2024 (3) TMI 882 - AT - Income Tax

Charitable trust can set-off excess utilization from earlier years against current surplus under section 11(1)(a)

The ITAT Delhi ruled in favor of a charitable trust regarding set-off of excess utilization of funds from earlier years against current year surplus. The ... Accumulation of income u/s. 11(2) - Setting off of the earlier year excess utilization of funds - assessment of trust - set off of excess utilization of funds of earlier years against the surplus of the current year and accumulation of funds - HELD THAT:- As in assessee’s own case for AY 2016-17 passed [2022 (4) TMI 635 - ITAT DELHI] in the case of a charitable trust, there was no provision for carry forward of the excess of expenditure of earlier years to be adjusted against income of the subsequent years. No merit in this argument of the Department. Income derived from the trust property has also got to be computed on commercial principles and if commercial principles are applied then adjustment of expenses incurred by the trust for charitable and religious purposes in the earlier years against the income earned by the trust in the subsequent year will have to be regarded as application of income of the trust for charitable and religious purposes in the subsequent year in which adjustment has been made having regard to the benevolent provisions contained in the 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. Our view is also supported by the judgment of CIT v. Shri Plot Swetamber Murti Pujak Jain Mandal [1993 (11) TMI 17 - GUJARAT HIGH COURT Thus we hereby direct the AO to allow the claim of the assessee regarding set off of the excess utilization of funds and accumulation of income. Assessee appeal allowed. Issues Involved:1. Validity of the order of Ld. CIT(A), Karnal.2. Non-adjustment of earlier year excess utilization/deficit from current year surplus under section 11.3. Non-allowance of accumulation of income u/s 11(2) due to late filing of Form 10.4. Non-acceptance of Form 10 filed during assessment proceedings.5. Authority to condone delay in filing Form 10.6. Relevance of case laws submitted by the assessee.Summary:Issue 1: Validity of the Order of Ld. CIT(A), Karnal- The order of Ld. CIT(A), Karnal was challenged as being 'bad in law and against the facts of the case.' However, this ground was deemed general in nature and did not require adjudication.Issue 2: Non-adjustment of Earlier Year Excess Utilization/Deficit from Current Year Surplus u/s 11- The AO did not adjust the earlier year's excess utilization/deficit of Rs. 53,89,039/- from the current year's surplus for computing income under section 11 of the Act.- The Tribunal referred to its own decision in the assessee's case for AY 2016-17, which allowed such adjustments. The Tribunal directed the AO to allow the claim of the assessee regarding the set-off of excess utilization of funds.Issue 3 & 4: Non-allowance of Accumulation of Income u/s 11(2) and Non-acceptance of Form 10 Filed During Assessment Proceedings- The AO and Ld. CIT(A) did not allow the accumulation of income u/s 11(2) because Form 10 was not filed within the prescribed time but during the assessment proceedings.- The Tribunal cited the Supreme Court's decision in CIT vs. Nagpur Hotel Owner's Association, stating that the information required under section 11 must be furnished before the assessment is completed. Since the assessee had filed Form 10 before the completion of the assessment, the Tribunal found the AO's and Ld. CIT(A)'s orders erroneous and directed the AO to allow the claim.Issue 5: Authority to Condon Delay in Filing Form 10- Ld. CIT(A) held that only the CIT could consider the delay in filing Form 10, and no application was made by the assessee.- The Tribunal did not specifically address this issue separately but resolved it under the broader context of Issues 3 and 4, directing the AO to accept Form 10 filed during the assessment proceedings.Issue 6: Relevance of Case Laws Submitted by the Assessee- Ld. CIT(A) upheld the AO's view that the case laws filed by the assessee were not linked to the findings in the case.- The Tribunal referenced the Delhi High Court's decision in Director of Income Tax vs. Raghuvanshi Charitable Trust, among other precedents, to support the assessee's claim for adjusting the deficit of earlier years against the income of subsequent years.Conclusion:- The Tribunal allowed the appeal of the assessee, directing the AO to accept the set-off of excess utilization of funds and accumulation of income as per the binding precedents. The grounds raised by the assessee were allowed in terms of the Tribunal's earlier decision in the assessee's case for AY 2016-17.Result:- The appeal of the assessee is allowed.