In case of charitable trust, excess expenditure incurred in earlier years can be set off against the income of subsequent year

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In case of charitable trust, excess expenditure incurred in earlier years can be set off against the income of subsequent year

Short Overview : Excess expenditure incurred in earlier years by assessee-trust would be allowable to set off against the income of subsequent year.

During the year under consideration, assessee-public charitable trust claimed set off of deficits on earlier assessment year. AO while passing the assessment order under section 143(3) disallowed carried forward deficit for being set off. However, CIT(A) allowed carry forward of excess expenses over next years. Aggrieved by the order of CIT(A), the Revenue was in appeal.

 it is held that  The High Court in the case ofCIT v. Shri Plot Shwetamber Murti Pujak Jain Mandal (1995) 211 ITR 293 (Guj): 1995 TaxPub (DT) 0204 (Guj-HC) held that there is nothing in the language of section 11(1)(a) to indicate that the income from trust property should have been applied for charitable or religious trusts only in the year in which such income has arisen. The expenditure incurred in the earlier year could be met out of the income of the subsequent year and utilization of such income for meeting the expenditure of the earlier year would amount to such income being applied for charitable or religious trusts. The High Court further held that income derived from trust property has to be computed on commercial principles and consequently deficit arising out of expenditure over income for the previous year should, therefore, be set off against surplus of income over expenditure relating to the subsequent year. Hence, the CIT(A) was correct in allowing carry forward of excess expenses over next years and as such the order of the CIT(A) was upheld.

Decision: In assessee’s favour.

Followed: CIT v. Shri Plot Shwetamber Murti Pujak Jain Mandal (1995) 211 ITR 293 (Guj): 1995 TaxPub (DT) 0204 (Guj-HC).

Referred: CIT v. Maharana of Mewar Charitable Foundation (1987) 164 ITR 439 (Raj): 1987 TaxPub (DT) 0670 (Raj-HC), CIT v. Matriseva Trust (2000) 242 ITR 20 (Mad): 2000 TaxPub (DT) 0571 (Mad-HC) and CIT (Exemption) v. Subros Education Society (2018) 303 CTR 1 (SC): 2018 TaxPub (DT) 3810 (SC).

IN THE ITAT, AHMEDABAD “A” BENCH

RAJPAL YADAV, J.M. & PRADIP KUMAR KEDIA, A.M.

Dy. CIT v. Shree Bhartimaiya Memorial Foundation

I.T.A. No. 2619/Ahd/2017

A.Y. 2013-14

29 May, 2019

Appellant by: S.K. Dev, Sr. D.R.

Respondent by: Hardik Vora, A.R.

ORDER

Pradip Kumar Kedia, A.M.

The captioned appeal has been filed at the instance of the Revenue against the order of the Commissioner (Appeals)-9, Ahmedabad, (‘CIT (A)’ in short), dated 19-9-2017 arising in the assessment Order, dated 30-3-2016 passed by the assessing officer (AO) under section 143(3) of the Income Tax Act, 1961 (the Act) concerning assessment year 2013-14.

2. The ground of appeal raised by Revenue reads as under :–

“1. The learned Commissioner (Appeals) has erred in the law and on facts in allowing carry forward excess expenditure for future years against its future income in absence of any express provision in the Act regarding the same.”

3. The assessee is a public charitable trust and has been granted registration under section 12A(a) of the Income Tax Act. During the year under consideration, the assessee trust has claimed set off of deficits on earlier year assessment year 2009-10 to the extent of Rs. 1,21,07,908. The assessing officer while passing the assessment order under section 143(3) of the Act disallowed carried forward deficit for being set off.

4. In the first appeal against the aforesaid action of the assessing officer, the Commissioner (Appeals) allowed carry forward of excess expenses over next years.

5. Aggrieved by the order of the Commissioner (Appeals), the Revenue is in appeal before the Tribunal.

6. The learned DR for the Revenue relied upon the order of the assessing officer while the learned AR for the assessee relied upon the order of the Commissioner (Appeals) as well as various judicial pronouncements in this regard.

7. We have carefully considered the rival submissions. The solitary question that arises for adjudication whether the trust has incurred deficit due to excess spending on the object of the trust during the particular year and whether excess expenditure incurred in earlier years by the trust could be allowed to be set off against the income of subsequent year by invoking section 11 of the Act. The issue is no longer res integra. The Hon’ble Gujarat High Court in CIT v. Shri Plot Shwetamber Murti Pujak Jain Mandal (1995) 211 ITR 293 (Guj) : 1995 TaxPub(DT) 0204 (Guj-HC) has rendered decision favourable to the assessee on the very issue. The Hon’ble Gujarat High Court has held that there is nothing in the language of section 11(1)(a) of the Act to indicate that the income from trust property should have been applied for charitable or religious trusts only in the year in which such income has arisen. The expenditure incurred in the earlier year can be met out of the income of the subsequent year and utilization of such income for meeting the expenditure of the earlier year would amount to such income being applied for charitable or religious trusts. The Hon’ble Gujarat High Court further held that income derived from Trust property has to be computed on commercial principles and consequently deficit arising out of expenditure over income for the previous year should, therefore, be set off against surplus of income over expenditure relating to the subsequent year. Similar view has been expressed in CIT v. Maharana of Mewar Charitable Foundation (1987) 164 ITR 439 (Raj) : 1987 TaxPub(DT) 0670 (Raj-HC) and CIT v. Matriseva Trust (2000) 242 ITR 20 (Mad) : 2000 TaxPub(DT) 0571 (Mad-HC). Whatever little controversy might be existing has been put to rest by the recent decision of the Hon’ble Supreme Court in the case of CIT(Exemption) v. Subros Education Society (2018) 303 CTR 1 (SC) : 2018 TaxPub(DT) 3810 (SC). Hence, the Commissioner (Appeals) in our view has correctly applied the law as evolved by the judicial precedents. In the absence of any infirmity in the order of the Commissioner (Appeals), we decline to interfere therewith.

8. In the result, the appeal filed by the Revenue is dismissed.

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