M/S KARNATAKA FRANSALIAN SOCIETY,BANGALORE vs. DDIT, BANGALORE

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IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'C', BANGALORE BEFORE SHRI. ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI. VIJAYPAL RAO, JUDICIAL MEMBER I.T.A No.972/Bang/2015 (Assessment Year : 2011-12) M/s. Karnataka Fransalian Society, “Vinayalaya”, P. B. No.5557, Malleswaram West, Bangalore 560 084 .. Appellant PAN : AAATK1206E v. Deputy Commissioner of Income-tax (Exemption), Circle -17(2), Bangalore .. Respondent Assessee by : Shri. Suresh Muthukrishnan, CA Revenue by : Shri. Sunil Kumar Agarwala, JCIT Heard on : 16.11.2015 Pronounced on : 18.11.2015 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER :

In this appeal filed by assessee it is aggrieved that claim for carry forward of deficit of Rs.2,15,68,002/- resulting out of excess application over income was not allowed.

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in the case of Indian National Theatre Trust (supra) and held that a deficit arising on account of application of funds could be considered for carry forward. 05. Per contra, Ld. DR supported the orders of lower authorities and also stated that Mumbai bench of this Tribunal in the case of ITO v. Trustees of Sri Sathya Sai Trust [(1990) 33 ITD 320] took a view which was in consonance with that held by the AO and Ld. CIT (A). 06. We have perused the orders and heard the rival contentions. Judgment of Hon’ble Delhi High Court in the case of Indian National Theatre Trust (supra), relied on by the CIT (A) for confirming the view taken by the AO was considered by this Tribunal in the case of M/s. St. Francis Sales Educational & Charitable Trust (supra). Same view has been taken by us in the case of DCIT v. M/s. Rashtrothana Parishat [ITA Nos.896 & 897/Bang/2014, dt.14.08.2015]. In para 9 of the latter order it was held as under :

09.Coming to the aspect of eligibility for carry forward of such deficit, coordinate bench of this Tribunal in the case of Rajarajeshwari Devasthana Trust v. ITO (Ex), in ITA No.116/Bang/2015, dt.11.06.2015, had considered this issue. It was held at para 7 of the order as under: 07. In so far as the issue relating to carry forward of deficit, it was held as under at paras 11 to 13 of the order dt. 16.02.2009

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of this Tribunal in the case of TMA Pai Foundations’s case (supra) : “11. With regard to the second issue, the learned counsel submitted that the stand of the revenue that the assessee did not claim the carry forward in the original return and the claim was made for the first time through application u/s.154 of the Act which was time barred and there is no provision under the Income tax to allow carry forward of the loss of the preceding years any excess expenditure/application of the preceding years were not to be set off against the subsequent years' surplus. Though the assessee has not specifically sought for any carry forward benefit, for the assessment years up to 2005-06 the assessee filed the return of income where the surplus was determined and the application was made during the years have been declared. In the earlier years the assessee had not specifically sought for any carry forward benefit. Surplus is being determined for the purpose of section 11 and not u/s.28. While processing the assessment for the Assessment Year 2006-07 the Assessing Officer raised the issue and in order to enable the Assessing Officer to ascertain the excess application in the preceding year the assessee filed application u/s.154 to enable the Assessing Officer to quantify such excess application in the relevant year. The assessee filed the application u/s.154 up to assessment years 2004-05 in fact to enable the officer to ascertain the actual surplus of the application which was required to be set off against the surplus against the Assessment Year 2006-07. For Assessment Years 2004-05 and 2005-06 in the returns itself the claim was made and the excess surplus was shown. For this assessment year the assessment has been completed accordingly accepting the return though in the intimation, the assessed income has shown as nil. The assessee's counsel without prejudice to the claim of the assessee, submitted that the excess application as claimed for the earlier years up to 2004-05 cumulatively was to be considered for set off against the surplus for the Assessment Year 2006-07. The counsel for the assessee submitted surplus for the purpose of section 11 is required to be considered after allowing application towards objects of the trust. It is only the surplus over the expenditure is

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required to be assessed. Undisputedly in the instant case of the assessee, the trust had excess application over the income in the past years which was required to be considered against its income in order to ascertain the surplus left for the purpose of tax after allowing the exemption u/s.11(1) of the Act. 12. The counsel for the assessee submitted the Hon'ble Bombay High Court in Institute of Banking (supra) had observed that section 11 to 13 are self contained code for the purpose of determination of the income of the charitable trust and the charitable trust is not assessable under the head profit and gains of the business u/s.28 for which provision the benefit of carry forward loss was relevant. The assessee is a charitable trust for education purpose and has no profit motive. Surplus is required to be determined for the purpose of section 11 and the provisions of section 28 has no application significantly the provisions of section 70 of the Act also cannot be brought in. The surplus is computed after taking into account the net outgoing of the relevant year and earlier years. The Bombay High Court took support of the decision of the Gujarat High Court in Shri Plot Swetamber Murti Pujak Jain Mandal (supra). The learned counsel submitted that the Commissioner of Income-tax(A) decided the issue in assessee's favour following the above decision of the Bombay High Court. The Hon'ble Madras High Court decision reported in Govindu Naicker Estate (supra) also supports the case of the assessee he submitted. The assessee is enjoying exemption u/s.10(23C)(vi). Thus no income for the relevant assessment year is liable to be taxed as exemption continues to be in operation for the relevant assessment years. Hence the learned counsel for the assessee submitted the appeal by the revenue is to be dismissed. 13. Considering the rival submissions we are of the view that all the appeals preferred by the revenue is to be allowed. The assessee is relying on the decision of the Bombay High Court in the case of Institute of Banking (supra) whereas the revenue is relying on the decision of the Tribunal, Bombay Bench in VII ITO v. Trustees of Sathya Sai Trust in (1990) 33 ITD 320. In this case the Tribunal held the deficit arising as a result of excess spending for charitable purposes will not form part of the income and the

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same cannot be carried forward. With regard to the point whether excess spending will form or not form part of the total income and, therefore, it could be carried forward or not is decided by the Hon'ble Bombay High Court in the case Institute of Banking (supra) in assessee's favour. In that case, however, it was a regular assessment and not 154 order as in the instant case of the assessee. There was no specific claim as such by the assessee in the instant case. Therefore, the facts are distinguishable. No doubt in the above case, Revenue succeeded for a reason that the order assailed by the assessee was one u/s.154 of the Act and Tribunal held that allowing or not allowing carry forward deficit adjustment was not something which would fall within the parameters of a rectificatory proceedings u/s.154 of the Act. However in principle, the claim of the assessee that deficit from earlier years can be set-off against current year’s income for working out the utilisation, found approval from the Coordinate Bench.” In view of this, we are of the view that assessee is eligible for claiming carry forward of the deficit, and CIT (A) was justified in directing so.

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Copy to: 1. The assessee 2. The Assessing Officer 3. The Commissioner of Income-tax 4. Commissioner of Income-tax(A) 5. DR 6. GF, ITAT, Bangalore By Order Assistant Registrar