Income TAx Officer Exemptions Ward-1 , Mangalore V. M/s Sri Venkatramana Dev Educational & Cultural Trust , Kundapura

ITA 2166/BANG/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 7722 (ITAT-BANGALORE)
• Duration Of Justice: 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-07-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 13-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SWAPNA DASS JT BENGALURU
• Assessee Lawyers: H SHAMBHU SHARMA
• Keywords: Capital asset; Depreciation; Charitable institution; Cost of acquisition
• Section: 143(3); 12A; 32; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ , ACCOUNTANT MEMBER I TA NO. 2166/BANG/2017 ASSESSMENT YEAR : 2011 - 12 THE INCOME TAX OFFICER (EXEMPTIONS), WARD 1, MANGALURU. VS. M/S. SRI VENKATARAMANA DEV EDUCATIONAL & CULTURAL TRUST, OMBATHDANDIGE ROAD, KUNDAPURA 576 201. PAN: AAETS 2986D APPELLANT RESPONDENT APPELLANT BY : SMT. SWAPNA DASS , JT.CIT(DR)(ITAT), BENGALURU. RE SPONDENT BY : SHRI H. SHAMBHU S HARMA, CA DATE OF HEARING : 27 .06 .201 8 DATE OF PRONOUNCEMENT : 06 .07.2018 O R D E R PER JASON P. BOAZ, ACCOUNTANT MEMBER THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS), MANGALURU DAT ED 17/8/2017 FOR THE ASSESSMENT YEAR 2011-12. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE AS UND ER:- 2.1 THE ASSESSEE IS A TRUST REGISTERED U/S 12A OF T HE INCOME-TAX ACT, 1961 (IN SHORT THE ACT) ENGAGED IN RUNNING AND MA INTAINING THE FOLLOWING EDUCATIONAL INSTITUTIONS; (1) SRI VENKATARAMANA PRI MARY SCHOOL (LKG TO 7 TH STD.), (II) SRI VENKATARAMANA HIGH SCHOOL (8 TH TO 10 TH STD.), AND (III) SRI VENKATARAMANA PRE-UNIVERSITY COLLEGE (11TO & 12 STD .). FOR ASST. YEAR ITA NO.2166/BANG/2017 PAGE 2 OF 12 2011-12, THE ASSESSEE FILED ITS RETURN OF INCOME ON 01/12/2011 DECLARING NIL INCOME. THE RETURN WAS SUBSEQUENTLY TAKEN UP F OR SCRUTINY. THE ASSESSING OFFICER (AO) COMPLETED THE ASSESSMENT U/S 143(3) OF THE ACT VIDE ORDER DATED 9/12/2013, (I) DISALLOWING THE ASS ESSEES CLAIM FOR DEPRECIATION AMOUNTING TO RS.14,30,893/- HOLDING TH AT THE ASSESSEE HAS CLAIMED DOUBLE DEDUCTION, FIRST BY SHOWING THE OUTL AY FOR CAPITAL ASSET AS APPLICATION OF INCOME AND THEN ALSO CLAIMING DEPREC IATION ON THE CAPITAL ASSET AND (II) REJECTING THE ASSESSEES CLAIM FOR B EING ALLOWED CARRY FORWARD OF DEFICIT/EXCESS FOR APPLICATION AGAINST INCOME I N SUBSEQUENT YEARS. 2.2 AGGRIEVED BY THE ORDER OF ASSESSMENT DATED 9/12 /2013 FOR ASST. YEAR 2011-12, THE ASSESSEE PREFERRED AN APPEAL BEFORE TH E CIT(A), MANGALORE. THE ASSESEES APPEAL ON THE ABOVE TWO ISSUES WAS AL LOWED BY THE LD CIT(A) VIDE ORDER DATED 17/8/2017. 3.1 AGGRIEVED BY THE ORDER OF THE CIT(A), MANGALORE DATED 17/8/2017 FOR ASST. YEAR 2011-12, REVENUE HAS PREFERRED THIS APPE AL RAISING THE FOLLOWING GROUNDS:- 1. THE ORDER OF THE LD. CIT (A) IS OPPOSED TO LAW AND FACTS OF THE CASE. 2. DEPRECIATION :- 2.1 THE LEARNED CIT(A) ERRED IN ALLOWING ASSESSEE'S CLAIM FOR DEPRECIATION ON ASSETS PUT INTO USE DURING THE ACCO UNTING YEAR RELEVANT TO THE ASSESSMENT YEAR, EVEN THOUGH THE EN TIRE COST OF THESE ASSETS HAS BEEN CLAIMED BY THE ASSESSEE AS AP PLICATION OF INCOME FOR CHARITABLE ACTIVITIES. 2.2 THE LEARNED CIT(A) ERRED IN NOT FOLLOWING THE R ATIO LAID DOWN BY THE HON'BLE APEX COURT IN THE CASE OF ESCORTS LT D AND ANR VS UNION OF INDIA - 199 ITR 43 WHEREIN IT IS HELD THAT DOUBLE DEDUCTION CANNOT BE PRESUMED UNLESS SPECIFICALLY PR OVIDED FOR BY LAW. ITA NO.2166/BANG/2017 PAGE 3 OF 12 2.3 THE LEARNED CIT(A) FAILED TO TAKE COGNIZANCE OF THE FACT THAT ALLOWING THE TOTAL COST OF THE ASSET AS AN APPLICAT ION OF INCOME AND ALLOWING DEPRECATION ON THE VALUE OF SUCH ASSET S IN THE SAME YEAR RESULTS IN DOUBLE DEDUCTION AND IT IS NOT AS P ER THE PROVISIONS OF THE INCOME TAX ACT. 2.4 THE LEARNED CIT(A) ERRED IN NOT FOLLOWING THE R ATIO LAID DOWN BY THE HON'BLE KERALA HIGH COURT IN THE CASE OF LIS SIE MEDICAL INSTITUTION ITA NO. 42 OF 2011 DATED 17.02.2012 WHE REIN IT IS HELD THAT IN ORDER TO REFLECT THE TRUE INCOME AVAIL ABLE FOR APPLICATION FOR CHARITABLE PURPOSES, THE ASSESSEE S HOULD WRITE BACK IN THE ACCOUNTS THE DEPRECIATION AMOUNT TO FOR M PART OF THE INCOME TO BE ACCOUNTED FOR APPLICATION FOR CHARITAB LE PURPOSES. 2.5 THE ORDER OF LEARNED CIT(A) MAY BE SET ASIDE AN D THAT OF AO BE RESTORED BY PLACING RELIANCE OF THE RECENT JUDGM ENT OF HON'BLE HIGH COURT OF DELHI IN THE CASE OF DIT(EXEMPTION) V S. CHARANJIV CHARITABLE TRUST DT. 18.03.20 14 IN ITA NO. 321 TO 323/ 2013 WHEREIN IT IS HELD THAT TRIBUNAL WAS NOT JUSTIFIED IN DIRECTING THE ALLOWANCE OF DEPRECIATION IN RESPECT OF ASSETS, THE COST OF WHICH HAS BEEN ALLOWED AS DEDUCTION AS APPLICATION OF INC OME OF THE TRUST. 3. CARRY FORWARD AND SET OFF OF UNABSORBED DEFICIT: - 3.1 THE LEARNED CIT(A) ERRED IN DIRECTING THE AO TO ALLOW CARRY FORWARD OF UNABSORBED DEFICIT, WHEN THERE IS NO PRO VISION IN THE INCOME TAX ACT TO ALLOW CARRY FORWARD OF SUCH DEFIC IT. 3.2 THE LEARNED CIT(A) ERRED IN NOT APPRECIATING TH AT SECTIONS 70 TO 80 OF THE INCOME TAX ACT DEAL WITH CARRY FORWARD & SET OFF OF 'LOSS' & NOT EXCESS EXPENDITURE. THE LEARNED CIT (A ) ERRED IN NOT SPECIFYING THE PROVISIONS OF THE INCOME TAX ACT WHI LE DIRECTING THE AO TO ALLOW CARRY FORWARD OF DEFICIT. 4. FOR THESE AND SUCH OTHER GROUNDS IT IS URGED THA T THE ORDER OF THE LD. CIT(A), ON THE ABOVE POINTS MAY BE SET ASID E AND THE ORDER OF THE ASSESSING OFFICER BE RESTORED. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEN D ALL OR ANY OF THE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF THE HEARING OF THE APPEAL. ITA NO.2166/BANG/2017 PAGE 4 OF 12 4. THE GROUNDS RAISED IN SL. NOS. 1,4 AND 5 OF THIS APPEAL BEING GENERAL IN NATURE AND NOT URGED BEFORE US, NO ADJUD ICATION IS CALLED FOR THEREON. 5. GROUND NO.2(2.1 TO 2.5) CLAIM FOR DEPRECIATION 5.1 IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE H AD CLAIMED DEPRECIATION AMOUNTING TO RS.14,30,893/-. ON EXAMI NATION THEREOF, THE AO OBSERVED THAT THE ASSESSEE HAD CLAIMED DOUBLE DEDUC TION BY FIRST SHOWING THE OUTLAY OF AN ACQUISITION OF THE CAPITAL ASSET A S APPLICATION OF INCOME AND THEREAFTER, ALSO CLAIMED DEPRECIATION ON THE CAPITA L ASSET. THE AO REJECTED THE ASSESSEES CLAIM OF DEPRECIATION PLACING RELIAN CE ON THE DECISIONS OF THE HONBLE COURT IN THE CASE OF ESCORTS AND ANOTHE R VS. UOT & OTHERS (199 ITR 43) AND THE DECISION OF THE HONBLE KERALA HIGH COURT IN THE CASE OF LISSIE MEDICAL INSTITUTIONS (348 ITR 344) (KERA LA). ON APPEAL THE LD CIT(A) ALLOWED THE ASSESSEES APPEAL ON THIS ISSUE . 5.2 THE LD DR WAS HEARD AND SUPPORTED THE DECISION OF THE AUTHORITIES BELOW, SUBMITTING THAT THE EXPENDITURE ON ACQUISITI ON OF THE CAPITAL ASSET HAS ALREADY BEEN CLAIMED AS EXEMPT ON ACCOUNT OF AP PLICATION OF INCOME AND, THEREFORE, DEPRECIATION ON CAPITAL ASSETS CANN OT BE ALLOWED AS IT WOULD AMOUNT TO ALLOWING THE ASSESSEE DOUBLE DEDUCTION. 5.3.1 ACCORDING TO THE LD AR FOR THE ASSESSEE THE I SSUE IN RESPECT OF THE CLAIM OF DEPRECIATION IS COVERED BY THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF DIT(E) VS. AL-AMEEN CHARI TABLE TRUST AND OTHERS (383 ITR 517) (KAR) VIDE ORDER DATED 22/2/2016. TH E LD AR ALSO INTER ALIA PLACED RELIANCE ON THE FOLLOWING DECISIONS OF THE C O-ORDINATE BENCHES: ITA NO.2166/BANG/2017 PAGE 5 OF 12 (I) MOOGAMBIGAI CHARITABLE TRUST VS. ADDL. CIT (E XEMPTION) IN ITA NO.1224/BANG/2015 DATED 13/7/2016; (II) ITO EXEMPTION VS. SHARADDHA TRUST IN ITA NO.899/BANG/2016 DATED 7/4/2017, (III) JYOTHI CHARITABLE TRUST VS. DCIT (EXEMPTION) IN ITA NO.622/BANG/2015 DATED 14/8/2015. (IV) ITO V. SHIRURU WELFARE TRUST IN ITA NO.2165/B ANG/2017 DATED 28.03.2018. 5.4.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERU SED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD, INCLUD ING THE JUDICIAL PRONOUNCEMENTS CITED. WE FIND THAT THE ISSUE OF CL AIM OF DEPRECIATION BY A CHARITABLE TRUST U/S 11 OF THE ACT HAS BEEN CONSIDE RED AND HELD IN FAVOUR OF THE ASSESSEE BY VARIOUS CO-ORDINATE BENCHES OF THIS TRIBUNAL AS CITED (SUPRA) AND ALSO BY THE HONBLE KARNATAKA HIGH COUR T, IN THE CASE OF DIT(EXEMPTION) VS. AL-AMEEN CHARITABLE FUND TRUST & OTHERS (383 ITR 517) (KAR). IN THE CASE OF MOOGAMBIGAI CHARITABLE AND EDUCATION TRUST VS. ADIT (EXEMPTION), THE CO-ORDINATE BENCH IN ITS ORDE R IN ITA NO.1224/BANG/2015 DATED 13/7/2016, AT PARA 11 THERE OF HAS HELD AS UNDER:- 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WE LL AS THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT THIS ISSUE HAS BEEN CONSIDERED BY THIS TRIBUNAL IN A SERIES OF DEC ISIONS. IN THE CASE OF M/S, CMR JANARDHANA TRUST (SUPRA). THE TRIBUNAL HAS AGAIN CONSIDERED AND DECIDED THIS ISSUE IN PARAS 15 TO 17 AS UNDER: 15. WE HAVE HEARD THE SUBMISSIONS OF THE ID. OR, WH O RELIED ON THE ORDER OF CIT(A) AND THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF 011(E) VS. CHARANJIV CHARITABL E TRUST (2014) 43 TAXMANN.COM 300 (DELHI). WE HAVE CONSIDERED THE ORDER OF THE 01(A). IDENTICAL ISSUE CAME UP FOR CONSIDERATIO N BEFORE ITAT BANGALORE BENCH IN THE CASE OF DDIT(E) V. CUTCHI ME MON UNION (2013) 60 501 260 BANGALORE ITAT, WHEREIN SIMILAR I SSUE HAS BEEN DEALT WITH BY THIS TRIBUNAL. IN THE AFORESAID CASE, THE ITA NO.2166/BANG/2017 PAGE 6 OF 12 ASSESSEE CLAIMED DEPRECIATION AND THE AO DENIED DEP RECIATION ON THE GROUND THAT AT THE TIME OF ACQUIRING THE RELEVA NT CAPITAL ASSET, COST OF ACQUISITION WAS CONSIDERED AS APPLICATION O F INCOME IN THE YEAR OF ITS ACQUISITION THE A0 TOOK THE VIEW THAT A LLOWING DEPRECIATION WOULD AMOUNT TO ALLOWING DOUBLE DEDUCT ION AND PLACED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN ESCORTS LTD. (SUPRA). THE CIT(A), HOWEVER, ALLOWED THE CLAIM OF ASSESSEE. ON FURTHER APPEAL BY THE REVENUE, THE TRI BUNAL HELD AS FOLLOWS:- 20. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IF DEPRECIATION IS NOT ALLOWED AS A NECESSARY DEDUCTIO N FOR COMPUTING INCOME OF CHARITABLE INSTITUTIONS, THEN T HERE IS NO WAY TO PRESERVE THE CORPUS OF THE TRUST FOR DERI VING THE INCOME AS IT IS NOTHING BUT A DECREASE IN THE VALUE OF PROPERTY THROUGH WEAR, DETERIORATION, OR OBSOLESCEN CE SINCE INCOME FOR THE PURPOSES OF SECTION 11(1) HAS TO BE COMPUTED IN NORMAL COMMERCIAL MANNER, THE AMOUNT OF DEPRECIATION DEBITED IN THE BOOKS IS DEDUCTIBLE WHI LE COMPUTING SUCH INCOME, IT WAS SO HELD BY THE HON'BL E KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SOCIETY OF SISTERS OF ST. ANNE 146 ITR 28 (KAR). IT WAS HELD IN CIT VS. TINY TOTS EDUCATION SOCIETY (2011) 330 ITR 21 (P&H), FOLLOWING CIT VS. MARKET COMMITTEE. PIPLI (2011) 33 0 TILL 16 (P&H) (2011) 238 CTR (P&H) 103 THAT DEPRECIATION CAN BE CLAIMED BY A CHARITABLE INSTITUTION IN DETER MINING PERCENTAGE OF FUNDS APPLIED FOR THE PURPOSE OF CHAR ITABLE OBJECTS. CLAIM FOR DEPRECIATION WILL NOT AMOUNT TO DOUBLE BENEFIT. THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ESCORTS LTD. 199 ITR 43 (SC) HAVE BEEN REFE RRED TO AND DISTINGUISHED BY THE HON'BLE COURT IN THE AFORE SAID DECISIONS. 21. THE ISSUE RAISED BY THE REVENUE IN THE GROUND O F APPEAL IS THUS NO LONGER RES INTEGRA AND HAS BEEN DECIDED BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF C IT V MARKET COMMITTEE, PIPIL, 330 ITR 16 (P&H). THE HONB LE PUNJAB & HARYANA HIGH COURT AFTER CONSIDERING SEVERA L DECISIONS ON THAT ISSUE AND ALSO THE DECISION OF TH E HON'BLE SUPREME COURT IN THE CASE OF ESCORTS LTD. ( SUPRA), CAME TO THE CONCLUSION THAT DEPRECIATION IS ALLOWAB LE ON CAPITAL ASSETS ON THE INCOME OF THE CHARITABLE TRUS T FOR DETERMINING THE QUANTUM OF FUNDS WHICH HAVE TO BE APPLIED FOR THE PURPOSE OF TRUSTS IN TERMS OF SECTI ON 11 OF ITA NO.2166/BANG/2017 PAGE 7 OF 12 THE ACT. THE HON'BLE PUNJAB & HARYANA HIGH COURT MADE A REFERENCE TO THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF ESCORTS LTD. (SUPRA) AND OBSERVED TH AT THE HON'BLE SUPREME COURT WAS DEALING WITH A CASE OF TW O DEDUCTIONS UNDER DIFFERENT PROVISIONS OF THE ACT, ON E U/S. 32 FOR DEPRECIATION AND THE OTHER ON ACCOUNT OF EXPENDITURE OF A CAPITAL NATURE INCURRED ON SCIENTI FIC RESEARCH U/S. 35(L)(IV) OF THE ACT. THE HON'BLE COUR T THEREAFTER HELD THAT A TRUST CLAIMING DEPREDATION C ANNOT BE EQUATED WITH A CLAIM FOR DOUBLE DEDUCTION. THE H ON'BLE PUNJAB & HARYANA HIGH COURT HAS ALSO MADE A REFERENC E TO THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT V. SOCIETY OF SISTERS OF ANNE, 146 I TR 28 (KAR (WHEREIN IT WAS HELD THAT U/S 11(1) OF THE ACT, INCOME HAS TO BE COMPUTED IN NORMAL COMMERCIAL MANNER AND THE AMOUNT OF DEPRECIATION DEBITED IN THE BOOKS IS DEDUCTIBLE WHILE COMPUTING SUCH INCOME. IN VIEW OF THE AFORESAID DECISION ON THE ISSUE, WE ARE OF THE VIEW THAT THE ORDER OF THE CIT(A) ON THE ABOVE ISSUE DOES NOT CALL FOR ANY INTERFERENCE. 22. CONSEQUENTLY, GROUND NO.5 RAISED BY THE REVENUE IS DISMISSED' 16. IT IS NO DOUBT TRUE THAT THE HON'BLE DELHI HIGH COURT IN THE CASE OF CHARANJIV CHARITABLE TRUST (SUPRA) HAS TAKE N A CONTRARY VIEW BUT THEN WHEN TWO VIEWS ARE POSSIBLE ON AN ISS UE, THE VIEW FAVOURABLE TO THE ASSESSEE HAS TO BE FOLLOWED. THE DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IS IN FAVOU R OF THE ASSESSEE AND HAS FOLLOWED THE DECISION OF THE HON'B LE KARNATAKA HIGH COURT IN THE CASE OF SOCIETY OF SISTERS OF ANN E (SUPRA). THE INTERPRETATION TO THE CONTRARY GIVEN BY THE C1T(A) ON THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF S OCIETY OF SISTERS OF ANNE (SUPRA) CANNOT THEREFORE BE ACCEPTE D. WE MAY ALSO ADD THAT THE LEGAL POSITION HAS SINCE BEEN AME NDED BY A PROSPECTIVE AMENDMENT BY THE FINANCE (NO.2) ACT, 20 14 W.E.F, 1.4.2015 BY INSERTION OF SUBSECTION (6) TO SECTION 11 OF THE ACT, WHICH READS AS UNDER:- '(6) IN THIS SECTION WHERE A NY INCOME IS REQUIRED TO BE APPLIED OR ACCUMULATED OR SET APART FOR APPLICATION, THEN, FOR SUCH PURPOSES THE INCOME SHALL BE DETERMI NED WITHOUT ANY DEDUCTION OR ALLOWANCE BY WAY OF DEPRECIATION O R OTHERWISE IN RESPECT OF ANY ASSET, ACQUISITION OF WHICH HAS B EEN CLAIMED AS ITA NO.2166/BANG/2017 PAGE 8 OF 12 AN APPLICATION OF INCOME UNDER THIS SECTION IN THE SAME OR ANY OTHER PREVIOUS YEAR' 17. AS ALREADY STATED, THE AFORESAID AMENDMENT IS P ROSPECTIVE AND WILL APPLY ONLY FROM A.Y. 2015-16. IN VIEW OF THE A BOVE LEGAL POSITION, WE ARE OF THE VIEW THAT THE ORDER OF THE 01(A) HAS TO BE REVERSED. CONSEQUENTLY GROUNDS NO.4 & 5 RAISED BY T HE ASSESSEE ARE ALLOWED. THERE IS NO DISPUTE THAT THE AMENDMENT OF SECTION 1 1(6) OF THE ACT BY THE FINANCE ACT, 2014 IS PROSPECTIVE W.E.F. 14.2015 AND THEREFORE THE SAID AMENDED PROVISION IS NOT APPLICA BLE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, FOLLOWING THE EARLIER DECISIONS OF THIS TRIBUNAL, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 5.4.2 RESPECTFULLY FOLLOWING THE DECISION OF THE H ONBLE KARNATAKA HIGH COURT IN THE CASE OF AL-AMEEN CHARITABLE FUND TRUST & OTHERS (383 ITR 517), WHEREIN THE HONBLE HIGH COURT HAS DISTIN GUISHED THE DECISION OF THE HONBLE KERALA HIGH COURT IN LISSIE MEDICAL INS TITUTIONS (SUPRA) AND ALSO FOLLOWING THE DECISION OF THE CO-ORDINATE BENC H IN THE CASE OF M/S MOOGAMBIGAI CHARITABLE & EDUCATIONAL TRUST, IN ITA NO.1224/BANG/2015 DATED 13/7/2016 AND ITO V. SHIRURU WELFARE TRUST (S UPRA), WE DISMISS THE GROUND 2(2.1 TO 2.5) RAISED BY THE REVENUE ON THIS ISSUE. GROUND NO.3(3.1 AND 3.2) CARRY FORWARD OF UNABSOR BED DEFICIT/SURPLUS FOR APPLICATION 6.1 THE LD DR WAS HEARD IN SUPPORT OF THE GROUNDS R AISED ON THIS ISSUE (SUPRA) AND SUBMITTED THAT CARRY FORWARD OF UNABSOR BED DEFICIT/SURPLUS FOR APPLICATION IN SUBSEQUENT YEARS IS NOT PERMISSIBLE SINCE THERE IS NO SPECIFIC PROVISION IN THIS REGARD IN EITHER SECTIONS 11 AND 13 OF THE ACT WHICH ARE IN RESPECT OF ASSESSMENT OF TRUSTS, AND THEREFORE, CON TENDED THAT ASSESSEES CLAIM BE REJECTED. STRONG SUPPORT WAS PLACED TO TH E ORDERS OF THE ASSESSING OFFICER ON THIS ISSUE. ITA NO.2166/BANG/2017 PAGE 9 OF 12 6.2 ACCORDING TO THE LD AR FOR THE ASSESSEE, THE AS SESSEE IS ENTITLED TO CARRY FORWARD THE UNABSORBED DEFICIT FOR APPLICATIO N AGAINST INCOME OF SUBSEQUENT YEARS. IT IS SUBMITTED THAT THE SAID IS SUE IS COVERED BY THE DECISIONS OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF ITO (EXEMPTION) VS. SHRADDHA TRUST IN ITA NO.899/BANG/2 016 DATED 7/4/2017 AND ITO V. SHIRURU WELFARE TRUST IN ITA NO.2165/BAN G/2017 DATED 28.03.2018. 6.3.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERU SED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD, INCLUD ING THE JUDICIAL PRONOUNCEMENTS CITED. WE FIND THAT THE ISSUE BEFOR E US OF CARRY FORWARD OF UNABSORBED DEFICIT FOR APPLICATION AGAINST INCOME O F SUBSEQUENT YEARS IS COVERED BY THE DECISIONS OF THE CO-ORDINATE BENCHES OF THIS TRIBUNAL IN THE CASE OF JYOTHI CHARITABLE TRUST (60 TAXMANN.COM 165 ); ITO V. SHIRURU WELFARE TRUST IN ITA NO.2165/BANG/2017 DATED 28.03. 2018 AND THE CASE OF ITO (EXEMPTION) VS. SHRADDHA TRUST IN ITA NO.899/BA NG/2016 DATED 7/4/2017. IN THE CASE OF SHRADDHA TRUST (SUPRA) TH E CO-ORDINATE BENCH AT PARA 8 OF ITS ORDER HAS HELD AS UNDER:- 8. THE FINAL GROUNDS OF APPEAL RELATES TO CARRY FOR WARD OF EXCESS APPLICATION OF INCOME TO SUBSEQUENT YEARS. THIS ISS UE IS COVERED AGAINST THE REVENUE BY CO-ORDINATE BENCH OF TRIBUNAL IN THE CASE OF DEPUTY DIRECTOR OF INCOME-TAX VS. JYOTHY CHARITABLE TRUST (60 TAXMANN.COM 165). THE RELEVANT PART OF THE ORDER IS REPRODUCED BELOW: '14. WE HAVE CONSIDERED HIS SUBMISSION. SECTION I 1 (L)A) DOES NOT CONTAIN ANY WORDS OF LIMITATION TO THE EFFECT THAT THE INCOME SHOULD HAVE BEEN APPLIED FOR CHARITABLE OR RELIGIOU S PURPOSE ONLY IN THE YEAR IN WHICH THE INCOME HAS ARISEN. THE APP LICATION FOR CHARITABLE PURPOSES AS CONTEMPLATED IN SECTION 1 L( L)(A) TAKES PLACE IN THE YEAR IN WHICH THE INCOME IS ADJUSTED T O MEET THE EXPENSES INCURRED FOR CHARITABLE OR RELIGIOUS PURP OSES. HENCE, EVEN IF THE EXPENSES FOR SUCH PURPOSES HAVE BEEN IN CURRED IN THE ITA NO.2166/BANG/2017 PAGE 10 OF 12 EARLIER YEARS AND THE SAID EXPENSES ARE ADJUSTED AG AINST THE INCOME OF A SUBSEQUENT YEAR, THE INCOME OF SUCH SUB SEQUENT YEAR CAN BE SAID TO BE APPLIED FOR CHARITABLE OR RELIGIO US PURPOSES IN THE YEAR IN WHICH SUCH ADJUSTMENT TAKES PLACE. IN O THER WORDS, THE SET-OFF OF EXCESS OF EXPENDITURE INCURRED OVER THE INCOME OF EARLIER YEARS AGAINST THE INCOME OF A LATER YEAR WI LL AMOUNT TO APPLICATION OF INCOME OF SUCH LATER YEAR. THE ABOVE IS THE POSITION OF LAW AS HELD IN THE CASE OF CIT V. MAHAR ANA OF MEWAR CHARITABLE FOUNDATION [1987] 164 ITR 4391[1986] 29 TAXMAN 476 (RAJ) AND CIT V. PLOT SWETAMBER MURLI PUJAK JAI N MANDAL [1995] 211 ITR 293 (GUJ.). IN CIT VS. INSTITUTE OF BANKING PERSONNEL SELECTION [2003] 264 ITR 110/131 TAXMAN 3 86 (BORN.) IT WAS HELD THAT IN CASE OF CHARITABLE TRUST WHOSE INCOME IS EXEMPT UNDER S. 11, EXCESS OF EXPENDITURE IN THE EA RLIER YEARS CAN BE ADJUSTED AGAINST INCOME OF SUBSEQUENT YEARS AND SUCH ADJUSTMENT WOULD BE APPLICATION OF INCOME FOR SUBSE QUENT YEARS AND THAT DEPRECIATION IS ALLOWABLE ON THE ASSETS TH E COST OF WHICH HAS BEEN FULLY ALLOWED AS APPLICATION OF INCOME UND ER S. 11 IN PAST YEARS. IN GOVINDU NAICKER ESTATE V. ASST. DIT [2001] 248 ITR 368/[1999] 105 TAXMAN 719 (MAD.), THE HON'BLE M ADRAS HIGH COURT HELD THAT THE INCOME OF THE TRUST HAS TO BE ARRIVED AT HAVING DUE REGARD TO THE COMMERCIAL PRINCIPLES, THA T S. 11 IS A BENEVOLENT PROVISION, AND THAT THE EXPENDITURE INCU RRED 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 S ET OFF AGAINST THE INCOME FROM THE SAME HEAD IS NOT OF ANY RELEVAN CE, IF THE EXPENDITURE INCURRED WAS FOR RELIGIOUS OR CHARITABL E PURPOSES, AND THE EXPENDITURE ADJUSTED AGAINST THE INCOME OF THE TRUST IN A SUBSEQUENT YEAR, WOULD NOT AMOUNT TO AN INCIDENCE O F TOSS OF AN EARLIER YEAR BEING SET OFF AGAINST THE PROFIT OF A SUBSEQUENT YEAR. THE OBJECT OF THE RELIGIOUS AND CHARITABLE TRUST CA N ONLY BE ACHIEVED BY INCURRING EXPENDITURE AND IN ORDER TO I NCUR THAT EXPENDITURE, THE TRUST SHOULD HAVE AN INCOME. SO LO NG 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, WOU LD NOT BE LIABLE TO TAX. THE EXPENDITURE, IF INCURRED IN AN E ARLIER 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, EV EN THOUGH ITA NO.2166/BANG/2017 PAGE 11 OF 12 THE ACTUAL EXPENDITURE WAS IN THE EARLIER YEARS, IF IN THE BOOKS OF ACCOUNT OF THE TRUST SUCH EARLIER EXPENDITURE HAD B EEN SET OFF AGAINST THE INCOME OF THE SUBSEQUENT YEAR. THE EXPE NDITURE THAT CAN HE SO ADJUSTED CAN ONLY BE EXPENDITURE ON RELIG IOUS AND CHARITABLE PURPOSES AND NO OTHER, THE HIGH COURT RE LIED ON THE DECISION IN THE CASE OF SOCIETY OF SISTERS OF ST. A NNE (SUPRA ).' RESPECTFULLY FOLLOWING THE RATIO LAID DOWN IN THE A BOVE DECISION WE DISMISS THE GROUND OF APPEAL RAISED BY THE REVENUE. 6.3.2 FOLLOWING THE DECISION OF THE CO-ORDINATE BE NCH IN THE CASE OF SHRADDHA TRUST IN ITA NO.899/BANG/2016 DATED 7/4/20 17 AND ITO V. SHIRURU WELFARE TRUST IN ITA NO.2165/BANG/2017 DATE D 28.03.2018, WE DISMISS GROUND NO.3(3.1 AND 3.2) RAISED BY THE REVE NUE. 7. IN THE RESULT, REVENUES APPEAL FOR ASST. YEAR 2011-12 IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 06 TH DAY OF JULY, 2018. SD/- SD/- ( N.V. VASUDEVAN ) ( JASON P. BOAZ ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 06 TH JULY, 2018. / D ESAI S MURTHY / ITA NO.2166/BANG/2017 PAGE 12 OF 12 COPY TO: 1. APP ELL ANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.