TaxTMI 
TaxTMI 
2016 (1) TMI 307
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....'s income of future years. 3. The assessee had shown excess expenditure of Rs. 26,23,938/- in its Income & Expenditure account. The AO did not allow carry forward of this for application to future years where surplus income would be available, holding that exemption in terms of section 11(1)(a) is allowable only for the application of the current year's income. He also mentioned that the assessment of Trusts is done as per the self contained code incorporated in sections 11 to 13 of the IT Act 1961 which do not expressly allow for carry forward of losses arising due to excess application in a particular year. 4. The appellant is aggrieved by the above treatment and emphasized before the CIT(A) on appeal that as per section 11(1)(a) there is no restriction that the entire income has to be applied in the same year only, which means that excess application can be set-off in the subsequent year out of receipt of income during the next year. As a corollary, therefore, it was claimed that the excess application of any year can be set off in the subsequent year. Reliance was placed on the following judicial decisions: * CIT Vs. Shri Gujarati Samaj 204 Taxman 151 (MP/17 taxm....
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.... 8. Per contra, the learned Departmental Representative supported the orders of the authorities below. He submitted that the Hon'ble High Court of Delhi in the case of Indian National Theater Trust (supra) has held that accumulation of income should be only out of the current year's income. The learned Authorised Representative submitted that in view of the above, the impugned orders passed by the learned CIT (Appeals) is justified and no interference is called for thereon. 9. The co-ordinate Bench of the Tribunal in the case of Jyothi Seva Society of Bangalore Vs. Asst. Director of Income-tax (Exemption) in ITA No.312/Bang/2015 has held as follows: We have heard the rival contentions of both parties and perused and carefully considered the material on record; including judicial pronouncements, cited and placed reliance upon. We find that the case of Institute of Banking (supra), the Hon'ble High Court of Bombay has held as under :- " Now coming to question No. 3, the point which arises for consideration is : whether excess of expenditure in the earlier years can be adjusted against the income of the subsequent year and whether such adjustment should be treat....
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....his issue and in para.8 of its order, held as under: "8. We are of the view that pendency of an appeal before the Hon'ble High Court of Karnataka cannot be the basis not to follow the decision on the issue already rendered in identical cases. Section 11(1)(a) does not contain any words of limitation to the effect that the income should have been applied for charitable or religious purpose only in the year in which the income has arisen. The application for charitable purposes as contemplated in section 11(1)(a) takes place in the year in which the income is adjusted to meet the expenses incurred for charitable or religious purposes. Hence, even if the expenses for such purposes have been incurred in the earlier years and the said expenses are adjusted against the income of a subsequent year, the income of such subsequent year can be said to be applied for charitable or religious purposes in the year in which such adjustment takes place. In other words, the set-off of excess of expenditure incurred over the income of earlier years against the income of a later year will amount to application of income of such later year. The above is the position of law as held in the c....
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....146 ITR 28 (Kar)." We find that the order of the CIT(A) is in consonance with the judicial precedents reproduced above. Therefore, we see no reason to interfere with the order of the CIT(A). The revenue's appeal is, accordingly, dismissed." It is clear from the relevant portions of the aforesaid decisions of the Hon'ble High Court of Bombay (supra) and the co-ordinate bench of the ITAT, Bangalore (supra) extracted above that the income of charitable trusts is required to be computed on commercial principles. The concept of application of the income for the year in which the income has arisen is not found in Section 11(1)(a) of the Act. No limitation to the above effect is found in the language of the section. It merely requires application of the income that has arisen from the property held under trust. In this view of the matter, the principles relating to set off of losses, etc. is not of any relevance and therefore any excess application of income during the year can be regarded as application of the income of future years and can be adjusted. Therefore, in our view, the claim of the assessee for carry forward of excess application is in accordance with th....