ITO (EXEMPRION)-1(1) MUMBAI, MUMBAI vs. BOMBAY NATURAL HISTORY SOCIETY, MUMBAI

ORDER

PER N.K. PRADHAN, AM

i. Whether on the facts on the case and in law the Ld. CIT(A) erred in allowing the carry forward of deficit of Rs. 52,98,149/- and allowing set off against the income of the subsequent years. ii. 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 I.T. Act, 1961 permitting allowance of such claim. iii. Whether on the facts and in the circumstances of the cases 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 High Court in the case of Institute of Banking Personnel Selection, ignoring the fact that the Department has not accepted the said decision of the jurisdictional High Court on merit of the case.

“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 be 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 Jain Mandal [1995] 211 ITR 293 . Accordingly, we answer question No. 3 in the affirma-tive i.e., in favour of the assessee and against the Department.”

6. We find that the learned CIT(A) has rightly followed the above judgement of the Hon'ble Bombay High Court and directed the A.O. to allow the carry forward and set off of deficit after due verification of facts. We uphold the order of learned CIT(A).

Order pronounced in the open Court on 12/05/2017