TaxTMI 
TaxTMI 
2019 (2) TMI 1133
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....nds of appeal raised by Revenue in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called "the tribunal") read as under:- "1. "Whether on the facts of the case and in law the Ld.CIT(A) erred in allowing the carry forward of deficit of earlier years amounting to Rs. 5,23,93,620/-and allowing set off against the income of the succeeding years." 2. "Whether, on the facts and in the circumstances of the case and in law, the Ld. C1T(A) erred in allowing the claim of the assesses for carry forward of the said deficit, ignoring the fact that there was no express provision in the I T Act, 1961 permitting allowance of such claim." 3. Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the claim of the assesses for carry forward of the said deficit by relying upon the judgment of Hon'ble Bombay High Court in the case of Institute of Banking Personnel Selection, ignoring the fact that the Department has not accepted the said decision of the jurisdictional High Court on merit of the case, but due to smallness of tax effect appeal was not filed before Hon'ble Supreme Court....
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....ssee has claimed Rs. 8,05,52,838/- as deficit being excess of expenditure over income. The AO denied the assessee benefit of carry forward of these losses/deficit being excess of expenditure over income to subsequent years to be set off against surplus arising in subsequent years , vide assessment order dated 17.03.2015 passed by the AO u/s. 143(3) , by holding as under:- "3. CLAIM OF DEFICIT : During the course of hearing, it was observed that the assessee had shown Rs. 8,05,52,838 / as Deficit. 3.1. The loss shown by the assessee is not allowed to be carried forward to be set off against future surplus because of the following reasons: The set off of brought forward deficit claimed by the assessee is not allowed to be set off against income of current year because of the following reasons : 3.2 The heading of Section 11 of I.T. Act states "Income from property held for charitable or religious purposes." Thus, the section lays down procedure for computation of income. The section nowhere mentions the word 'deficit' or 'loss'. 1. When the income is not taxed u/s. 11, there cannot be a case for carrying forward of losses o....
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....ction 11(2) are independent and the assessee can claim exemption in either of two sub-sections of section 11. The same ratio will equally apply when trust seeks exemption on the basis of application of income as it is the same income which is sought to be accumulated. When income accumulated in an earlier year cannot qualify for exemption under section 11(2), the excess income applied in earlier assessment year will also not qualify for exemption. Similar view has been taken by Hon'ble Calcutta High Court in the case of Ramchandra Poddar Charitable Trust [1987] 164 ITR 666 wherein it has been held that section 11 does not permit accumulation of a larger amount than what is prescribed. If the assessee does not apply the income of a year for charitable purposes but spends a like amount for charitable purposes out of its accumulated profits, the conditions laid down in section 11(1)(a) are not fulfilled. The mere fact that the assessee had applied its accumulated income of the earlier years for the purpose of charity will not absolve the assessee of its duty to apply its income for the current year for the purpose of charity, nor will it enlarge the limit of the ....
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....f losses may amount to triple deduction because the loss essentially might have arisen because of claim of capital expenditure as well as depreciation on the capital expenditure. Allowing the consequential loss to be set off against future income would imply triple benefit for the same capital expenditure which is not the intention of the legislature. In this regard, it is submitted that the Hon'ble High Court of Bombay, in the case of The Director of Income Tax (Exem.) V/s. Maharashtra Industrial Development Corporation (MIDC) (ITA No. 2652 of 2011) after relying on the decision of CIT v/s, Institute of banking (264 1TR 110) (Bombay High Court) had dismissed the appeal filed by the department on the issue of carry forward deficit. However, the department has filed SLP before the Apex Court (SPL (Civil) 9891 of 2014) and the matter is pending before the Hon'ble Supreme Court. 3.3. In view of the above reasons and discussion, neither loss of earlier years is allowed to be set off in this year nor loss of current year is allowed to be carried forward for adjustment in subsequent years. 4. Subject to the above remarks and discussion and after verific....
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....nditure 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 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 section....
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....lation, therefore, would not arise. This is because if there is no income available, the question of accumulating any income would not arise. 7.3. My above reasoning is supported by the decision of the Hon. ITAT "G" Bench Mumbai in the case of Dawat Institute of Dawoodi Bohra Community in ITA No. 4309/Mum/2005 for the A.Y. 2001-02 dated 30.4.2013, wherein the same issue was involved. It was. held by the Hon. ITAT as follows: "5. We have perused the records and considered the rival contentions carefully. The dispute raised in this appeal is whether the assessee can still be allowed statutory accumulation of 25% of the income u/s 11 (1) (a) of the IT Act even if the entire income has been applied for the year and no income is left for accumulation. The authorities below have disallowed the claim on the ground that the assessee had incurred more expenditure towards the application of income than the income earned. Therefore, the claim of accumulation cannot be allowed. The learned AR for the assessee has however argued that the assessee is entitled for statutory accumulation of 25% of gross income irrespective of the fact whether any income is left for appli....
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....was more. This additional income could be accumulated u/s 11(2) subject to the fulfillment of conditions mentioned there in. but in respect of accumulation of 25% or 10 thousand whichever is more u/s 11(1)(a), the conditions mentioned u/s 11(2) could not be applied. In other words, Hon'ble Supreme Court held that accumulation of 25% or 10 thousand whichever was more was absolute and unfettered without any conditions. Thus observations "absolute and unfettered exemption" was only in relation to fulfillment of conditions mentioned in section 11(2}. It was not held by the Hon'ble Supreme Court that such accumulation had to be allowed even if there was no income left for application. 5.2 Similar was the position in case of CIT Vs. Trustees of Bhat Family Research Foundation (Supra) in which the foundation had earned income of Rs. 41,513/- against which it had applied the sum of Rs. 8,150/- leaving a balance of Rs. 33,363/-. The Assessing Officer held that for allowing exemption, the entire balance amount of Rs. 33363/- has to be invested in Government securities and bonds as provided in section 11(2}. The High Court held that the conditions of investm....
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.... in case of Programme for Community Organization (Supra) was not whether accumulation had to be allowed even if there was no income left for application but the issue was whether accumulation had to be computed with respect to gross income or net income. Similarly, the Tribunal allowed the claim of the assessee in the assessment years 2002-03 and 2003-04 (Supra) in the same manner. Therefore, the decision of Tribunal in assessee's own case in earlier years in our view, cannot be considered as binding precedent. As regards the decision of CIT (A) in assessment year 2004-05 (Supra) nothing has been produced on record to show that it was a conscious decision of the government to accept the order. Mere failure of an official to not file appeal in one year could not be the ground to make a claim in the subsequent year. The income can be accumulated u/s 11(1)(a) if something remained unspent but if the entire income has already been spent, the same is fully exempt from tax and there is nothing left to be accumulated. We are therefore, unable to accept the arguments advanced on behalf of the assessee that the accumulation has to be allowed even if the entire income has already been sp....
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....trust. This proposition of the assessee cannot be accepted as the exemption is to be allowed on application of the income of the assessee and not for its accumulation. The accumulation of 25 per cent of the total income is permissible when the assessee failed to apply the total income of the trust in a particular year. If the assessee applies the entire income of the trust he is entitled to claim 100 per cent exemption and there is no question of further accumulation of 25 per cent of the total income of the assessee. If the assessee incurs more expenditure than the total income of the trust the expenditure over and above to the income can be carried forward and is allowed to be set off against the income in succeeding year. In the instant case, the assessee has incurred expenditure or applied for charitable religious purposes Rs. 58,09,87,048 against the total income of Rs. 35,60,82,101. In this case, he is entitled to claim the carry forward of the excess expenditure but he will not be allowed to accumulate 25 per cent of the total income first and then claim the excess expenditure for its carry forward to subsequent years. We accordingly set aside the order of the CIT(A) and res....
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....on for the purposes of the trust. Accordingly, a claim amounting to Rs. 1.55 Crores (i.e.15% of the gross receipts) was made u/s. 11(1)(a) of the Act. As per the assessee, after considering the accumulated/set aside sum and the additional sum spent by it over accumulation, it was entitled to carry forward the deficit of Rs. 2.78 Crores for setting off against future receipts of subsequent years. AO rejected the claim made by the trust for carry forwarding of the said deficit i.e. of Rs. 2.78 Crores. The Assessee preferred an appeal before the First Appellate Authority (FAA). After considering the submissions of the assessee and the Assessment Order, FAA held that the issue raised by the assessee-trust was covered in favour of the assessee by the decision delivered by the jurisdictional High Court in the case of Institute of Banking Personnel (264 ITR 110). He further mentioned that in the assessee's own case for the Assessment Year 2002-03, Tribunal had decided the mater in favour of the assessee. Appeal filed by the assessee trust was allowed by the FAA. On further appeal by the Department, the Hon. ITAT held as follows: "We have heard the rival submissions a....
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....ated 28.08.2017 passed by learned CIT(A), the learned CIT(A) was pleased to allow carry forward of excess of expenditure over income being deficit/loss to subsequent years to be set off against income/surplus of subsequent years. However based on large number of judicial decisions as cited by learned CIT(A) in his appellate order, the learned CIT(A) was of the view that once expenditure of assessee-trust is already more than its income and there is a deficit , then accumulation of income @15% as is provided u/s 11(1)(a) cannot be allowed as the assessee‟s expenditure is already higher than income, there shall be left thereafter no income/surplus in the hands of the assessee which could be allowed to be accumulated as is provided u/s 11(1)(a) of the 1961 Act, vide appellate order dated 28.08.2017 passed by learned CIT(A) as extracted above by us in this order. 6. Now , Revenue is aggrieved by the decision of Ld. CIT(A) in giving part relief to the assessee in allowing excess of expenditure over income being deficit of Rs. 5,23,93,620/- to be carried forward to subsequent years to be set off against surplus of subsequent years as against deficit/loss of „Nil‟ all....
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.... against income of the subsequent year in view of decision of Hon‟ble Bombay High Court in the case of Institute of Banking Personnel Selection(IBPS)(supra). It was also fairly submitted by learned DR that this issue is also covered by decision of tribunal in assessee‟s own case in DCIT v. The Executive Board of the Methodist Church in India for AY 2010-11 in ITA no. 5442/Mum/2015. .However so far as second issue is concerned which is infact agitated by the assessee in its CO, the learned DR submitted that accumulation of 15% of income u/s 11(1)(a) cannot be allowed and reliance is placed on the appellate order of learned CIT(A). 10. We have considered rival contentions and perused the material on record including cited case laws and orders of the authorities below. The brief facts of the case are that the assessee is trust registered as a Charitable Organization with DIT(E), Mumbai u/s. 12A vide Registration no. 2362 and is also registered with Charity Commissioner, Mumbai vide Registration No. F-405(Bom). The assessee-trust claims to be engaged in charitable activities in the field of advancement of the Methodist Church in India by means of Evangelistic, Educationa....
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....w 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 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 utilization 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 ca....
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....tances of the case, the tribunal was justified in law forward the deficit of earlier year and set it off against the surplus of subsequent years when the same was not allowable in the case of assessee trust in whose case income exempted under section 11 of the Income Tax Act, 1961." The Hon'ble Bombay High Court decided the aforesaid substantial question of law in favour of the assessee in Institute of Banking Personnel Selection (IBPS) (supra) , by holding as under:- " 5. 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 treated as application of income in 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 utilization 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....
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....the following questions of law for our consideration: "(a) Whether on the facts and in the circumstance of the case and in law, the Tribunal was right in allowing the claim of the assessee for carry forward of the deficit, amounting to Rs. 3,71,99,050/- ignoring the fact that there was no express provision in the Income Tax Act, 1961 for permitting allowance of such claims?". (b) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in upholding the decision of the CIT(A) which allowed carry forward of deficit on account of excess expenditure and directed the assessing officer to allow carry forward of deficit on account of excess expenditure without appreciating the fact that this would have the effect of granting double benefit to the assessee, first as 'accumulation' of income u/s. 11 1(a) or as corpus donation u/s. 11(1)(d) in earlier years/current year and then as 'application' of income u/s. 11(1)(a) in the subsequent years which were legally not permissible?". 3 Mrs. Bharucha, learned Counsel appearing for the Revenue very fairly states that the issues arising herein stands concluded agains....
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....on'ble Bombay High Court decided the issue in favour of the assessee , by holding as under:- " 3. We find that the impugned order of the Tribunal has dismissed the Revenue's appeal on both the issues namely - allowability of depreciation on capital assets acquired for the purposes of carrying out charitable activities and set off of deficit of earlier years against income of the current year. The impugned order in fact followed decision of this Court in CIT v/s. Institute of Banking Personnel Services reported in 264 ITR 110 while holding in favour of the Respondent-Assessee. 4. Mr. Malhotra, learned Counsel appearing for the Revenue very fairly states that the issue as raised by the Revenue stands concluded against Revenue by decision of this Court in Institute of Banking Personnel Services (supra). 5. In view of the above, the questions as framed do not give rise to any substantial question of law." The Mumbai-tribunal in ITO(Exemptions) vs. Vaibhav Medical & Education Foundation in ITA no. 6998/Mum/2016 for AY 2008-09, vide order dated 31.08.2017 has also decided this issue in favour of the assessee , by holding as under:- " 6. We....
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....ssee in the case of DIT (Exemption) vs. M/s. Gem & Jewellery Exports Promotion Council (ITA (LOD) No. 1133 of 2010) dated 15.02.2011 also, and the SLP of the Department has also been dismissed by the Hon'ble Supreme Court in CC 13512/2011 dated 09.09.2011. Therefore, in this background, we find no merit in the Ground raised by the Revenue and the same is accordingly dismissed. 7. In the result, appeal of the Revenue is dismissed." Further we have also observed that Mumbai Tribunal in DDIT v. Maharashtra Samaj Ghatkoper in ITA no. 3654/Mum2013 , vide order dated 22.06.2016 to which one of us being Judicial Member was part of the Division Bench who adjudicated the appeal in ITA no. 3654/Mum/2012 , has again decided the issue of carried forward of losses in favour of the tax-payer , by holding as under:- " 3. We have heard Departmental Representative (DR) for Revenue and Authorised Representative (AR) for assessee and perused the material available on record. Ld. DR argued that Ld DIT wrongly given the relief to the assessee and prayed that order of the AO may be restored. Ld AR for assessee argued that this case is squarely covered by the decision of Bo....
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.... 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 section 11 of the Act and that such adjustment will have to be excluded from the income of the Trust under section 11(1)(a) of the Act. Our view is also supported by the Judgment of the Gujarat High Court in the case of CIT v. Shri Plot Swetamber Murti Pujak Jain Mandal [1995] 211 ITR 293." Further the Hon'ble jurisdictional High Court in case of DIT vs. Mumbai Education Trust in ITA No. 11/2014 dated 3rd May 2016 given the similar relief in respect of allowability of depreciation of capital asset acquired for the purpose of carrying out charitable activities and set off of deficit of earlier years against the income of current year. 5. By respectfully following the judgment of Hon'ble jurisdictional High Court, we hold ....
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....red on 13.10.2014 in SLP(C) no. 009891/2014 in DIT v. MIDC. It is also noted that the tribunal in assesse‟s own case for AY 2010-11 in ITA no. 5442/Mum/2015 in DCIT(E) v. The Executive Board of the Methodist Church in India vide orders dated 24.10.2017 has decided the issue of allowability of excess of expenditure over income being deficit to be carried forward to subsequent year to be set off against surplus of subsequent years in favour of the assessee , by holding as under:- "7. We have heard the rival submissions and perused the material on record and also gone through the cases relied upon by the authorities below. The only issue involved in this case is whether the Ld CIT(A) has erred in allowing carry forward of deficit in question and allowing set off against the income of the subsequent years? The AO has answered the said question in affirmative by following the ratio of law laid down by the Hon'ble jurisdictional High Court in CIT vs Institute of banking (supra). The operative part of the impugned order reads as under: "I have considered the facts and circumstances of the case, gone through the assessment order of the AO and the submissions of the ....
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.... of earlier years to be adjusted against income of the subsequent years. We do not find any merit in this argument of the Department. Income derived from the trust property has also bought 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 religious purposes in the subsequent years in which adjustment has been made having regard to the benevolent provisions in section 11 of the Act and that such adjustment will have to be excluded from the income of the trust under section 11 (1) (a) of the Act. Our view is also supported by the judgment of the Gujarat High Court in the case of CIT versus Sri Plot Swetamber Murti Pujak Jain Mandal [1995] 211ITR 293. Accordingly, we answer question number 3 in the affirmative, i.e., in favour of the assessee and against the Department." 9. Since the issue involved in this case is squarely covered by the judgment of the Hon'ble jurisdictional High Court and s....
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....of the turst. The tribunal while adjudicating appeal in the case of Lalji Velji Charitable Trust(supra) held as under: "4.We have heard the rival contentions and gone through the facts and circumstances of the case. The admitted facts are that the assessee has applied its income towards charitable purposes an amount of Rs. 4,78,14,884/-as against the assessee‟ income of Rs. 4,41,63,870/-thereby leaving the deficit of Rs. 36,51,014/-. The assessee claimed accumulation under section 11(1)a of the Act of Rs. 66,24,580/-being 15% of the gross income of Rs. 4,41,63,870/-. The assessee claimed the same to be carried forward and set off of this accumulation against the income of the subsequent years as the entire income has been spent on the object of the trust. We have gone through the provisions of section 11(1)(a)which reads as under: - "(a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is....
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....ve been applied or not. Similar is the position in the case of ACIT vs. A.L.N. Rao Charitable Trust (1995) 216 ITR 697 (SC) here the meaning of applied in this context means that the income is actually applied for the charitable or religious purposes of the trust but the word applied need not necessarily imply spent. Even if the income is irretrievably earmarked and allocated for the charitable or religious purposes or purposes it may be under section 11 (1)(a) of the Act. A sum of Rs.66,24,580/-being 15% of the gross income even though the entire income has been applied on the object of the trust as an application of income and there left no income for accumulation. However, as requested by the learned Sr. DR that the facts are not cleared, the same can be verified by the AO but only verification of figures. Accordingly, we set aside the orders of the lower authorities and allow the appeal of the assessee. Consequently, the appeal for AY 2011-12 is exactly identical and hence, taking a consistent view, we allow this appeal also." The tribunal while deciding the issue in the case of Lalji Velji Charitable Trust(supra) had referred to CBDT circular 5-P dated 19.06.1968 a....
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....pital gains, or other sources, the word "income" should be understood in its commercial sense, i.e., book income, after adding back any appropriations or applications thereof towards the purposes of the trust or otherwise, and also after adding back any debits made for capital expenditure incurred for the purposes of the trust or otherwise. It should be noted, in this connection, that the amounts so added back will become chargeable to tax under section 11(3) to the extent that they represent outgoings for purposes other than those of the trust. The amounts spent or applied for the purposes of the trust from out of the income, computed in the aforesaid manner, should be not less than 75 per cent of the latter, if the trust is to get the full benefit of the exemption under section 11(1). 5. To sum up the business income of the trust, as disclosed by the accounts plus its other income computed as above, will be the "income" of the trust for the purposes of section 11(1). Further, the trust must spend at least 75 per cent of this income and not accumulate more than 25 per cent thereof. The excess accumulation, if any, will become taxable under section 11(1)." The ....
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....ssee-trust received donations in the aggregate sum of Rs. 2,57,376. It applied thereout for its charitable purposes the aggregate sum of Rs. 1,70,369 leaving a balance of Rs. 87,010. The question is whether the assessee is entitled to accumulate twenty-five per cent of Rs. 2,57,376, as it contends, or twenty-five per cent of Rs. 87,010, as the revenue appeared to contend. Section 11(1)(a) reads thus : "11. Income from property held for charitable or religious purposes.-(1)(a ) Income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of twenty-five per cent of the income from such property;" 4. Having regard to the plain language of the above provision, it is clear that a charitable or religious trust is entitled to accumulate twenty-five per cent of its income derived from property held under trust. For the present purposes, the donations, the assessee received, in the sum of ....
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.... and, where any such income is accumulated for application to such purposes in India, to the extent to which the income so accumulated is not in excess of 25 per cent of the income from the property or rupees ten thousand, whichever is higher; ** ** ** (2) Where the persons in receipt of the income have complied with the following conditions, the restriction specified in clause (a) or clause (b )of sub-section (1) as respects accumulation or setting apart shall not apply for the period during which the said conditions remain complied with- (a) such persons have, by notice in writing, given to the Incometax Officer in the prescribed manner, specified the purpose for which the income is being accumulated or set apart and the period for which the income is to be accumulated or set apart, which shall in no case exceed ten years; (b) the money so accumulated or set apart is invested in any Government security as defined in clause (2) of ....
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....Thus, out of the total income of Rs. 1,00,000 which has accrued to the trust Rs. 25,000 will earn exemption from payment of income tax as per section 11(1)(a) second part. Then follows sub-section (2) which states that the ceiling or the limit or the restriction of accumulation of income to the extent of 25 per cent of the income or Rs. 10,000, whichever is higher, for earning income-tax exemption as engrafted under section 11(1)(a) will get lifted if the money so accumulated is invested as laid down by section 11(2)(b) meaning thereby out of the total accumulated income of Rs. 80,000 accruing during the previous year and which could not be spent for charitable or religious purposes by the trust balance of Rs. 55,000 if invested as laid down by sub-section (2) of section 11 will also get excluded from the tax net. But for such investment and if section 11(1) alone had applied Rs. 55,000 being the balance of accumulated income would have been covered by the tax net. The learned counsel for the revenue submitted that the investment as contemplated by sub-section (2)(b )of section 11 must be investment of all accumulated income in Government securities, etc., namely, 100 per cent of t....
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....1)(a) would be rendered redundant and the said exemption provision would become otios. It has to be kept in view that out of the accumulated income of the previous year an amount of Rs. 10,000 or 25 per cent of the total income from property, whichever is higher, is given exemption from income-tax by section 11(1)(a) itself. That exemption is unfettered and not subject to any conditions. In other words, it is an absolute exemption. If sub-section (2) is so read as suggested by the learned counsel for the revenue, what is an absolute and unfettered exemption of accumulated income as guaranteed by section 11(1)(a) would become a restricted exemption as laid down by section 11(2). Section 11(2) does not operate to whittle down or to cut across the exemption provisions contained in section 11(1)(a) so far as such accumulated income of the previous year is concerned. It has also to be appreciated that subsection (2) of section 11 does not contain any non obstante clause like 'notwithstanding the provisions of sub-section (1)'. Consequently, it must be held that after section 11(1)(a) has full play and if still any accumulated income of the previous year is left to be de....
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....irst part of section 11(1)(a). (ii) Out of the remaining accumulated income of Rs. 80,000 for the previous year, a further sum of Rs. 25,000 will get exempted from payment of income-tax as per second part of section 11(1)(a). Thus, out of the total income derived from property as aforesaid during the previous year, that is, Rs. 1 lakh, Rs. 45,000 in all, will get excluded from the tax net on a combined operation of first and second part of section 11(1)(a). (iii) The aforesaid ceiling of Rs. 25,000 of accumulated income from property of previous year, will get lifted under section 11(2) to the extent the balance of such accumulated income is invested as laid down by section 11(2). To take an illustration if, say, an additional amount of Rs. 20,000 out of the balance of accumulated income of Rs. 55,000 is invested as per section 11(2) then this additional amount of Rs. 20,000 of accumulated income will get excluded from the tax net as per section 11(2). (iv) The remaining balance of the accumulated income out of Rs. 55,000, that is, Rs. 35,000 if not invested as per sub-section (2) of section 11 will be added to the taxable income of the trust and will not....
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....and in case expenditure of the tax-payer trust is already more than its income which exhausted its income, then only first limb of Section 11(1)(a) shall come into play and second limb of Section 11(1)(a) can never be applied. This was the mandate of aforesaid decision of Hon‟ble Supreme Court in the case of ACIT v. A.L.N.Rao Charitable Trust(supra). Hon‟ble Bombay High Court in the case of Institute of Banking Personnel Selection(IBPS) (supra) has held that excess of expenditure incurred towards the objects of the trust over its income from property held for charitable purposes i.e. deficit/losses is to be carried forward to subsequent years to be set off against income/surplus of subsequent years. The Hon‟ble Bombay High Court never held that over and above excess of expenditure incurred towards objects of the trust over its income from property held for charitable purposes, there shall be an additional exemption allowed to the tune of 15% of income by way of accumulation of income . This decision of Hon‟ble Bombay High Court in the case of Institute of Banking Personnel Selection(IBPS) (supra) has been followed by Hon‟ble Bombay High Court in severa....
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....rust has already exceeded its income from property held for charitable purposes, by holding as under: "7. Having heard the rival submissions and from careful perusal of the record, we find that section 11 relates to the computation of income from property held for charitable or religious purposes. In order to support a claim for exemption of income under the provisions of this section, the following conditions must be satisfied; (1) The income must be derived from property; (2) Such a property should be held under trust or other legal obligations; (3) Such trust or legal obligations should be wholly for religious or charitable purposes; (4) Such income is applied or accumulated for the application to such religious or charitable purposes in India. 8. Unless the above conditions are fulfilled, the assessee cannot successfully claim exemption under section 11 of the Act. The exemption under this section is subject to the provisions of sections 60 to 63 of the Act which deals with the situations where income from estate is not liable to tax in the hands of the recipient of that income but in the hands of another person. We have als....
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....or religious purposes, to the extent to which such income is applied to such purposes in India, and where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of twenty-five per cent of the income from such property." 9. We have carefully examined the judgments referred to by the parties and we find that the judgments referred to before us were rendered on different issues and as such the ratio laid down therein cannot be applied to the present case. In the case of Programme for Community Organization (supra), the issue in dispute was with respect to the percentage of accumulation of income; whether it should be 25 per cent of the total income or 25 per cent of the balance amount/remainder after application of the income for charitable purposes of the trust. The facts of that case are that the assessee-trust received donations in the aggregate of Rs. 2,57,376. It applied for its charitable purposes the aggregate sum of Rs. 1,70,369 leaving a balance of Rs. 87,010. The dispute arose whether the assessee is entitled to accumulate 25 per cent of Rs. 2,57,376 or 25 ....
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....ars on the ground that in the case of a charitable trust, their income was assessable under self contained code mentioned in sections 11 to 13 of the Act and that the income of the charitable trust was not assessable under the head "Profits and gains of business" under section 28 of the Act under which the provision for carry forward of losses was relevant. Their Lordships did not agree with the revenue's contentions and have held that the 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 on 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 section 11 of the Act and that such adjustment will have to be excluded from the income of the trust under section 11(1)(a) of the Act. 12. The other judgments in the case of Bhoruka Welfare Trust (supra), Sheth Manilal Ranch....
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....ard of the excess expenditure incurred for charitable purposes to succeeding year for its set off against the income of the trust. This proposition of the assessee cannot be accepted as the exemption is to be allowed on application of the income of the assessee and not for its accumulation. The accumulation of 25 per cent of the total income is permissible when the assessee failed to apply the total income of the trust in a particular year. If the assessee applies the entire income of the trust he is entitled to claim 100 per cent exemption and there is no question of further accumulation of 25 per cent of the total income of the assessee. If the assessee incurs more expenditure than the total income of the trust the expenditure over and above to the income can be carried forward and is allowed to be set off against the income in succeeding year. In the instant case, the assessee has incurred expenditure or applied for charitable religious purposes Rs. 58,09,87,048 against the total income of Rs. 35,60,82,101. In this case, he is entitled to claim the carry forward of the excess expenditure but he will not be allowed to accumulate 25 per cent of the total income first and ....