TaxTMI 
TaxTMI 
2016 (1) TMI 444
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....essee's failure to utilize/ apply 100% of the income in the same year itself and in such case the unutilized/ applied portion of the income varying from 15% to 0% of income, as the case may be, shall be allowed as income accumulated/ set apart u/s 11(1)(a). 3) The CIT(A) has erred in coming to a conclusion that the assessee is entitled to claim 15% of the income as standard deduction u/s 11(1)(a) and therefore, the expenditure incurred in excess of 85% of the income can be allowed as excess application of income/ deficit/ loss and the same is eligible for carry forward and set off against the income of subsequent years. 4) The CIT(A) has failed to appreciate the fact that only the unutilized/ unapplied portion of the income can be allowed as deduction u/s 11(1)(a), but, to a maximum extent of 15% of the income and in the event of utilization/application of 100% of income there won't be any income which is eligible for deduction u/s 11(1)(a). 5) The CIT(A) has failed to appreciate the fact that the expenditure incurred in excess of 85% of the income cannot be treated as excess application of income/ deficit/ loss, but the same would come under the purview of actual application/ u....
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....as not allowed to be carried forward by the AO. 04.Assessee moved in appeal before the CIT (A) assailing both disallowance of depreciation and also not allowing it the benefit of carry forward of deficit. CIT (A) reworked the income of assessee trust for the relevant previous years, based on the figures given by it in its computation, as under : Particulars Financial year 2006-07 Rs. 2007-08 Rs. BF accumulation u/s.11(2) None None u/s.11(1)(a) None None Income Rent (after M. Tax) 23389123 28459252 Others 52210288 83707703 Gross income 75599411 112166955 15% ( u/s.11(1)(a) 11339912 16825043 Balance (85%)* 64259499 95341912 Expenditure Revenue expenditure 50985934 63967450 (incl.depreciation on assets (8964755) (11612545) Capital (asset) expenditure 48321761 47754189 Loan repayment 6400000 Total application 105707695 111721639 CF Surplus /deficit 41448196 16379727 05.As per the CIT (A) assessee had not reduced the deficits available to it from the earlier years income while working out its income and application. He therefore rew....
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.... year is concerned at least 25 per cent, of such income or Rs. 10,000, whichever is higher, will be permitted to be accumulated for charitable or religious purpose and it will also get exempted from the tax net. Then follows sub-section (2) which seeks to lift the restriction or the ceiling imposed on such exempted accumulated income during the previous year and also brings such further accumulated income out of the tax net if the conditions laid down by sub-section (2) of section 11 are fulfilled meaning thereby the money so accumulated is set apart to be invested in the Government securities, etc., as laid down by clause (b) of sub-section (2) of section 11 apart from the procedure laid down by clause (a) of section 11(2) being followed by the assessee-trust. To highlight this point we may take an illustration. If Rs. 1,00,000 are earned as the total income of the previous year by the trust from property held by it wholly for charitable and religious purposes and if Rs. 20,000 are actually applied during the previous year by the said trust to such charitable or religious purposes the income of Rs. 20,000 will get exempted from being considered for the purpose of income-tax under ....
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....unspent accumulated income of the previous year 25 per cent, of such total property income or Rs. 10,000, whichever is higher, can be permitted to be accumulated by the trust, earmarked for such charitable or religious purposes. Such 25 per cent, of the income or Rs. 10,000, whichever is higher, will also get exempted from income-tax. That exhausts the operation of section 11(1) (a). Then follows sub-section (2) which naturally deals with the question of investment of the balance of accumulated income which has still not earned exemption under subsection (1)(a). So far as that balance of the accumulated income is concerned, that also can earn exemption from incometax meaning thereby the ceiling or the limit of exemption of accumulated income from income-tax as imposed by subsection (1) (a) of section 11 would get lifted if additional accumulated income beyond 25 per cent, or Rs. 10,000, whichever is higher, as the case may be, is invested as laid down by section 11(2) after following the procedure laid down therein. Therefore, subsection 20 (2) only will have to operate qua the balance of 75 per cent, of the total income of the previous year or income beyond Rs. 10,000, whichever i....
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....922, exemption was available to charitable 21 trusts without any restriction upon the accumulated income. There was a change in this respect under the present Act of 1961. Under the present Act, any income accumulated in excess of 25 per cent, or Rs. 10,000, whichever is higher, is taxable under section 11(1) (a) of the Act, unless the special conditions regarding accumulation as laid down in section 11(2) are complied with. It is clear, therefore, that if the entire income received by a trust is spent for charitable purposes in India, then it will not be taxable, but if there is a saving, that is to say, an accumulation of 25 per cent, or Rs. 10,000, whichever is higher, it will not be included in the taxable income. Section 11(2) quoted above further liberalizes and enlarges the exemption. A combined reading of both the provisions quoted above would clearly show that section 11(2), while enlarging the scope of exemption, removes the restriction imposed by section 11(1) (a), but it does not take away the exemption allowed by section 11(1) (a). On the express language of sections 11(1) and 11(2) as they stood on the statute book at the relevant time, no other view is possible. In t....
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.... the case of Rajarajeshwari Devasthana Trust v. ITO (Ex), in ITA No.116/Bang/2015, dt.11.06.2015, had considered this issue. It was held at para 7 of the order as under: 07. In so far as the issue relating to carry forward of deficit, it was held as under at paras 11 to 13 of the order dt. 16.02.2009 of this Tribunal in the case of TMA Pai Foundations's case (supra) : 11. With regard to the second issue, the learned counsel submitted that the stand of the revenue that the assessee did not claim the carry forward in the original return and the claim was made for the first time through application u/s.154 of the Act which was time barred and there is no provision under the Income tax to allow carry forward of the loss of the preceding years any excess expenditure/application of the preceding years were not to be set off against the subsequent years' surplus. Though the assessee has not specifically sought for any carry forward benefit, for the assessment years up to 2005-06 the assessee filed the return of income where the surplus was determined and the application was made during the years have been declared. In the earlier years the assessee had not specifically sought for an....
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....nnot be brought in. The surplus is computed after taking into account the net outgoing of the relevant year and earlier years. The Bombay High Court took support of the decision of the Gujarat High Court in Shri Plot Swetamber Murti Pujak Jain Mandal (supra). The learned counsel submitted that the Commissioner of Income-tax(A) decided the issue in assessee's favour following the above decision of the Bombay High Court. The Hon'ble Madras High Court decision reported in Govindu Naicker Estate (supra) also supports the case of the assessee he submitted. The assessee is enjoying exemption u/s.10(23C)(vi). Thus no income for the relevant assessment year is liable to be taxed as exemption continues to be in operation for the relevant assessment years. Hence the learned counsel for the assessee submitted the appeal by the revenue is to be dismissed. 13. Considering the rival submissions we are of the view that all the appeals preferred by the revenue is to be allowed. The assessee is relying on the decision of the Bombay High Court in the case of Institute of Banking (supra) whereas the revenue is relying on the decision of the Tribunal, Bombay Bench in VII ITO v. Trustees of Sa....