TaxTMI 
TaxTMI 
2026 (6) TMI 1138
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....nditure in the years 2014-15 and 2015-16 (as a set of against a current income). 3. The learned CIT(Appeals), NFAC is not justified in holding that the surplus was not claimed in the Returns pertaining to the Assessment years 2015-16 and 2016-17. He should have seen the Returns, and the Annual Accounts filed by the Appellant clearly show the surplus capital expenditure incurred in those years. 4. The learned CIT(Appeals), NFAC should have seen that the Income Tax records relating to the earlier years sufficiently display the surplus expenditure and therefore CIT(Appeals), NFAC is incorrect in holding that there is no claim in the earlier years. The CIT(Appeals), NFAC should have appreciated that the Appellant has set off the amounts available as per Income Tax Returns as a set of and that no specific claim need be made in the Returns. 5. The learned CIT(Appeals), NFAC should have seen that the set off of the surplus expenditure in one year against income of a subsequent year is permissible in view of the several judicial pronouncements by several courts, including that Supreme Court in the Case of CIT vs Subros Educational Society. For these and ....
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....curred expenditure towards the acquisition of land during FY 2013-14 and FY 2014-15. The AO was of the view that since the aforesaid expenditure was not specifically claimed in the returns of the relevant preceding years and no claim of carry forward was therein made, the assessee trust was not entitled to seek adjustment of the same against the income of the year under consideration. Accordingly, the AO, vide his order passed under Section 143(3) of the Act, dated 11/12/2019, being guided by his aforesaid conviction, declined the claim of the assessee trust for adjustment of excess application/excess capital expenditure of Rs. 1,69,14,522/- pertaining to the earlier years and brought the same to tax. 4. Aggrieved, the assessee trust assailed the assessment order before the CIT(A). However, the CIT(A) observed that as the assessee trust had not claimed such excess application of income in its returns of the earlier years, it could not seek adjustment in the year under consideration, and affirmed the action of the AO. 5. The assessee trust, being aggrieved with the CIT(A) order, has carried the matter in appeal before us. 6. We have heard the Ld. Authorised Representatives ....
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....er under Section 143(3) of the Act, dated 11/12/2019. As is discernible from the aforesaid letter dated 06/06/2026, it is, inter alia, stated by the assessee trust that as the amount of accumulation was wrongly mentioned at the time of uploading "Form No. 10" as Rs. 35 lac instead of Rs. 1.70 crore, the same as approved by a resolution of the trustees dated 02/03/2017 was corrected by filing a revised "Form No. 10" on 06/11/2019. It is further stated in the aforesaid application that the revision was only for correcting the amount of accumulation, while the purpose of accumulation and the period of accumulation remained unchanged. 8. Per Contra, the learned Departmental Representative (for short, "DR") relied upon the orders of the lower authorities. 9. We have given thoughtful consideration to the contentions advanced by the Ld. Authorised Representatives for both parties in the backdrop of the orders of the authorities below. 10. As observed hereinabove, the assessee trust has assailed the confirmation of an addition of Rs. 1,69,14,522 representing excess application of income incurred in earlier years and claimed as set off against its income for the year under consider....
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....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 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 rel....
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....igh Court, as under: "Before answering the question referred to us, it would be worthwhile to note the scheme of section 11 of the Act. The relevant provisions which need to be examined are those contained in section 11(1)(a), section 11(2) and section 11(3) of the Act. The said provisions as they stood during the relevant assessment year were as under: "11. (1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income- (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;.... 11. (2) Where any income referred to in clause (a) or clause (b) of sub-section (1) read with the Explanation to that sub-section is not applied or is not deemed to have been applied to charitable or religious purposes in India during the previous year but is accumulated, or finally set apart, for application to such purposes in India, such income shall not be included in the total income of the previous year of the person in receipt of the income pro....
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.... to the extent to which such income is applied to such purposes in India is to be excluded for the purposes of computing the income of the trust for the purpose of assessment. There are no words of limitation in this section providing that the income should have been applied for charitable or religious purposes only in the year in which the income had arisen. The word "applied" means "to put to use" or "to turn to use" or "to make use" or "to put to practical use". Having regard to the provisions of section 11 of the Act, it is clear that when the income of a trust is used or put to use to meet the expenses incurred for religious or charitable purposes, it is applied for charitable or religious purposes. The said application of the income for charitable or religious purposes takes place in the year in which the income is adjusted to meet the expenses incurred for charitable or religious purposes. In other words, even if expenses for charitable and religious purposes have been incurred for the earlier year and the said expenses are adjusted against the income of a subsequent year, the income of that year can be said to have been applied for charitable and religious purposes in the y....
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....g the relevant assessment year in which the income was earned, cannot be accepted, as it would lead to an anomalous situation. If the trust takes a loan for the purposes of incurring expenses for charitable and religious purposes in a particular year and the said loan is repaid out of the income of the subsequent year, the said repayment would be entitled to exemption from tax under section 11(1)(a) of the Act in view of the circular above referred to. But, if the trust instead of taking a loan incurs expenses for charitable and religious purposes out of the corpus of the trust and seeks to reimburse the said amount out of the income of the subsequent year, the trust would not be entitled to claim exemption in respect of such reimbursement under section 11(1)(a) of the Act if the contention advanced by the Revenue is accepted. The construction which leads to such an anomaly has got to be avoided. There is nothing in the language of section 11(1)(a) of the Act to indicate that the expenditure incurred in the earlier year cannot be met out of the income of the subsequent year or that utilization of such income for meeting the expenditure of the earlier year, would not amount to such ....
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.... the taxable income of the latter assessment year. Viewing the question from a different angle also, we are of the opinion that the claim made by the assessee was well-founded. In the case of CIT v. Ganga Charity Trust Fund [1986] 162 ITR 612, this court considered the question as to whether deduction of income-tax liability must be taken as an outgoing before the surplus could be ascertained in order to give meaning to the expression "income". The court also considered the question as to whether for the purpose of determining the income or surplus available to the trust for the purpose of application of its income towards charitable or religious objects, the surplus realised or available on commercial principles should be taken into consideration or not. After reviewing the case law on the subject, it has been held that income derived from the trust property must be determined on commercial principles and in doing so, all outgoings including outgoings by way of income-tax paid by the assessee-trust must be deducted and it is only from the surplus income in the hands of the trustees that the question of application or accumulation or setting apart of income arises. While h....
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....l have to be excluded from the income of the trust under section 11(1)(a) of the Act. In view of the above discussion, we are of the opinion that, on the facts and in the circumstances of the case, the assessee is entitled to carry forward expenses for set off in the subsequent year. The question referred to us is, therefore, answered in the affirmative, i.e., in favour of the assessee and against the Revenue." 12. Ostensibly, the authorities below have not disputed the actual incurring of capital expenditure by the assessee trust in the earlier years. Rather, the sole reason for the denial of the claim is that the assessee trust had not specifically claimed the excess application of income incurred in its returns of the preceding years. In our considered view, the view taken by both the authorities below cannot be sustained. We say so, for the reason that the adjustment of excess application of income in the preceding years does not arise from any statutory carry forward mechanism akin to Section 72 to Section 74 of the Act, but the said entitlement flows from the interpretation of Section 11 itself. We are of the firm conviction that once the excess application of inc....