2019 (2) TMI 1139 - AT - Income Tax

Tribunal confirms carry forward of excess income for charity, Bombay HC precedent cited

ITO (Exemption), Wd. 2 (1), Mumbai Versus M/s Noble Foundation C/o Vibgyor High School Motilal Nagar-1

The tribunal upheld the findings of the CIT(A) and dismissed the appeal filed by the revenue, affirming that there was no error in allowing the carry ... Exemption u/s 11 - carry forward of deficit of earlier years and allowing set off against the income of the succeeding years - whether charitable trust registered u/s 12A of the Income-tax Act, 1961 can carry forward excess application of income over and above income derived from property held under trust to subsequent year or not? - HELD THAT:- The Hon’ble Bombay High Court in the case of CIT vs Institute of Banking & Personnel Selection [2003 (7) TMI 52 - BOMBAY HIGH COURT) has considered an identical issue in the light of provisions of section 11 and held that income derived from trust property has also got to be computed at commercial principles and if commercial principles are applied, then adjustment of expenses incurred by the trust for charitable and religious purpose in the earlier years against income earned by trust in the subsequent year will have to be regarded as application of income of the trust for charitable and religious purpose in the subsequent year for 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 u/s 11(1)(a) of the Act. - Decided in favour of the assessee. Issues Involved:1. Allowance of carry forward of deficit of earlier years and set off against the income of succeeding years.2. Absence of express provision in the Income Tax Act, 1961 for such allowance.3. Reliance on the judgment of the Hon'ble Bombay High Court in the case of Institute of Banking Personnel Selection and its acceptance by the department.Detailed Analysis:1. Allowance of Carry Forward of Deficit:The primary issue revolves around whether the CIT(A) erred in allowing the carry forward of the deficit of earlier years and permitting its set off against the income of subsequent years. The assessee, a trust engaged in charitable activities, filed its return of income for AY 2012-13 declaring Nil income after claiming exemption under section 11 of the Income Tax Act, 1961. The assessment was completed under section 143(3), determining total income at Nil by restricting the excess application of income for charitable purposes to be carried forward to subsequent years.2. Absence of Express Provision:The revenue contended that there was no express provision in the Income Tax Act, 1961, permitting the allowance of such a claim. The CIT(A) relied on the judgment of the Hon'ble Bombay High Court in the case of CIT vs Institute of Banking Personnel Selection, which held that excess application of income for charitable purposes could be carried forward and set off against income of subsequent years. The CIT(A) concluded that the assessee could not claim deduction towards 15% of income accumulation as per the provisions of section 11(1)(a) of the Income Tax Act, 1961, as there was no income available for accumulation.3. Reliance on Judicial Precedents:The CIT(A) referred to several judicial precedents, including the decision of the Hon'ble Bombay High Court in the case of CIT vs Institute of Banking Personnel Selection, which addressed whether excess expenditure in earlier years could be adjusted against the income of subsequent years. The court held that income derived from trust property must be computed on commercial principles, and adjustments of expenses incurred by the trust for charitable purposes in earlier years against income earned in subsequent years should be regarded as application of income for charitable purposes in the subsequent year. This view was supported by the judgment of the Gujarat High Court in the case of CIT v. Shri Plot Swetamber Murti Pujak Jain Mandal.The CIT(A) also referred to the decision of the ITAT Mumbai Bench in the case of ITO(Exemption)-1(1) Mumbai vs Bombay Natural History Society, where the tribunal upheld the order of the CIT(A) allowing the carry forward and set off of the deficit. The CIT(A) emphasized that the jurisdictional High Court's decision must be followed, and as the matter stands, the issue was covered in favor of the assessee.Conclusion:The tribunal, after hearing the Ld.DR and perusing the materials available on record, concluded that the issue of whether a charitable trust registered under section 12A of the Income Tax Act, 1961, can carry forward excess application of income over and above income derived from property held under trust to subsequent years was settled by the Hon'ble Bombay High Court in the case of CIT vs Institute of Banking & Personnel Selection. The tribunal upheld the findings of the CIT(A) and dismissed the appeal filed by the revenue, affirming that there was no error in allowing the carry forward and set off of excess application of income for charitable purposes.The appeal filed by the revenue was dismissed, and the order was pronounced in the open court on 15-02-2019.