Tax (E)-I(1), Maharashtra Indl. Development – Mumbai Tribunal in I.T.A. Nos. 4777/Mum/2009 Commissioner of Income Tax Vs. Matriseva Trust 242 ITR 20 (Madras High Court)
The CIT(A) held as follows:-
The AR mentioned that as per section 1(1)(a) there is no restriction that the entire income has to be applied in the same year only, which means that excess application can be set-off in the subsequent year out of receipt of income during the next year. As a corollary, therefore, it was claimed that the excess application of any year can be set off in the subsequent year.
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.
5 7. Aggrieved department is in appeal before us and has raised the following ground:-
“i) Whether, in the given facts and circumstances, the CIT(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 u/s 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 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 trust/institutions. ii) Whether, in the given facts and circumstances, the CIT(A) is correct without appreciating the fact that the issue of application of income more than the income 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 part 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
6 assessment year in as much 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 or 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.”
We find that co-ordinate bench of the tribunal has held as follows in the case of Jyothy Charitable Trust [2015] 60 taxmann.com 165(Bangalore – Trib.)
7 “Section 11 of the Income-tax Act, 1961 – Charitable or religious trust – Exemption of income from property held under (Application of income) – Assessment year 2010-11 – Whether in case of charitable trust whose income is exempt u/s 11, excess of expenditure incurred on religious and charitable purposes in earlier years can be adjusted against income of subsequent years and such adjustment would be regarded as application of income for subsequent years – Held, yes [para 14] [In favour of assessee]
Respectfully following the decision of co-ordinate bench in the case of Jyothy Charitable Trust (Supra), the Departmental appeal is dismissed.
In the result, the appeal filed by the Department is dismissed.
8 Order pronounced in the open court on 16th September, 2016.