Asst. Director of Income-tax, Exemption - II, Hyderabad V. Share India, Hyderabad

ITA 436/HYD/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69978 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-12-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 16-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Charitable institution; Reassessment proceedings; Capital expenditure
• Section: 143(3); 148; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SHRI CHANDRA POOJARI, A.M. AND SMT. ASHA VIJAYARAGHAVAN, J.M. ITA.NO.436/HYD/2012 ASSESSMENT YEAR 2005-06 ADIT (EXEMPTION)-II HYDERABAD. VS. SHARE INDIA HYDERABAD PAN AACTS 0527J (APPELLANT) (RESPONDENT) FOR APPELLANT : SMT. K. HARITHA FOR RESPONDENT : -NONE- DATE OF HEARING : 03.12.2013 DATE OF PRONOUNCEMENT : 13.12.2013 ORDER PER SMT. ASHA VIJAYARAGHAVAN, J.M. THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A)-IV, HYDERABAD DATED 22.12.2011 FOR THE ASSESSMENT YEAR 2005-2006. 2. THE ASSESSEE TRUST, WHICH IS ENGAGED IN CARRYING SCIENTIFIC RESEARCH IN THE AREA OF BIO MEDICAL SCIENCE, HAD FILED ITS RETURN OF INCOME FOR THE A.Y. 2005-06 ON 4.7.2006 DECLARING NIL INCOME AFTER CLAIMING EXEMPTION U/S. 10(21) OF THE ACT. AN ASSESSMENT U/S. 143(3) OF THE ACT WAS MADE IN ITS CASE ON 12.12.2007. SUBSEQUENTLY, IT WAS NOTICED THAT THE ASSESSEE HAD NOT FILED FORM NO. 10. ACCORDINGLY, A NOTICE U/S. 148 WAS ISSUED AND A RE- ASSESSMENT ORDER WAS PASSED DETERMINING THE TOTAL INCOME AT RS.55,73,560/-. 2 ITA.NO.436/HYD/2012 SHARE INDIA, HYDERABAD. 3. DURING THE REASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD DECLARED GROSS RECEIPTS OF RS. 1,50,33,273/- AND HAD ARRIVED AT A SURPLUS OF RS. 55,73,560/ - AFTER CLAIMING EXPENDITURE UNDER VARIOUS HEADS. THE ASSESSING OFFICER OPINED THAT AS PER SEC. 11 (2)(A) OF THE ACT, IF THE ASSESSEE ACCUMULATES OR SETS APART MORE THAN 15% OF THE GROSS RECEIPTS, THE ASSESSEE HAS TO FILE FROM NO.10 ALONG WITH RETURN OF INCOME. IN THE ASSESSEES CASE, THE ASSESSEEE HAD TRANSFERRED RS. 55,73,560/- TO THE CAPITAL FUND, WHICH WAS MORE THAN 15% OF GROSS RECEIPTS. THE A.O. OBSERVED THAT FOR ACCUMULATING IN EXCESS OF 15%, THE FOLLOWING REQUIREMENTS WERE TO BE FULFILLE D: (A) APPLICATION IN FORM NO. 10 SHOULD HAVE BEEN FILED WITHIN THE TIME PROVIDED IN FORM NO. 10. (B) THE PURPOSE FOR WHICH THE INCOME WAS ACCUMULATED HAD TO BE SPECIFIED IN FORM NO. 10. (C) ACCUMULATION WAS POSSIBLE FOR FIVE YEARS WITHIN WHICH THE INCOME WAS TO BE UTILISED FOR SPECIFIC PURPOSES. (D) ALL ACCUMULATED INCOME WAS REQUIRED TO BE INVESTED IN THE MODES PRESCRIBED UNDER SEC. 11 (5) OF THE I T ACT. (E) FORM NO. 10 SHOULD HAVE BEEN ACCOMPANIED BY A BOARD RESOLUTION REGARDING ACCUMULATION AND THE SPECIFIC OBJECTS FOR WHICH INCOME WAS ACCUMULATED. IT SHOULD HAVE ALSO ENCLOSED DETAILS OF INVESTMENTS AND COPIES OF ANNUAL ACCOUNTS. 3 ITA.NO.436/HYD/2012 SHARE INDIA, HYDERABAD. 4. THE ASSESSING OFFICER ALSO RELIED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF NAGPUR HOTEL OWNERS' ASSOCIATION (247 ITR 201) WHEREIN IT WAS HELD THAT FILING OF FORM-10 IS MANDATORY. SINCE THE ASSESSEE DID NOT FILE THE REQUIRED FORM NO-10 EITHER ALONG WITH THE RETURN OF INCOME OR EVEN DURING THE COURSE OF SCRUTINY, THE ASSESSING OFFICER HELD THAT IT WAS NOT ENTITLED TO ACCUMULATION OF MORE THAN 15% OF THE GROSS RECEIPTS. ACCORDINGLY, THE ENTIRE SURPLUS AMOUNT OF RS.55,73,560/ - WAS BROUGHT TO TAX. 5. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE THE CIT(A), THE LEARNED A.R. OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS A SOCIETY REGISTERED UNDER THE SOCIETIES ACT. THE LEARNED A.R . FURTHER SUBMITTED THAT THE ASSESSEE IS ENGAGED IN CARRYING ON SCIENTIFIC RESEARCH AND ITS INCOME IS EXEMPT U/S. 10(21) OF THE ACT. 6. THE LEARNED A.R. OF THE ASSESSEE CONTENDED THAT IT HAD A DEFICIT OF RS. 46,42,125/- FOR THE F.Y. 2003-04, WHICH HAS BEEN ADJUSTED AGAINST SURPLUS FOR THE F.Y. 2004-05 RELEVANT TO TH E A.Y. 2005-06. THE LEARNED A.R. OF THE ASSESSEE FURTHER CONTENDED THAT SUCH ADJUSTMENT OF DEFICIT HAS BEEN HELD AS 'APPLICATION OF MONEY' BY VARIOUS HIGH COURTS. THE LEARNED A.R. OF THE ASSESSEE FURTHER CONTENDED THAT AFTER SUCH ADJUSTMENT, THE SURPLUS WAS MUCH LESS THAN 15% OF THE INCOME. IN SUPPORT OF ITS CLAIM THE ASSESSEE FILED COMPUTATION 4 ITA.NO.436/HYD/2012 SHARE INDIA, HYDERABAD. OF TOTAL INCOME FOR THE A.Y. 2004-05, COPY OF P & L ACCOUNT AND THE BALANCE SHEET. IT WAS ALTERNATIVELY ARGUED THAT THE ASSESSEE WAS NOT GIVEN AN OPPORTUNITY TO FILE FORM NO. 10 DURING THE REASSESSMENT PROCEEDINGS. 7. IN RESPECT OF THE ASSESSING OFFICER'S OBSERVATION THAT THE ASSESSEE HAD NOT PRODUCED THE BOOKS OF ACCOUNT DURING THE COURSE OF REASSESSMENT PROCEEDINGS, IT WAS SUBMITTED THAT IN THE ORIGINAL ASSESSMENT ORDER WHICH HAD BEEN PASSED ON 12.12.2007, THE ASSESSING OFFICER HAD MENTIONED THAT THE AR OF THE ASSESSEE APPEARED AND FURNISHED THE BOOKS OF ACCOUNTS, VOUCHERS FOR EXPENSES, INFORMATION CALLED FOR. 8. THE LEARNED A.R. OF THE ASSESSEE SUBMITTED BEFORE THE CIT(A) THAT IT IS AN ADMITTED POSITION OF LAW THAT EXCESS EXPENDITURE OF EARLIER YEARS SHOULD BE CONSIDERED AS APPLICATION OF INCOME DURING THE CURRENT YEAR. THIS POSITION HAD BEEN LAID DOWN CLEARLY BY THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. MAHARANA OF MEWAR CHARITABLE FOUNDATION (164 ITR 439). IT WAS FURTHER SUBMITTED THAT THE COURT HELD THAT THERE IS NOTHING IN THE LANGUAGE OF SEC.11(1)(A) WHICH LENDS SUPPORT TO THE CONTENTION THAT THE EXPENDITURE INCURRED IN THE EARLIER YEAR CANNOT BE MET OUT OF THE INCOME OF THE SUBSEQUENT YEAR AND UTILIZATION OF SUCH INCOME FOR MEETING THE EXPENDITURE OF THE EARLIER YEAR WOULD N OT AMOUNT TO SUCH INCOME BEING APPLIED FOR CHARITABLE 5 ITA.NO.436/HYD/2012 SHARE INDIA, HYDERABAD. OR RELIGIOUS PURPOSES. 9. THE LEARNED A.R. FURTHER SUBMITTED THAT SIMILARLY THE HON'BLE GUJARAT HIGH COURT IN THE CAS E OF CIT VS. SHRI PLOT SWETAMBER MURTI PUJAK JAIN MANDAL (119 CTR 144) HAD REFERRED TO THE CIRCULAR NO.100 DATED 24.01.1973, WHICH ALLOWED REPAYMENT OF LOANS TAKEN IN EARLIER YEARS FOR FULFILMENT OF CHARITABLE OBJECTS AS APPLICATION. IT WAS HELD THAT THE SAME PRINCIPLE SHOULD APPLY IF INSTEAD OF TAKING TH E LOAN THE ORGANIZATION SPENDS MONEY OUT OF ITS CORPU S AND IT IS REIMBURSED IN THE SUBSEQUENT YEARS. ACCORDINGLY, THEY HAVE ALSO HELD THAT THERE IS NOTH ING IN SEC.11(1)(A), WHICH SHALL INDICATE THAT THE EXPENDITURE INCURRED IN THE EARLIER YEAR CANNOT BE MET WITH THE INCOME OF THE SUBSEQUENT YEARS. 10. THE LEARNED CIT(A) HELD AS FOLLOWS : IN THE PRESENT CASE, IT IS THE CONTENTION OF THE ASSESSEE THAT THERE WAS A DEFICIT OF RS. RS.46,42,125/- FOR THE FINANCIAL YEAR 2003- 2004. ACCORDINGLY, IN THE LIGHT OF THE ABOVE REFERRED JUDGMENTS, THE SURPLUS SHOULD HAVE BEEN WORKED OUT AFTER CONSIDERING THE SAME. HOWEVER, IT IS CLEAR THAT THE ASSESSING OFFICER DID NOT CONSIDER SUCH DEFICIT BEFORE CONCLUDING THAT THERE WAS A SURPLUS OF RS.55,73,560/ - DURING THE YEAR, WHICH WAS IN EXCESS OF 15% OF THE INCOME AND HENCE, THE ASSESSEE WAS OBLIGED TO FILE FORM NO.10 FOR ACCUMULATION OF INCOME. EVEN OTHERWISE, IT IS CLEAR THAT EVEN THOUGH FILING OF FORM NO.10 HAS BEEN HELD TO BE MANDATORY, IT IS NOT TO BE FILED MANDATORILY ALONG WITH THE RETURN OF INCOME ONLY. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF 6 ITA.NO.436/HYD/2012 SHARE INDIA, HYDERABAD. CIT VS. MAYUR FOUNDATION HAVE CONSIDERED THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF NAGPUR HOTEL OWNERS ASSOCIATION 247ITR 201 HAVE OPINED THAT FORM NO. 10 CAN BE FILED EVEN DURING THE APPELLATE PROCEEDINGS. ACCORDINGLY, EVEN IF THE SAID FORM WAS NOT FILED ALONG WITH RETURN OF INCOME OR DURING THE COURSE OF REASSESSMENT PROCEEDINGS, IT WAS REQUIRED OF THE ASSESSING OFFICER TO GRANT THE ASSESSEE AN OPPORTUNITY TO FURNISH THE SAME. IN ANY CASE, SINCE THE ASSESSEE HAD A DEFICIT OF RS. 46,42,125/ - FOR THE FINANCIAL YEAR 2003-04, THE SURPLUS WAS INDEED NOT IN EXCESS OF THE 15% OF THE INCOME. ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO VERIFY SUCH CONTENTION OF THE ASSESSEE. IF ON VERIFICATION OF RECORDS, THE CLAIM OF DEFICIT OF RS. 46,42,125/- IS FOUND TO BE CORRECT, THE SURPLUS SHOULD BE ARRIVED AT AFTER SETTING OF THE SAME FROM THE SURPLUS OF RS. 55,73,560/ - DURING THE CURRENT YEAR. THE ASSESSING OFFICER IS DIRECTED TO COMPUTE THE TOTAL INCOME OF THE ASSESSEE ACCORDINGLY. 11. AGGRIEVED THE DEPARTMENT IS IN APPEAL BEFORE US. 12. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE HONB LE MADRAS HIGH COURT IN THE CASE OF GONVINDU NAICKER ESTATE VS. ADIT AND ANOTHER (2001) 248 ITR 368 (MAD.) HC) FOLLOWED THE DECISION IN THE CASE OF CIT , TAMILNADU-1 VS. RAO BAHADUR CALAVALA CUNNAN CHETTY CHARITIES (1982) 135 ITR 485 (MAD.) (HC) WHEREIN IT HAS BEEN HELD AS FOLLOWS : SEC. 11 CONTEMPLATES AN APPLICATION OF THE INCOME FOR CHARITABLE PURPOSES. THE CHARITY CAN 7 ITA.NO.436/HYD/2012 SHARE INDIA, HYDERABAD. ACCUMULATE 25 PER CENT OF THE INCOME. THE APPLICATION AS WELL AS THE ACCUMULATION HAS NECESSARILY TO BE THE INCOME AS ACCOUNTED FOR IN THE ACCOUNTS, AND NOT AS COMPUTED UNDER THE IT ACT, SUBJECT OF COURSE TO WHAT IS PROVIDED IN SUB- S. (4) OF S. 11. THE EXPRESSION 'INCOME' HAS TO BE UNDERSTOOD IN THE POPULAR OR GENERAL SENSE AND NOT IN THE SENSE IN WHICH THE INCOME IS ARRIVED AT FOR PURPOSE OF ASSESSMENT TO TAX BY THE APPLICATION OF SOME ARTIFICIAL PROVISIONS EITHER GIVING OR DENYING DEDUCTION. TAKING INTO ACCOUNT THE PURPOSE FOR WHICH THE CONDITIONS OF S. 11(1)(A) ARE IMPOSED, IT WOULD BE CLEAR THAT ONE HAS TO CONSIDER THE INCOME AS ARRIVED AT IN THE CONTEXT OF WHAT IS AVAILABLE IN THE HANDS OF THE ASSESSEE, SUBJECT OF COURSE TO ANY ADJUSTMENT FOR EXPENSES EXTRANEOUS TO THE TRUST. IF THE EXPRESSION 'INCOME' IS SO UNDERSTOOD, THEN ONE HAS TO TAKE THE ACCOUNTS OF THE ASSESSEE WITH REFERENCE TO THE RECEIPTS AND DEDUCT THEREFROM THE EXPENSES NECESSARY FOR EARNING OR LOOKING AFTER THAT INCOME. THE NET AMOUNT THAT REMAINS WOULD BE AVAILABLE FOR DISTRIBUTION OR APPLICATION FOR CHARITABLE PURPOSE. IN APPLYING THE INCOME FOR CHARITABLE PURPOSES, EVEN CAPITAL EXPENDITURE MAY BE INCURRED. THEREFORE, THE NATURE OF THE EXPENDITURE IN THE HANDS OF THE ENTITY WHICH RECEIVES THE MONEY IS NOT THE CRITERION. SO LONG AS THE ASSESSEE DISBURSES THE AMOUNT FOR CHARITABLE PURPOSES, WHETHER THE AMOUNTS ARE UTILISED FOR CAPITAL OR REVENUE PURPOSES BY THE CHARITY CONCERNED, THE ASSESSEE WOULD HAVE COMPLIED WITH THAT PART OF THE REQUIREMENT OF S. 11, NAMELY, APPLICATION OF THE INCOME FOR CHARITABLE PURPOSES. THE AUTHORITIES WILL HAVE TO FIND OUT AS TO WHETHER THEY ARE REALLY CHARITABLE PURPOSES OR NOT. SUBJECT TO SUCH EXAMINATION, THE APPLICATION OF THE INCOME FOR CHARITABLE PURPOSES WILL HAVE TO BE EXCLUDED AND IT IS ONLY THE BALANCE THAT WOULD REQUIRE EXAMINATION FOR FINDING OUT WHETHER THE ASSESSEE HAS COMPLIED WITH THE RULE OF ACCUMULATION TO THE EXTENT OF RS. 10,000 OR 25 PER CENT OF THE INCOME, WHICHEVER IS HIGHER. IN FACT WHEREVER THE STATUTE CONTEMPLATED THE INCOME BEING COMPUTED IN THE MANNER SET OUT IN THE PROVISIONS OF THE ACT, 8 ITA.NO.436/HYD/2012 SHARE INDIA, HYDERABAD. APPROPRIATE WORDS ARE USED. WHEREVER PARLIAMENT CONSIDERED THAT THE COMPUTATION SHOULD BE IN ACCORDANCE WITH THE PROVISIONS OF THE ACT, IT INTRODUCED THE CONCEPT BY USING APPROPRIATE LANGUAGE. IN THE ABSENCE OF ANY SUCH LANGUAGE IN S. 11(1), THE COMPUTATION AS ENVISAGED BY THE OTHER PROVISIONS OF THE ACT CANNOT BE IMPORTED INTO S. 11(1). THE INCOME FROM THE PROPERTIES HELD UNDER TRUST WOULD HAVE TO BE ARRIVED AT IN THE NORMAL COMMERCIAL MANNER WITHOUT REFERENCE TO THE PROVISIONS WHICH ARE ATTRACTED BY S. 14. FROM A PERUSAL OF THESE ACCOUNTS, IT IS CLEAR THAT SUBSTANTIALLY THE INCOME IS BY WAY OF GRANTS FROM THE GOVERNMENT AND THE EXPENSES ARE IN RUNNING THE TWO INSTITUTIONS. THERE IS SOME SURPLUS BUT THE SURPLUS WOULD BE REFERABLE TO THE EDUCATIONAL INSTITUTIONS AS SUCH. SEC. 10(22) WOULD EXEMPT THE WHOLE OF THE INCOME. THOUGH THE SCHOOLS THEMSELVES DO NOT APPEAR TO BE HELD IN TRUST, THEY ARE INSTITUTIONS BROUGHT INTO EXISTENCE BY THE TRUS T AND, THEREFORE, THE INCOME WOULD BE ELIGIBLE FOR EXEMPTION. IN FACT, IN THE PRESENT CASE, THERE IS A FINDING BY THE TRIBUNAL THAT THE TRUST WAS NOT CARRYING ON ANY BUSINESS OF RUNNING THESE SCHOOLS. IN VIEW OF THIS FINDING THE EXEMPTION IN ITS FULL AMPLITUDE AS CONTEMPLATED BY S. 10(22) WOULD APPLY. THE QUESTION OF 25 PER CENT ACCUMULATIONS WOULD, THEREFORE, HAVE NO RELEVANCE IN THE CONTEXT OF S. 10(22). 13. WE ALSO FIND THAT THE GUJARAT HIGH COURT HAS IN THE DECISION OF CIT VS. SHRI PLOT SWETAMBER MURTI PUJAK JAIN MANDAL (1995) 211 ITR 293 (GUJ.) HAS HELD AS FOLLOWS : A BARE PERUSAL OF THE PROVISIONS OF SS. 11(1)(A), 11(2) AND 11(3) SHOWS THAT THE INCOME DERIVED FROM THE PROPERTY HELD UNDER TRUST WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES 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 9 ITA.NO.436/HYD/2012 SHARE INDIA, HYDERABAD. 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 S. 11, 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 YEAR IN WHICH THE EXPENSES INCURRED FOR CHARITABLE AND RELIGIOUS PURPOSE HAD BEEN ADJUSTED. ACCORDING TO THE CBDT CIRCULAR NO. F. NO. 195/1/72-IT(A.I.) DT. 24TH JAN., 1973 IF A TRUST WANTS TO SPEND MORE MONEY FOR CHARITABLE AND RELIGIOUS PURPOSES IN A PARTICULAR YEAR, IT CAN TAKE LOAN AND THE SAID LOAN CAN BE REPAID OUT OF THE INCOME OF THE SUBSEQUENT YEAR AND THE PAYMENT OF THE SAID LOAN OUT OF THE INCOME OF THE SUBSEQUENT YEAR WOULD AMOUNT TO APPLICATION OF INCOME FOR CHARITABLE AND RELIGIOUS PURPOSE UNDER S. 11(1)(A). THE CONTENTION THAT ONLY THAT PART OF THE INCOME OF A CHARITABLE TRUST SHOULD BE EXCLUDED WHICH WAS APPLIED FOR CHARITABLE AND RELIGIOUS PURPOSES DURING THE RELEVANT ASSESSMENT YEAR IN WHICH THE INCOME WAS EARNED, CANNOT BE ACCEPTED, AS IT WOULD LEAD TO ANOMALOUS SITUATION. IF THE TRUST INSTEAD OF TAKING 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 DISENTITLED TO CLAIM 10 ITA.NO.436/HYD/2012 SHARE INDIA, HYDERABAD. EXEMPTION IN RESPECT OF SUCH REIMBURSEMENT UNDER S. 11(1)(A). THERE IS NOTHING IN THE LANGUAGE OF S. 11(1)(A) TO INDICATE THAT THE EXPENDITURE INCURRED IN THE EARLIER YEAR CANNOT BE MET OUT OF THE INCOME OF THE SUBSEQUENT YEAR AND UTILIZATION OF SUCH INCOME FOR MEETING THE EXPENDITURE OF THE EARLIER YEAR, WOULD NOT AMOUNT TO SUCH INCOME BEING APPLIED FOR CHARITABLE OR RELIGIOUS PURPOSES. THAT APART INCOME DERIVED FROM TRUST PROPERTY HAS TO BE DETERMINED ON COMMERCIAL PRINCIPLES AND IF COMMERCIAL PRINCIPLES FOR DETERMINING THE INCOME ARE APPLIED, IT IS BUT NATURAL THAT THE ADJUSTMENT OF THE EXPENSES INCURRED BY THE TRUST FOR CHARITABLE AND RELIGIOUS PURPOSES IN THE EARLIER YEAR AGAINST 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 SUCH ADJUSTMENT HAS BEEN MADE HAVING REGARD TO THE BENEVOLENT PROVISIONS CONTAINED IN S. 11 AND WILL HAVE TO BE EXCLUDED FROM THE INCOME OF THE TRUST UNDER S. 11(1)(A). THE DEFICIT ARISING OUT OF EXCESS OF EXPENDITURE OVER INCOME DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR SHOULD, THEREFORE, BE SET OFF AGAINST THE SURPLUS OF INCOME OVER EXPENDITURE RELATING TO SUBSEQUENT YEAR IN COMPUTING THE TAXABLE INCOME OF THE LATER ASSESSMENT YEAR. 14. HENCE, WE CONFIRM THE ORDER OF THE CIT(A) AND DIRECT THE A.O. TO VERIFY THE RECORDS AND IF TH E CLAIM OF THE DEFICIT OF RS.46,42,125/- IS FOUND TO BE CORRECT, THE SURPLUS SHOULD BE ARRIVED AT AFTER SET TING OF THE SAME FROM THE SURPLUS OF RS.55,73,560/- DURING THE CURRENT YEAR. THE TOTAL INCOME SHALL BE COMPUTED BY THE A.O. ACCORDINGLY. WITH THIS DIRECTIO N, THE DEPARTMENTAL APPEAL IS DISMISSED. 11 ITA.NO.436/HYD/2012 SHARE INDIA, HYDERABAD. 15. IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13.12.2013. SD/- SD/- (CHANDRA POOJARI) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATE 13 TH DECEMBER, 2013 VBP/- COPY TO : 1. ADIT (EXEMPTION)-II, HYDERABAD. 2. SHARE INDIA, 101, SKILL AVENUE APARTMENTS, HILL FOR T ROAD, HYDERABAD PAN AACTS 0527J 3. CIT(A)-IV, HYDERABAD 4. DIRECTOR OF INCOME TAX, (EXEMPTIONS), HYDERABAD 5. D.R. ITAT A BENCH, HYDERABAD.