TaxTMI 
TaxTMI 
2016 (8) TMI 54
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....here is no provision for computing loss from property held under trust/institution on account of excess application of income/funds of the trust. On the issue of depreciation 1. The CIT(A) has erred in ignoring the fact that the assessee has claimed depreciation on the assets the cost of acquisition of which was already claimed by the assessee and allowed by the department as application of income u/s 11(1) in the respective year(s) of acquisition/purchase of such assets." 3. The first ground is regarding set off of unabsorbed expenses of earlier years against the income of the current year. 4. The assessee is a charitable trust and registered u/s. 12A of the I.T. Act. The AO noticed that the current deficit of Rs. 1,18,24,928 as per the return has been claimed as carry forward to AY 2012-13 and the assessee has also claimed brought forward unabsorbed expenses of earlier years of Rs. 1,15,42,645. The AO was of the view that the Income-tax Act does not specify that the assessee trust is entitled to the benefit of either carry forward of excess expenditure over the income or to set off such deficit. Accordingly, the AO disallowed the claim of the assessee. ....
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....e 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 case of CIT Vs. Maharana of Mewar Charitable Foundation 164 ITR 439 (Raj) CIT Vs. Shri Plot Swetamber Murti Pujak Jain Mandal 211 ITR 293 (Guj.). In CIT Vs. Institute of Banking Personnel Selection 264 ITR 110 (Bom), it was held that in case of charitable trust whose income is exempt under s. 11, excess of expenditure in the earlier years can be adjusted against income of subsequent years and such adjustment wou....
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....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 treated as application of income in the subsequent year for charitable purposes? It was argued on behalf of the Department that expenditure incurred in the earlier years cannot be met out of the income of the subsequent year and that utilisation of such income for meeting the expenditure of earlier years would not amount to application of income for charitable or religious purposes. In the present case, the Assessing Officer did not allow carry forward of the excess of expenditure to be set off against the surplus of the subsequent years on the ground that in the case of a charitable trust, their income was assessable under self-contained code mentioned in section 11 to section 13 of the Income-tax Act and that the income of the charitable trust was not assessable under the head 'Profits and gains of business' under section 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....
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....ng the said decision, the coordinate Bench of this Tribunal in the case of ACIT v. Sri Adichunchanagiri Shikshana Trust, 141 ITD 575 has held in para 12 as under:- "13. We have heard the rival submissions and perused the materials on record. The Tribunal in the assessee's own case for the assessment year 2006-07 at paragraph 7 of its order has decided the issue in favour of the assessee. The relevant finding of the Tribunal reads as follows : "7. We have heard both the parties. We have in the earlier para referred to the findings of the hon'ble Bombay High Court in the case of Institute of Ban king [2003] 264 ITR 110 (Bom). We have also gone through the decision of the jurisdictional High Court. The hon'ble jurisdictional High Court held that the amount of depreciation debited to the account of charitable institutions is to be deducted to arrive at an available income from charitable or religious purposes. Following the decision of the jurisdictional High Court, we therefore, hold that the depreciation is to be deducted to arrive at an income available to charitable and religious purposes." 14. The above order of the Tribunal has not been reve....
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.... years) ultimately results in taxing of exempted incomes which is contrary to the intents of the legislature. Similarly application out of borrowed funds results in "excess application" since borrowed funds are not treated as 'income' under accounting parlance. However amount borrowed will be repaid in future years thereby application of trusts income for the purpose of trust is made. Hence either excess application made in the year of borrowal or application by way of repayment of loan should be allowed as application u/s11(l) in the interest of justice and intents of legislature. Naturally loan repayments unabsorbed out of current year's revenue funds should be allowed to be set- off against future revenue income. The above views are supported by pronouncements of different High Courts/Tribunals in the following cases: (1) Allahabad High Court in CIT vs Audh Educational Society 203 Taxman 166 (All HC 2011) (2) Madras High Court in CIT Vs Matriseva Trust 242 ITR 20 (3) Tribunal decisions mentioned by appellate authority (Mad) As appreciated by learned assessing authority provisions of sec.72 of IT Act is not applica....