TaxTMI 
TaxTMI 
2015 (11) TMI 1270
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....the Act. For Assessment Year 2007-08, the assessee filed its return of income on 26.10.2007 declaring NIL income. In the said return, the assessee had, inter alia, claimed carry forward of excess application over income for the year under consideration amounting to Rs. 7,44,328 to be adjusted as application against the income of the future years. It was claimed by the assessee that the excess application of income for the year under consideration is to be regarded as application out of the income of properties held under trust that arises in future and therefore, the deficit for the year should be allowed to be carried forward. The order of assessment was completed under Section 143(3) of the Act vide order dt.30.11.2009, wherein the Assessing Officer accepted the returned income at Nil on account of excess application of income during the year. The Assessing Officer, however, did not allow the carry forward of the deficit to be treated as application of income in the subsequent assessment years and has made a note to this effect in the computation of income in the order of assessment. 2.2 Aggrieved by the order of assessment for Assessment Year 2007-08 dt.30.11.2009, the assess....
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....e to be vacated. 4. For the above and other grounds that maybe urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs." 4. The Grounds raised at S.Nos.1 and 4 are general in nature and not being urged before us, are dismissed as infructuous. 5.1 Grounds S.No.2 and 3 are in respect of the only effective issue to be decided in this appeal. The learned Authorised Representative for the assessee submitted that the learned CIT (Appeals) is not justified in denying the claim of the assessee on the ground that there is no provision for carry forward of the deficit to be regarded as application of income in the subsequent assessment years. It was submitted that the income of charitable trusts are to be computed on commercial principles only and in this regard the learned Authorised Representative drew our attention to several decisions of the Hon'ble High Courts in support of the aforesaid proposition relating to carry forward of the excess application, which could be con....
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.... the IT Act and that the income of the charitable trust was not assessable under the head "Profits and gains of business" under s. 28 in which the provision for carry forward of losses was relevant. That, 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 subsequent years. We do not find any 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 s. 11 of the Act and that such adjustment will have to be excluded from the income of the trust under s. 11(1)(a) of the Act. Our view is also supported by the judgment of the Gujarat High Court in the case of CIT vs. Shri Plot Swetamber Murti....
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.... Madras High Court held that the income of the trust has to be arrived at having due regard to the commercial principles, that s. 11 is a benevolent provision, and that the expenditure incurred on religious or charitable purposes in earlier year or years can be adjusted against the income of the subsequent year. The principle that the loss incurred under one head can only be set off against the income from the same head is not of any relevance, if the expenditure incurred was for religious or charitable purposes, and the expenditure adjusted against the income of the trust in a subsequent year, would not amount to an incidence of loss of an earlier year being set off against the profit of a subsequent year. The object of the religious and charitable trust can only be achieved by incurring expenditure and in order to incur that expenditure, the trust should have an income. So long as the expenditure incurred is on religious or charitable purposes, it is the expenditure properly incurred by the trust, and the income from out of which that expenditure is incurred, would not be liable to tax. The expenditure, if incurred in an earlier year is adjusted against the income of a later year....