AI Drafter 
TaxTMI 
TaxTMI 
2019 (3) TMI 386
X X X X Extracts X X X X
X X X X Extracts X X X X
.... on the facts of the case and in law, the Ld. CIT(A) erred in allowing the carry forward of deficit of Rs. 14,30,11,390/-, and directing 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 was legally not permissible.? 1.2 Whether, on the facts of the case and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the claim of the assessee 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 cases before the Apex Court inclusive the cas....
X X X X Extracts X X X X
X X X X Extracts X X X X
....efore Ld. CIT(A) that assessee is not entitled to deduction/accumulation of 15% of the income u/s. 11(1)(a) of the Act to the tune of Rs. 1,26,43,953/- owing to the fact that assessee's expenditure has already exceeded its income by Rs. 14,30,11,390/- and this claim was foregone by the assessee itself before learned CIT(A). Thus, this claim of the assessee as to accumulation/ deduction of 15% of income u/s 11(1)(a) of the 1961 Act despite having deficit was rejected by learned CIT(A) as the assessee itself conceded by withdrawing this claim on the grounds that its expenditure had already exceeded its income by Rs. 14,30,11,390/-. Thus, learned CIT(A) was then required to adjudicate only one grievances of the assessee which is concerning carry forward of deficit being excess of expenditure over income of Rs. 14,30,11,390/- of the impugned assessment year to be carried forward to subsequent years to be set off against income/surplus of subsequent years which stood allowed by Ld. CIT(A), vide appellate order dated 13.09.2017, by holding as under:- "5.1 I have considered the facts the case and the submissions made by the assesses. I find that this issue is covered in favour of the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 No, 3 in the affirmative i.e., in favour of the assesses and against the department." 5.1.2 In the Director of Income-tax (Exemption) vs. M/s, Gem & Jewellery Exports Promotion Council, Income Tax Appeal (LOD) No. 1113 of 2010 dated 15th February 2011, one of the two questions raised by the Department before the Hon. Bombay High Court was "Whether on the facts and circumstances of the case and in law the Tribunal was right in directing the A.O. to set off the deficit of earlier years to the surplus of this year and consider such adjustment as application of income for charitable purpose". The Hon. High Court held as follows:- "4. As regards second question is concerned, counsel on both sides agree that....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he assessee is partly allowed. 6**** 6.1 In his written submission, the learned AR has further stated that if the appellant trust succeeds on alternate grounds of appeal, the ground relating to reopening of assessment may become inconsequential. Since, the assessee has not pressed the ground relating to the statutory deduction of 15% u/s 11(1)(a) of the IT. Act, 1961 and has succeeded in respect of the ground relating to the carry forward of the deficit of the current year to subsequent years, the ground relating to the reopening of the assessment has become inconsequential. The same is, therefore, treated as dismissed. 5. The Revenue is now aggrieved by the relief granted by Ld. CIT(A) to the assessee and has now come in appeal before the tribunal. The Ld. CIT-DR fairly relied upon assessment order passed by the AO and grounds of appeal raised by Revenue before the tribunal, while on the other hand Ld. AR vehemently argued that the deficit of Rs. 14,30,11,390/- being excess of expenditure over income be allowed to be carried forward to the subsequent assessment years to be set off against income/surplus of the subsequent assessment years u/s. 11(1)(a) of the Act, keeping ....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., which claim was also rejected by the AO . The assessee however itself withdrew this claim of accumulation/deduction of 15% of income u/s 11(1)(a) despite having deficit before learned CIT(A) keeping in view several judicial decisions against the tax-payers on this issue. The learned CIT(A) was however pleased to allow carry forward of excess of expenditure over income being deficit of Rs. 14,30,11,390/- for the impugned assessment year to be carried forward to subsequent years to be set off against income of subsequent years. We have observed that the short question which has arisen in this appeal filed by the Revenue before the tribunal is whether the assessee is entitled for carried forward of excess of expenditure over income being deficit of Rs. 14,30,11,319/-to the subsequent years to be set off against income/surplus of subsequent years. In our considered view, the said deficit of Rs. 14,30,11,319/-being excess of expenditure over income for the impugned assessment year has to be allowed to the assessee to be carried forward to subsequent years to be set off against income/surplus of the subsequent years, keeping in view of decision of the Hon'ble Bombay High Court in the c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ffirmative i.e., in favour of the assessee and against the Department." 6.2 We have also observed that Mumbai-tribunal in the case of The Executive Board of the Methodist Church in India in ITA no. 6544/Mum/2017 vide order dated 13.02.2019 ( wherein Accountant Member was part of the Division Bench pronouncing the order) has elaborately discussed this issue and held in favour of the assessee so far as carry forward of excess of expenditure over income i.e. deficit to be carried forward to subsequent years and to be set off against income/surplus of subsequent years, by holding as under:- "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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 carry forward of the excess of expenditure of earlier years to be adjusted against in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d 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 to be set off against the surplus of the subsequent years on the ground that in the case of a Char....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 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. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....issed 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 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 t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....artment 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 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 f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rlier 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 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 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 proceed....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mmercial 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 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. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ligious 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 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 19.06.196....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g 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 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....,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 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 appe....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 Income-tax 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 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 charit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eby 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 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 fr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ttered 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 sub-section (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 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 provisio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rty 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 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'....
X X X X Extracts X X X X
X X X X Extracts X X X X
....itable 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 several 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) N....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s 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 also carefully examined the provisions of sub-section (1)(a) of section 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 ext....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion (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 per cent of the balance amount of Rs. 87,010. The Apex Court has categorically held 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r 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 Ranchhoddas Vishram Bhavan Trust (supra) and Society of the Sisters of St. Anne (supra) are rendered with regard to 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 judgm....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 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 an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e as is provided under second limb of Section 11(1)(a) of the 1961 Act as its expenditure towards the objects of the trust has already exceeded its income from property held for charitable purposes. However, as provided by Hon'ble Bombay High Court in the case of Institute of Banking Personnel Selection(IBPS)(supra), the assessee will be entitled for carry forward of excess of expenditure incurred towards objects of the trust in excess of income from property held for charitable purposes , as is allowable as provided under first limb of provisions of Section 11(1)(a). Both Revenue appeal as well assessee's CO stood dismissed. We order accordingly. 11. In the Result, appeal of the Revenue in ITA no. 6544/Mum/2017 and CO No.354/Mum/2018 filed by the assessee for the impugned assessment year 2012-13stood dismissed." 6.3 The appeal of the Revenue and also CO filed by the tax payer was dismissed by the tribunal in the case of The Executive Board of the Methodist Church(supra), wherein tribunal allowed excess of the expenditure incurred towards the objects of the trust over income from property held for charitable purposes being deficit to be carried forward to subsequent yea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rward of losses for AY 2005-06. I see that the facts and the grounds are the same in the current year as were in AY 2008-2009. 4.4. Further, in view of the judgment of the jurisdictional High Court in the case of CIT vs. Institute of Banking (2003) 204 ITR 110 (Bom) cited by the appellant, in my opinion, the appellant deserves to succeed in regard to this ground of appeal. Accordingly, I hold that the AO was wrong in disallowing the set-off of brought forward deficit of earlier years against the current year's surplus of Rs. 65,41,073/-. The AO is directed to allow the same." 11. It is a settled issue that any surplus amount of the current year can be set-off against the brought forward deficit of the earlier years and the same view was even supported by the Hon'ble jurisdictional High Court vide its judgment in the case of CIT vs. Institute of Banking (supra). Considering the same, I am of the opinion that the CIT (A) has rightly adjudicated the issue by granting relief to the assessee. Therefore, the CIT (A)'s decision is fair and reasonable and it does not call for any interference. Accordingly, Ground no. 3 to 5 raised by the Revenue are dismissed." 6.4 We have a....