2021 (7) TMI 6 - AT - Income Tax

Tribunal Upholds Carry Forward of Deficits for Trusts based on Legal Precedents

The Tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s decision to allow the carry forward of deficits for trusts/institutions based on ... Assessment of trust - Carry forward of the excess of expenditure/deficit - assessee carried the matter before the ld. CIT(A) and assailed the assessment claiming that income derived from the trust should be computed from sound commercial principles and therefore, carry forward and set off of deficit should be allowed - CIT(A) directed the Assessing Officer to allow carry forward of net deficit of the current year - HELD THAT:- The Hon'ble High Court of Gujarat in the case of Shri Plot Swetamber Murti Pujak Jain Mandal 1 [1993 (11) TMI 17 - GUJARAT HIGH COURT] had the occasion to consider the CBDT No. 100 dated 24.01.1973 which allowed repayment of loan taken in earlier years for fulfilment of charitable objects as application - It is of the view that the same principle should apply if instead of taking the loan the organization spent more out of its corpus and it is reimbursed in subsequent years. Similarly, the Hon'ble High Court of Delhi in the case of Raghuvanshi Charitable Trust [2010 (7) TMI 158 - DELHI HIGH COURT] has held that the assessee trust can be allowed to carry forward deficit of current year and to set off the same against the income of subsequent years. We do not find any error or infirmity in the findings of the ld. CIT(A). - Decided against revenue. Issues Involved:1. Allowance of carry forward of losses disregarding provisions of Income Tax Act.2. Claim of carry forward of current year loss and set-off of excess deficit for trust/institution.3. Applicability of provisions for charitable trusts/institutions regarding income computation and set-off of losses.Analysis:Issue 1: Allowance of carry forward of lossesThe Revenue appealed against the CIT(A)'s order allowing the claim of carry forward of losses, contending that provisions of sections 70 to 74 of the Income Tax Act deal with set off and carry forward of losses. The Revenue argued that the CIT(A) erred in law by permitting the carry forward of losses without considering the specific provisions of the Act.Issue 2: Claim of carry forward and set-off for trust/institutionThe Assessing Officer denied the claim of carry forward of excess expenditure/deficit for a trust, stating that any excess spending should be from income derived, set apart, or accumulated income, not from corpus or loans. The CIT(A) directed the Assessing Officer to allow the carry forward of the net deficit for the current year. The dispute revolved around whether the deficit should be carried forward and set off for trusts based on commercial principles.Issue 3: Applicability of provisions for charitable trusts/institutionsThe Revenue argued that the CIT(A) did not analyze the source of income used to meet the expenditure, contrary to Explanation 2 to section 11. The CIT(A) relied on various judicial decisions to support the allowance of carry forward of deficits. The Tribunal cited judgments from the Bombay High Court and the Gujarat High Court, emphasizing that income derived from trust property should be computed on commercial principles, allowing for the carry forward and set off of deficits in subsequent years.In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to allow the carry forward of deficits based on judicial precedents and commercial principles. The judgment highlighted the application of income for charitable purposes and the permissibility of carrying forward deficits for trusts and institutions, as established by relevant legal interpretations.