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Income Tax Appellate Tribunal - Bangalore

Income Tax Officer(Exemptions) Ward-1 ... vs M/S Namma Sangha , Chamarajanagar on 24 September, 2018

             IN THE INCOME TAX APPELLATE TRIBUNAL
                      "A" BENCH : BANGALORE


        BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER
         AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER


                        ITA No.1562/Bang/2018
                       Assessment year : 2012-13


The Income Tax Officer,         Vs.     M/s. Namma Sangha,
Ward 1,                                 Bandipura Grama,
Mysore.                                 Gundlupet Taluk,
                                        Chamarajanagar - 571 126.
                                        PAN: AAAAN 3295R
        APPELLANT                               RESPONDENT


Appellant by  : Shri Siddappaji R.N., Addl.CIT(DR)(ITAT), Bengaluru.
Respondent by : None


               Date of hearing       : 05.09.2018
               Date of Pronouncement : 24.09.2018


                               ORDER


  Per N.V. Vasudevan, Judicial Member

This is an appeal by the Revenue against the order dated 13.10.2017 of the CIT(Appeals), Mysore relating to assessment year 2012-13.

2. The only issue that arises for consideration in this appeal which is projected by the Revenue in grounds of appeal, is as to whether the CIT(Appeals) was justified in holding that assessee, a trust, is entitled to claim set off of brought forward expenses of Rs.1,78,15,835 and carry forward of current year expenditure of Rs.1,30,33,485/-incurred in excess of its income for setting off against income of the succeeding years and claim it as application of income in the succeeding years?

3. The assessee is a trust registered u/s. 12A of the Act. For the A.Y. 2012-13, the assessee filed a return of income claiming set off of brought forward expenses of Rs.1,78,15,835 and carry forward of current year expenditure of Rs.1,30,33,485/- incurred in excess of its income for setting off against income of the succeeding years and claim it as application of income in the succeeding years. According to the AO, there was no provision in the Act for carry forward of excess expenditure of earlier year to be adjusted against income of the subsequent year and he therefore denied the claim of the Assessee.

4. On appeal by the assessee, the CIT(A) allowed the claim of the Assessee, but he worked out the actual quantum of carry forward that has to be allowed at Rs.1,80,96,580/-. The following were the relevant findings of the CIT(A) in this regard:-

"3. ................................................ The third ground of appeal pertains to the appellant's claim both for bringing forward the amount of excess of expenditure over application made in the earlier years besides the appellant's claim for the excess of expenditure of the current year to be carried over. This issue is covered in favour of the appellant vide the decision of the Honorable jurisdictional ITAT, Bangalore rendered in ITA No.124/Bang/2014, dt. 20/10/2015 in the case of Karnataka Food ITA No. 1562/Bang/2018 Page 3 of 6 and Civil Supplies Vs. Dept. of Income-tax. Therefore, after due consideration of the facts of the appellant as per law, the 3rd ground of appeal is allowed."

5. Aggrieved by the order of CIT(A), the revenue has preferred the present appeal before the Tribunal, raising the following grounds:-

2) On carry forward of excess expenditure/application/deficit/ loss:-

a) The CIT (A) has erred in directing the assessing officer to allow set-off of excess expenditure/application pertaining to current asst. year and earlier years against the income of the future asst. year without appreciating the fact that as per the scheme of taxation of charitable or religious trust/institution as codified u/s.11,12 and 13, there is no provision for computing loss from property held under trust/institution on account of excess application of income/funds of the trust.

b) The CIT (A) has failed to appreciate the fact that the normal computation of income under respective heads as envisaged u/s 15 to 59 are not applicable to the computation of income in respect of charitable trust/institution for the purpose of claiming exemption under sec.11, 12 and 13 and, therefore, the provisions relating to set-off of loss from one source against the income from another source, set-off of loss from one head against income from another head and carry forward and set-off of loss against the income of subsequent years as envisaged u/s 70 to 79 are also not applicable to the charitable trusts/institutions.

c) The CIT (A) has failed to discuss the issue in detail bringing out the facts and applying the relevant provisions of the Act, but came 'to a conclusion that excess expenditure/excess application shall be allowed to be carried forward and set-off against the income of the future assessment years and, thereby, rendering the order perverse."

6. The learned DR reiterated the stand of the AO that there is no provision in the Act to allow carry forward of excess application of income for set off as application of income in subsequent years. The ld. counsel for the Assessee relied on the order of the CIT(A) and several decisions referred to in the order of the CIT(A) wherein the Tribunal accepted the claim of the Assessee on identical issue on identical facts.

7. We have considered his submission. Section 11(1)(a) does not contain any words of limitation to the effect that the income should have been applied for charitable or religious purpose only in the year in which the income has arisen. The application for charitable purposes as contemplated in section 11(1)(a) takes place in the year in which the income is adjusted to meet the expenses incurred for charitable or religious purposes. Hence, even if the expenses for such purposes have been incurred in the earlier years and the said expenses are adjusted against the income of a subsequent year, the income of such subsequent year can be said to be applied for charitable or religious purposes in the year in which such adjustment takes place. In other words, the set-off of excess of expenditure incurred over the income of earlier years against the income of a later year will amount to application of income of such later year. The above is the position of law as held in the case of CIT Vs. Maharana of Mewar Charitable Foundation 164 ITR 439 (Raj) CIT Vs. Shri Plot Swetamber Murti Pujak Jain Mandal 211 ITR 293 (Guj.). In CIT Vs. Institute of Banking Personnel Selection 264 ITR 110 (Bom) it was held that in case of charitable trust whose income is exempt under s. 11, excess of expenditure in the earlier years can be adjusted against income of subsequent years and such adjustment would be application of income for subsequent years and that depreciation is allowable on the assets the cost of which has been fully allowed as application of income under s. 11 in past ITA No. 1562/Bang/2018 Page 5 of 6 years. In Govindu Naicker Estate VS. ADIT 248 ITR 368 (Mad), the Hon'ble Madras High Court held that the income of the trust has to be arrived at having due regard to the commercial principles, that s. 11 is a benevolent provision, and that the expenditure incurred on religious or charitable purposes in earlier year or years can be adjusted against the income of the subsequent year. The principle that the loss incurred under one head can only be set off against the income from the same head is not of any relevance, if the expenditure incurred was for religious or charitable purposes, and the expenditure adjusted against the income of the trust in a subsequent year, would not amount to an incidence of loss of an earlier year being set off against the profit of a subsequent year. The object of the religious and charitable trust can only be achieved by incurring expenditure and in order to incur that expenditure, the trust should have an income. So long as the expenditure incurred is on religious or charitable purposes, it is the expenditure properly incurred by the trust, and the income from out of which that expenditure is incurred, would not be liable to tax. The expenditure, if incurred in an earlier year is adjusted against the income of a later year, it has to be held that the trust had incurred expenditure on religious and charitable purposes from the income of the subsequent year, even though the actual expenditure was in the earlier years, if in the books of account of the trust such earlier expenditure had been set off against the income of the subsequent year. The expenditure that can be so adjusted can only be expenditure on religious and charitable purposes and no other. The Hon'ble Madras High Court in coming to the aforesaid conclusion placed reliance the decision in the case of CIT Vs. Society of Sisters of ST. Anne 146 ITR 28 (Kar.).

8. In the light of the aforesaid judicial pronouncements on the issue, we are of the view that there is no merit in this appeal by the revenue. Accordingly, the same is dismissed.

9. In the result, appeal by the Revenue is dismissed.

Pronounced in the open court on this 24th day of September, 2018.

                Sd/-                                         Sd/-

       ( A.K. GARODIA)                            ( N.V. VASUDEVAN)
       Accountant Member                              Judicial Member


Bangalore,
Dated, the 24th September, 2018.

/ Desai Smurthy /

Copy to:

1.    The Appellant
2.    The Respondent
3.    The CIT
4.    The CIT(A)
5.    The DR, ITAT, Bangalore.
6.    Guard file


                                                By order



                                          Senior Private Secretary
                                            ITAT, Bangalore.