Charitable trust excess application can be adjusted in later years; Explanation 5 to section 11(1) held prospective.

A charitable trust's excess application of income in earlier years was treated as adjustable against income of a later year on commercial principles, and such adjustment was regarded as application of income in the year of set-off under section 11. The absence of a specific carry-forward claim in the earlier year's return did not, by itself, defeat the claim. Explanation 5 to section 11(1) was treated as prospective and not applicable to AY 2017-18. Because the factual availability and quantification of the adjustment required verification from the trust's books, the matter was restored to the AO for limited examination and consequential allowance if the claim was correct.

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Issues: Whether excess application of income incurred by a charitable trust in earlier years can be adjusted against income of a subsequent year without a specific claim in the earlier year's return, and whether the restriction introduced by Explanation 5 to section 11(1) applies to AY 2017-18.

Analysis: The excess application was found to have been incurred for charitable purposes and was ascertainable from the trust's books and records. The governing principle applied was that income of a charitable trust is to be computed on commercial principles, and adjustment of earlier years' excess expenditure against a later year's income is treated as application of income in the year of adjustment under section 11. The absence of a separate carry-forward claim in the earlier year's return was held not to defeat the entitlement. The amendment inserting Explanation 5 to section 11(1) was treated as prospective and not applicable to AY 2017-18. As the exact factual availability and quantification of the claim required verification, the matter was restored to the Assessing Officer for limited examination.

Conclusion: The assessee was held entitled in principle to claim adjustment of earlier years' excess application against the year under consideration, but the issue was remanded to the Assessing Officer for factual verification and consequential allowance if found correct.

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