2015 (12) TMI 1667 - AT - Income Tax

Tribunal allows carry forward of excess expenditure for future set off against property income

The Tribunal allowed the appeal of the assessee, directing the Assessing Officer to permit the carry forward of the excess expenditure of Rs. 72,04,418 ... Disallowance of carry forward of the expenditure to be set off against the future income of the assessee trust - Held that:- The income of charitable trusts is required to be computed on commercial principles. The concept of application of the income for the year in which the income has arisen is not found in Section 11(1)(a) of the Act. No limitation to the above effect is found in the language of the section. It merely requires application of the income that has arisen from the property held under trust. In this view of the matter, the principles relating to set off of losses, etc. is not of any relevance and therefore any excess application of income during the year can be regarded as application of the income of future years and can be adjusted. Therefore, in our view, the claim of the assessee for carry forward of excess application is in accordance with the judicial precedents on the issue and the same is allowable. See Commissioner of Income-Tax Versus Institute Of Banking Personnel Selection [2003 (7) TMI 52 - BOMBAY High Court ] - Decided in favour of assessee Issues Involved:1. Denial of carry forward of the deficit being the excess application of income.2. Justification of carry forward of the deficit to be set off against future income from property held under trust.Issue-wise Detailed Analysis:1. Denial of Carry Forward of the Deficit Being the Excess Application of Income:The primary issue in this case was whether the assessee, a public religious cum public charitable institution, could carry forward the deficit resulting from excess application of income amounting to Rs. 72,04,418 to be set off against future income from property held under trust. The Assessing Officer denied this claim, asserting that under Section 11(1)(a) of the Income Tax Act, 1961, deduction is only allowable for the application of the current year's income. The CIT (Appeals) upheld this decision, leading to the appeal.2. Justification of Carry Forward of the Deficit to be Set Off Against Future Income from Property Held Under Trust:The Tribunal analyzed the issue by referencing prior decisions and judicial precedents. The assessee's representative argued that the issue had already been decided in favor of the assessee in a previous assessment year (2007-08) by the same Tribunal. The Tribunal had earlier held that income of charitable trusts should be computed on commercial principles, and any excess expenditure in earlier years could be adjusted against the income of subsequent years. This adjustment should be treated as application of income in the subsequent year for charitable purposes, as supported by the judgments of the Hon'ble High Court of Bombay in the case of Institute of Banking and the Hon'ble Gujarat High Court in the case of CIT vs. Shri Plot Swetamber Murti Pujak Jain Mandal.The Departmental Representative, however, contended that the CIT (Appeals) had correctly followed the decisions of the Bombay Bench of the Tribunal in the case of ITO Vs. Trustees of Sri Satya Sai Trust and the Delhi Bench of the Tribunal in the case of Pushpavati Singhania Research Institute of Liver, Renal and Digestive Diseases Vs. DDIT, which did not permit such carry forward.Upon careful consideration, the Tribunal reiterated its stance from the previous ruling, emphasizing that Section 11(1)(a) does not limit the application of income to the year in which it arises. The Tribunal noted that the principles relating to set off of losses are irrelevant in this context, and excess application of income during a year can indeed be adjusted against future income. This position was consistent with the judicial precedents from the Hon'ble High Courts of Bombay and Gujarat.The Tribunal directed the Assessing Officer to allow the carry forward of the excess application of Rs. 72,04,418 to be set off against the income from property held under trust in subsequent years, overturning the orders of the lower authorities.Conclusion:The appeal of the assessee was allowed, with the Tribunal directing the Assessing Officer to permit the carry forward of the excess expenditure for future set off. This decision was pronounced in the open court on 29.12.2015.