2010 (8) TMI 657 - HC - Income Tax

Court directs Tribunal to review Trust's expenditure, sets 85% cap, Commissioner to decide in 3 months.

The Court partially allowed the appeal, directing the Tribunal to reconsider whether the Trust's expenditure for the relevant years exceeded 85% after ... Exemption u/s 80G - Trust Non application of 85% of income - Revenue contented that the assessee cannot seek to set off excess expenditure incurred for the earlier years against the deficiency for the subsequent years u/s 11 of the Income Tax Act - Held that:- Section 11 of the Act is a benevolent provision, and that the expenditure incurred on religious or charitable purposes in an earlier year or years can be adjusted against the income of the subsequent year as decided in the case of GOVINDU NAICKER ESTATE v. ASSISTANT DIRECTOR OF INCOME TAX (1998 -TMI - 14496 - MADRAS High Court).Exemption under Section 80-G - The details furnished by the assessee in the Application Form No.10-G of the Income Tax Act, would show that the percentage of income applied is less than 85% - Therefore, the appeal is allowed in part with a direction to the Income Tax Appellate Tribunal to consider the issue as to whether after adjusting the excess expenditure incurred by the assessee on charitable purpose as claimed by it in the Application Form 10-G of the Income Tax Act, is more than 85% for the assessment years 2006-07 and 2008-09, for the purpose of granting exemption under Section 80-G of the Income Tax Act. Issues:1. Interpretation of Section 80-G(5)(vi) of the Income Tax Act regarding set off of excess expenditure.2. Determination of whether the assessee meets the 85% income application requirement for exemption under Section 80-G.Analysis:1. The case involves a Trust seeking initial exemption under Section 80-G of the Income Tax Act. The Commissioner of Income Tax rejected the application, stating that the Trust did not spend at least 85% of its income for the relevant assessment years. Additionally, the Commissioner held that the Trust could not set off excess expenditure from earlier years against the deficiency for subsequent years under Section 11 of the Act. The Income Tax Appellate Tribunal allowed the Trust's appeal, stating that the excess expenditure could be set off, and the Trust met the 85% requirement after adjustment. The Tribunal's decision was challenged by the Revenue.2. The first substantial question of law raised was whether the Tribunal was correct in allowing the set off of excess expenditure for earlier years against the deficiency for subsequent years under Section 11, even though there was no provision under Section 11 for such a claim. The Court referred to a previous judgment stating that expenditure from earlier years can be adjusted against income of subsequent years, supporting the Tribunal's decision.3. The second substantial question of law focused on whether the Trust met the 85% income application requirement for exemption under Section 80-G. The Revenue argued that the Trust did not meet this requirement even after adjusting the excess expenditure. The Court noted that the Trust's application form indicated that the percentage of income applied was less than 85%. The Court found a factual error in the Tribunal's decision and directed the Commissioner to reevaluate the expenditure for the relevant years to determine if it exceeded 85%, allowing the Trust to claim initial exemption under Section 80-G.4. In conclusion, the Court partially allowed the appeal, directing the Tribunal to reconsider whether the Trust's expenditure for the relevant years exceeded 85% after adjusting the excess expenditure. The Commissioner was instructed to make a decision on this matter within three months. No costs were awarded in this case.