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2019 (2) TMI 1133

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....f 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. However, on this issue the department has filed SLPs in other ca....

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....it 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 of the year. How can loss be carried forward in respect of income that is not taxable. Section 10A(6) and 10AA(8) of I.T. Act do not allow carry forward of....

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....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 amount which is permitted to be accumulated under section 11(1)(a). Thus, donation of shares purchased out of accumulated income of earlier year will not amount to application of income for the year of....

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....e 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 verification of details furnished, total income of the assessee is being worked as under :   Gross Income as per computation 18,77,28 122 Less: 15% accumulation u/s.11l(l)(a) 2,81,59,218     15,95,68,904 Less: Expenditure on the objects....

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....fits 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 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 (Guj). Accordingly, we answer question....

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.... 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 application or not. Reliance has been placed on the judgments of the jurisdictional high and the Supreme Court as well as the decision of coordinate bench of Tribunal in assessee's own case. We have carefully gone through the judgments cited. In case of CIT Vs. Programme for Community Organization (Supra) , the issue before the Hon'ble Supreme Court was whether accumulation ....

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....solute 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 investment in Government Securities and bonds was only in relation to any accumulation beyond the accumulation of 25% or 10 thousand whichever was more as provided in section 11(1)(a). It was thus held that in so far as accumulation of 25% of income i.e. Rs. 10,378/- was concerned, conditions for investment in Government securities were not required to be fulfilled as this exemption was unqualified and u....

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....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 spent by the assessee. We accordingly confirm the order of CIT (A) disallowing the claim of the assessee. 7.4 In the case of Dawat Institute of Dawoodi Bohra Community 116 TTJ Mum 673, the only ground taken by the assessee was that the CIT(A) have erred in upholding the AO's order of not allowing statutory deduction at 25 percent of the gross total income even though the same was legitimate claim of accumulation o....

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.... 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 restore the matter to the file of the AO with a direction to allow the carry forward of the excess expenditure incurred by the assessee to subsequent year for its set off only in terms indicated above." 7.5 In the case of ITO(E)-II(1) vs Lakshmi and Usha Mittal (Formerly known as The LNM Foundation), the question raised by the Department before the Hon. ITAT A Bench Mumbai in ITA No. 5383/Mum/2011 for the AY 2005-06 were as follows:....

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....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 and have perused material placed before us. We find that 'A' Bench of ITAT, Mumbai vide its order did. 13-052009 (ITA No. 170/M/08 AY 2003-04) has decided the same issue vide para No. 3 of its order as under: Lakshmi and Usha Mittal (Formerly known as The LNM Foundation) "We have heard both the parties, peruse the records and considered the matter carefully. The issue whether deficit in the income and expenditure in case of charitable institutions can be carried forward to subsequen....

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....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‟ allowed by the AO to be carried forward to subsequent years to be set off against surplus/income of subsequent years, while on the other hand the assessee being aggrieved by decision of learned CIT(A) in denying accumulation of 15% of income as provided u/s 11(1)(a) despite having left with no surplus after setting off expenditure incurred with income for the impugned assessment year , has filed C.O. against the disallowance of its claim of accumulation of 15% of income as is provided u/s 11(1)(a) despite having no surplus during th....

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.... 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, Educational Literary, Medical, Industrial, Charitable, Social and other activities. The trust claim to be engaged in charitable activities in the field of advancement of the Methodist Church in India by means of Evangelistic, Educational Literacy, Medical, Industrial, Charitable, Social and other activities. We have observed that the assessee has an income of Rs. 18,77,28,122/- and the expenditure incurred by the assessee on the objects and application of income was to the tune of Rs. 24,01,21,742/- and thus the excess of expenditure over income....

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....cation 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 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 ....

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....s 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 carry forward of the excess of expenditure of earlier years to be adjusted against income of subse....

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....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 against the Revenue and in favour of the Respondent-Assessee by the decision of this Court in CIT v/s. Institute of Banking 264 ITR 110. 4 In view of the above, the questions as proposed do not give rise to any substantial questions of law. Thus, not entertained. 5 Accordingly, Appeal dismissed. No order as to costs." Further , we have also observed that Hon'ble Bombay High Court in the case of DIT (Exemptions) v. Aditya Birla Foundation in ITA no. 1497 of 2014 vide judgment dated 06.03.2017 has again decided the issue concerning carried forward of deficit in favour of the assessee. The substantial question of law before the H....

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....enue 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 find that the Hon'ble Bombay High Court subsequent to the decision in the case of Institute of Banking Personnel Selection (supra) considered a similar argument of the Revenue in the case of M/s. Mumbai Education Trust, ITA No. 11/2014 dated 3.5.2016 and allowed the claim of the assessee. In fact, the Grounds of appeal urged by the Revenue before the Hon'ble High Court, which read as under :- "(a) Whether on the facts and in the circumstance of the case and in law, the Tribunal was justified in confirming the order of the CIT(A) to allow the claim of depreciation relying on the decision of this Court in the case of CIT v/s. Institute of Banking Personnel Services reported in 264 ITR 110 (Bom) ignoring the ratio of Hon&....

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....orward 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 Bombay High Court in CIT vs. Institute of Banking Personnel Selection (IBPS)(supra). We have seen that Ld. CIT(A) while allowing the appeal of the assessee made the followed observations: "I have carefully considered the submissions of the appellant, assessment order and facts of the case. I find that the appellant's claim of setting off the excess of income over expenditure against the deficit of earlier year is correct in view of the decision of Hon'ble Rajasthan High Court in the case of CIT v/s Maharashtra of Mewar Charitable Foundation (1987) 60 CTR (Raj) 40 : (1987) 164 ITR 439 (Raj) which was followed in CIT vs. Shri Plot Swetamber Murti Pujak Jain Mandal 211 ITR 293 (Guj.). Therefore, this ground of appeal is allowed." 4. We have gone through the decisio....

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....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 that the assessee is claimed for setting off of excess income over expenditure against the deficit of earlier years is correct. In view of the above observation, we do not find any illegality or infirmity in the order passed by DIT." We have also observed that Hon'ble Bombay High court has dismissed the appeal of the Revenue in DIT(E) v. Gem & Jewellery Exports Promotion Council in ITA(LOD) No. 1113 of 2010 vide judgment dated 15.02.2011 by following the decision of Hon'ble Bombay High Court in the case of CIT v. Institute of Banking Personnel Selection(IBPS) (supra) on the issue of set off of deficit of earlier years against surplus of the impugned assessment year. The Revenue filed an SLP with Hon'ble Supreme Court which was dismissed by Hon'ble Apex Court vide orders dated 09.09.2011 in SLP(Ci....

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....rs? 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 appellant and also discussed the case with the AR of the appellant. The contentions and submissions of the appellant being discussed and decided here in under: i. During the appellate proceedings it was submitted that the issue is squarely covered by the judgment of Hon'ble Bombay High Court in the case of CIT Vs. Institute of banking personnel (supra). It was also stated that the judgment of Hon'ble Bombay Court is binding on all authorities under its jurisdiction. The other objections raised by the AO have also been dealt with by the appellant in its submissions as referred above. ii. I agree with the contention of the appellant that the issue is covered by the judgment of Hon'ble Bombay High Court in the case of CIT Vs. Institute of Banking Personnel, 264 ITR 110. Respectfully following the judgment of Hon'ble jur....

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.... 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 since the Ld. CIT(A) has passed the impugned order following the judgment of the Hon'ble High Court rendered in CIT Vs. Institute of Banking Personnel (supra) we do not find any infirmity in the order passed by the Ld. CIT(A). We, therefore, uphold the findings of the Ld. CIT(A) and dismiss all the grounds of appeal of the revenue. In the result, appeal filed by the revenue for assessment year 2010-2011 is dismissed" Thus, Respectfully following the decision of Hon‟ble Bombay High Court in the case of Institute of Banking Personal Services(IBPS) and decision of tribunal in assessee‟s own case, we allow carry forward of excess of expenditure over income of the assessee trust of Rs. 5,23,93,620/- being deficit/loss of the impugned assessment year to be carried forward to subsequent years to be allowed to be set off against surplus of subsequent years . We donot fi....

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.... 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." 5.From the plain reading of section 11(1)(a)of the Act it is clear that in case of wholly charitable religious Trust, if the income is to be accumulated for application to the Trust purposes in India, it may be accumulated to the extent of 15% of the income of the Trust. The income contemplated by this provision is the real income and not the income as assessed or as assessable.In view of this provision, we are of the view that if the accounts of the assessee trust are properly maintained according to the principle of accountancy, the accumulation shall be up to 15% of the gross income as per accounts and not appearing as assessment order. We find that even CBDT has recognized this position in view of statutory language of section 11(1)(a)of the Act and also circular issued No. 5-P dated 19-06-1968, wherein it is held that th....

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....equently, 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 and to the judgment(s) of Hon‟ble Supreme Court in the case of CIT v Programme for Community Organisation(2001) 248 ITR 1(Sc) and ACIT v. A.L.N. Rao Charitable Trust (1995) 216 ITR 697(SC). Perusal of CBDT Circular No. 5-P dated 19.06.1968 reveals that it stipulates that the deduction u/s 11(1)(a) will be computed with reference to income of charitable organisation and not in context of total income as defined u/s 2(45) of the 1961 Act as is computed under the 1961 Act. The said circular is reproduced hereunder: "CIRCULAR : NO. 5-P(LXX-6) of 1968, DATED 19-6-1968 1. In Board's Circular No. 2-P(LXX-5), dated 15-5-1963, it was explained that a religious or charitable trust, claiming exemption under section 11(1), must spend at least 75 per cent of its total income for religious or charitable purposes. In other words, it was not permitted to accumulate more than 25 per cent of its total income. The question has be....

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....ses 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 above CBDT circular clarifies that for claiming exemption u/s 11(1)(a) , it is the „income‟ of the assessee which is relevant and not the „total income‟ as defined u/s 2(45) of the 1961 Act. It further provides that for business undertaking, held under trust, the income as is recorded in the books of the undertaking shall be relevant. This is not the issue before us rather the issue before us is that whether in case of deficit/losses wherein expenditure incurred by the assessee towards its objects has already exceeded its income , whether further exemption by relying on provisions of second limb of Section 11(1)(a) of the 1961 Act can still be claimed. Further , the said decision of tribunal in Lalji Velji Charitable Trust(supra) relied upon decision of Hon‟ble Supreme Court in the case of CIT v Programme for Community Organisation(supra), which judgment of Hon‟ble Supreme Court is reproduced hereunder: "1. The questions that wer....

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....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 Rs. 2,57,376, would constitute its property and it is entitled to accumulate twenty-five per cent thereout. It is unclear on what basis the revenue contended that it was entitled to accumulate only twenty-five per cent of Rs. 87,010. 5. For the aforesaid reasons, the civil appeal is dismissed. 6. No order as to costs." The Question before Hon‟ble Supreme Court in the above case of CIT v Programme for Community Organisation(supra) was whether accumulation of income as is provided u/s 11(1)(a) shall be 25% of the income of the trust or 25% of the income computed under 1961 Act for assessment purposes. The Hon‟ble Supreme Court held that accumulation of income shall be allowed u/s 11(1)(a) to the tune of 25% of the „income‟ of the trust and not on „total income‟ as is computed for assessment of income-tax which is referred to in provisions of Section 2(45) of the 1961 Act. This is not the issue before us rather the issue before us is that whether in case of deficit/losses wherein expenditure in....

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....lated or set apart is invested in any Government security as defined in clause (2) of section 2 of the Public Debt Act, 1944 (XVIII of 1944), or in any other security which may be approved by the Central Government in this behalf." Section 11 underwent an amendment by the Taxation Laws (Amendment) Act, 1975. As we are not concerned with these amended provisions in the present case, we need not dilate on them. 11. A mere look at section 11(1)( a), as it stood at the relevant time, clearly shows that out of total income accruing to a trust in the previous year from property held by it wholly for charitable or religious purpose, to the extent the income is applied for such religious or charitable purpose, the same will get out of the tax net but so far as the income which is not so applied during the previous 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 suc....

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....mulated income in Government securities, etc., namely, 100 per cent of the accumulated income and not only 75 per cent thereof. And if that is not done then only the invested accumulated income to the extent of 75 per cent will get excluded from income tax assessment. But so far the remaining 25 per cent of the accumulated income is concerned, it will not earn such exemption. It is difficult to appreciate this contention. The reason is obvious. Section 11(1)(a) operates on its own. By its operation two types of income earned by the trust during the previous year from its properties are given exemption from incometax, (i) that part of the income of previous year which is actually spent for charitable or religious purposes in that year; and (ii) out of the 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 deal....

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....y accumulated income of the previous year is left to be dealt with and to be considered for the purpose of income-tax exemption, subsection (2) of section 11 can be pressed in service and if it is complied with then such additional accumulated income beyond 25 per cent or Rs. 10,000, whichever is higher, can also earn exemption from income-tax on compliance with the conditions laid down by sub-section (2) of section 11. It is true that sub-section (2) of section 11 has not clearly mentioned the extent of the accumulated income which is to be invested. But on a conjoint reading of the aforesaid two provisions of sections 11(1) and 11(2) this is the only result which can follow. It is also to be kept in view that under the earlier Indian Income-tax Act, 1922 exemption was available to charitable trusts without any restriction upon the accumulated income. There was a change in this respect under the Act. Under the Act, any income accumulated in excess of 25 per cent or Rs. 10,000, whichever is higher, is taxable under section 11(1)(a) 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 ....

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.... the trust and will not get exempted from the tax net. (v) If on the other hand the entire remaining accumulated income of Rs. 55,000 is wholly invested as per section 11(2) the said entire amount of Rs. 55,000 will get exempted from the tax net. 13. We may also at this stage mention that the Kerala High Court in H.H. Marthanda Varma Elayaraja of Travancore Trust's case (supra ), the Madhya Pradesh High Court in Mohanlal Hargovinddas Public Charitable Trust's case (supra) , the Bombay High Court in Trustees of Bhat Family Research Foundation's case (supra) and the Madras High Court in C.M. Kothari Charitable Trust's case (supra) have taken the same view as the Karnataka High Court in the present case. We approve the view taken in the aforesaid decisions. We also approve the similar view taken by the Jammu & Kashmir High Court in Shri Krishen Chand Charitable Trust's case (supra) . The learned counsel for the revenue, therefore, has made out no case for our interference with the decision rendered by the Division Bench of the Karnataka High Court. 14. In the result, this appeal fails and is dismissed. However, in the facts and circumstances of the case, ther....

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....other cases . These judgments of Hon‟ble Bombay High Court in other cases has been referred in the order of the tribunal in the case of ITO v. Kaivalya Education Foundation in ITA No. 5575/Mum/2017 vide orders dated 08th February 2019 wherein one of us(Accountant Members) was part of the DB adjudicating that appeal and the operative part of the order is reproduced in preceding para‟s of this order. The SLP filed by Revenue with Hon‟ble Supreme Court challenging decision of Hon‟ble Bombay High Court in the case of DIT (Exemption) vs. M/s. Gem & Jewellery Exports Promotion Council (ITA (LOD) No. 1133 of 2010) dated 15.02.2011 has also been dismissed by the Hon'ble Supreme Court in CC 13512/2011 vide orders dated 09.09.2011. Similarly SLP filed by Revenue in the case of MIDC(supra) has been dismissed by Hon‟ble Supreme Court vide orders dated 13.12.2017, in CA No. 009813/2014 registered on 13.10.2014 in SLP(C) no. 009891/2014 in DIT v. MIDC.MIDC(supra) . None of the judgments of Hon‟ble Bombay High Court held that 15% accumulation of income as provided under second limb of Section 11(1)(a) shall be in addition to excess of expenditure over incom....

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....ection 11 and the controversy involved before us and we find that clause (a) of sub-section (1) of section 11 deals with the exemption of income in two situations; (1) where the income derived from such property is applied to the purposes of the trust in India, the entire income shall be exempted or shall not be included in the total income of the previous year of the person in receipt of the income (2) where the entire income derived from the property could not be applied for the purposes of the trust but such income is accumulated or set apart to the extent of 25 per cent of such income for application to such purposes, the said accumulated or set apart income shall not be included in the total income of the previous year. The total limit of exemption is 100 per cent of the income derived from the property. It has not been mentioned anywhere in this clause that first of all 25 per cent of the total income is to be accumulated or set apart for application to the purposes of the trust in India in succeeding year and then the remaining income is to be applied for such purposes and in case the application of income is more than the remaining income, i.e., 75 per cent of the total inc....

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.... that the charitable or religious trust is entitled to accumulate 25 per cent of its income derived from the property held under the trust. Their Lordships further held that for the present purposes, the donations, the assessee received in a sum of Rs. 2,57,376 would constitute its property and is entitled to accumulate 25 per cent thereof. 10. In Board's Circular No. 2-P(LXX05) dated 15-5-1963 it was explained that the religious or charitable trust, claiming exemption under section 11(1) must spend at least 75 per cent of its total income for religious or charitable purposes. In other words, it was not permitted to accumulate more than 25 per cent of the total income. The total income of the trust for the purposes of section 11(1) was explained by the Board by another Circular No. 5-P(LXX-6) of 1968 dated 19-6-1968. 11. In the case of Munisuvrat Jain (supra) the issue arose with regard to the allowability of depreciation under section 32 of the Act and Their Lordships of the Bombay High Court have held that in such type of cases, section 32 of the Act providing for depreciation for computation of income derived from business or profession in respect of assets specified the....

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....the claim of depreciation while computing the income of charitable institutions. The issue in dispute is entirely different, and as such these judgments cannot be applied to the present case. The other judgment in the case of Birla Janahit Trust (supra) is also rendered in different context holding therein that the expenditure on salary and miscellaneous expenditure for the purposes of carrying out the object or purposes of the trust must be considered as application for charitable purposes. Likewise, the other judgments referred to by the assessee are also rendered in different context. None of the judgments referred to by the assessee is on the issue in dispute. 13. The issue in dispute is whether the assessee is entitled to first accumulate or set apart 25 per cent of the total income of the trust and then claims a carry forward of the excess amount, incurred on application for purposes of the trust, over and above the remaining income, i.e., 75 per cent of the total income for its set off against the income of the trust in succeeding year. The carving of the funds to the extent of 25 per cent of the total income is hypothetical situation and it was not envisaged by the Legisl....

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.... and restore the matter to the file of the Assessing Officer with a direction to allow the carry forward of the excess expenditure incurred by the assessee to subsequent year for its set off only in terms indicated above. 14. In the result, the appeal of the assessee is partly allowed for statistical purposes in the manner as indicated above." The Ld. CIT(A) has also relied upon while deciding this issue in favour of Revenue on the decision of tribunal in ITA no. 5383/Mum/2011 in ITO(E) v. Lakshmi and Usha Mittal (Formerly known as The LNM Foundation) , dated 23.10.2012 wherein tribunal held as under: "4........We have heard the rival submissions and have perused material placed before us. We find that ‗A' Bench of ITAT, Mumbai vide its order dtd.13-05-2009 (ITA No. 170/M/08 AY 2003-04) has decided the same issue vide para No.3 of its order as under: "We have heard both the parties, peruse the records and considered the matter carefully. The issue whether deficit in the income and expenditure in case of charitable institutions can be carried forward to subsequent year and adjusted towards application of income has been decided by the Jurisdictional high Court in the ca....