INCOME TAX OFFICER (EXEMPTION) WARD 2(1), MUMBAI V. NOBLE FOUNDATION, MUMBAI

ITA 6755/MUM/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 4838 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 28-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Charitable institution; Tax effect
• Section: 143(3); 12A; 28; 11

Judgement Text

1 ITA 6755/MUM/2017 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B, MUMBAI BEFORE SHRI SANDEEP GOSAIN (JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) ITA NO. 6755/MUM/2017 (ASSESSMENT YEAR : 2012-13) ITO (EXEMPTION), WD.2(1), MUMBAI VS M/S NOBLE FOUNDATION C/O VIBGYOR HIGH SCHOOL MOTILAL NAGAR-1, SRIRANG SABLE MARG GOREGAON (W), MUMBAI 400 104 PAN : AABTN2669K APPELLANT RESPONDEDNT APPELLANT BY SHRI ARVINDKUMAR RESPONDENT BY NONE DATE OF HEARING 10-01-2019 DATE OF PRONOUNCEMENT 15-02-2019 O R D E R PER G MANJUNATHA, AM : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF THE CIT(A)-1, MUMBAI DATED 14-09-2017 AND IT PERTAINS T O AY 2012-13. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1.1 WHETHER ON THE FACTS OF THE CASE AND IN LAW TH E LD. CIT(A) ERRED IN ALLOWING THE CARRY FORWARD OF DEFICIT OF EARLIER YEARS AND A LLOWING SET OFF AGAINST THE INCOME OF THE SUCCEEDING YEARS. 1.2 WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE ID.CIT(A) ERRED IN ALLOWING THE CLAIM OF THE ASSESS EE FOR CARRY FORWARD OF THE SAID 2 ITA 6755/MUM/2017 DEFICIT, IGNORING THE FACT THAT THERE WAS NO EXPRES S PROVISION IN THE I T ACT, 1961 PERMITTING ALLOWANCE OF SUCH CLAIM. 1.3 WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING THE CLAIM OF THE ASSESSEE FOR CARRY FORWARD OF THE SAID DEFICIT BY RELYING UPON THE JUDGMENT OF HON'BLE BOM BAY HIGH COURT IN THE CASE OF INSTITUTE OF BANKING PERSONNEL SELECTION, IGNORING THE FACT THAT THE DEPARTMENT HAS NOT ACCEPTED THE SAID DECISION OF THE JURISDICT IONAL HIGH COURT ON MERIT OF THE CASE, BUT DUE TO SMALLNESS OF TAX EFFECT APPEAL WAS NOT FILED BEFORE HONBLE SUPREME COURT. HOWEVER, ON THIS ISSUE THE DEPARTMEN T HAS FILED SLPS IN OTHER CASES BEFORE THE HON'BLE APEX COURT INCLUSIVE THE C ASE OF MIDC (SLP (CIVIL) 9891 OF 2014), IN WHICH LEAVE HAS BEEN GRANTED AND THE ISSUE IS PENDING FOR ADJUDICATION BEFORE THE HON'BLE SUPREME COURT AND T HE CASE HAS NOT REACHED FINALITY. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A TRUST REGISTERED UNDER THE BOMBAY PUBLIC TRUST ACT, 1950 AND U/S 12A OF THE INCOME-TAX ACT, 1961, ENGAGED IN THE CHARITABLE ACTIVITY OF PROVIDI NG SECONDARY AND COLLEGE EDUCATION. THE ASSESSEE HAS FILED ITS RETURN OF IN COME FOR AY 2012-13 ON 28- 12-2012 DECLARING NIL INCOME AFTER CLAIMING EXEMPTI ON U/S 11 OF THE INCOME- TAX ACT, 1961. THE CASE HAS BEEN SELECTED FOR SCRU TINY AND THE ASSESSMENT HAS BEEN COMPLETED U/S 143(3) OF THE INCOME-TAX ACT, 19 61 ON 26-03-2015 DETERMINING TOTAL INCOME AT NIL BY RESTRICTING EXCE SS APPLICATION OF INCOME FOR CHARITABLE PURPOSE AND OBJECTS OF THE TRUST TO BE C ARRIED FORWARD TO SUBSEQUENT YEARS AND SET OFF AGAINST INCOME OF SUBS EQUENT YEARS. 3. AGGRIEVED BY THE ASSESSMENT ORDER, ASSESSEE PREF ERRED APPEAL BEFORE THE CIT(A). BEFORE THE C IT(A), ASSESSEE FILED ELA BORATE WRITTEN SUBMISSIONS ON THE ISSUE WHICH HAS BEEN REPRODUCED AT PARA 5.1.2. ON PAGES 7 TO 11 OF THE ORDER OF LD.CIT(A). THE SUM AND SUBSTANCE OF ARGUM ENTS OF THE ASSESSEE 3 ITA 6755/MUM/2017 BEFORE THE LD.CIT(A) ARE THAT THERE IS NO EXPRESS P ROVISION PROVIDED UNDER THE ACT, IN RESTRICTING CARRY FORWARD OF EXCESS APPLICA TION OF INCOME FOR OBJECTS OF THE TRUST. IN CASE, THE ASSESSEE HAS SPENT OVER AN D ABOVE THE INCOME DERIVED FROM PROPERTY HELD UNDER TRUST. THE ASSESSEE FURTH ER STATED THAT THIS ISSUE HAS BEEN CONSIDERED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS INSTITUTE OF BANKING PERSONNEL SELECTION 204 ITR 11 0 (BOM) WHERE THE HONBLE JURISDICTIONAL HIGH COURT, AFTER CONSIDERING RELEVA NT PROVISIONS OF THE ACT, HELD THAT EXCESS APPLICATION OF INCOME FOR CHARITABLE PU RPOSES COULD BE CARRIED FORWARD AND SET OFF AGAINST INCOME OF SUBSEQUENT YE ARS. THE LD.CIT(A), AFTER CONSIDERING SUBMISSIONS OF THE ASSESSEE AND ALSO RE LYING UPON PLETHORA OF JUDICIAL PRECEDENTS INCLUDING THE DECISION OF HONB LE BOMBAY HIGH COURT IN THE CASE OF CIT VS INSTITUTE OF BANKING PERSONNEL SELEC TION (SUPRA) HELD THAT EXCESS APPLICATION OF INCOME FOR CHARITABLE PURPOSE OVER A ND ABOVE INCOME DERIVED FROM PROPERTY HELD UNDER TRUST CAN BE CARRIED FORWA RD TO SUBSEQUENT YEAR TO BE CLAIMED AGAINST INCOME FROM PROPERTY HELD UNDER TRUST. HOWEVER, WHILE ALLOWING THE BENEFIT OF CARRY FORWARD OF EXCESS APP LICATION, THE LD.CIT(A) FURTHER HELD THAT THE ASSESSEE CANNOT CLAIM DEDUCTI ON TOWARDS 15% OF INCOME ACCUMULATION AS PER THE PROVISIONS OF SECTION 11(1) (A) OF THE INCOME-TAX ACT, 1961. THE RELEVANT OBSERVATIONS OF THE LD.CIT(A) A RE AS UNDER:- 5.1.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS MADE BY THE ASSESSEE. I FIND THAT THE ISSUE RELATING TO CARRY FORWARD OF LOSS IS 4 ITA 6755/MUM/2017 COVERED IN FAVOR OF THE ASSESSEE BY THE DECISION OF THE HON'BLE JURISDICTIONAL BOMBAY HIGH COURT IN THE CASE OF CIT VS. INSTITUTE OF BANKING AND PERSONNEL SELECTION (SUPRA). IN THE SAID DECISI ON THE QUESTION BEFORE THE HON'BLE COURT WAS '3. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS JUSTIFIED IN LAW FORW ARD THE DEFICIT OF EARLIER YEAR AND SET IT OFF AGAINST THE SURPLUS OF SUBSEQUE NT YEARS WHEN THE SAME WAS NOT ALLOWABLE IN THE CASE OF ASSESSEE TRUST IN WHOSE CASE INCOME EXEMPTED UNDER SECTION 11 OF THE INCOME TAX ACT, 19 61 ?'....' 5.1.4 IN PARA 5 OF THEIR JUDGEMENT, THE HON. JURIS DICTIONAL BOMBAY HIGH COURT HELD AS FOLLOWS - '5. NOW COMING TO QUESTION NO, 3, THE POINT WHICH ARISE S FOR CONSIDERATION IS : WHETHER EXCESS OF EXPENDITURE IN THE EARLIER YEARS CAN BE ADJUSTED AGAINST THE INCOME OF THE SUBSEQUEN T YEAR AND WHETHER SUCH ADJUSTMENT SHOULD BE TREATED AS APPLIC ATION OF INCOME IN SUBSEQUENT YEAR FOR CHARITABLE PURPOSES? IT WAS ARGUED ON BEHALF OF THE DEPARTMENT THAT EXPENDITURE INCURRED IN THE EARLIER YEARS CANNOT BE MET OUT OF THE INCOME OF THE SUBSEQUENT Y EAR AND THAT UTILIZATION OF SUCH INCOME FOR MEETING THE EXPENDIT URE OF EARLIER YEARS WOULD NOT AMOUNT TO APPLICATION OF INCOME FOR CHARI TABLE OR RELIGIOUS PURPOSES. IN THE PRESENT CASE, THE ASSESSING OFFICE R DID NOT ALLOW CARRY FORWARD OF THE EXCESS OF EXPENDITURE TO BE SE T 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 SECT/ON 11 TO SECTION 13 OF THE I NCOME TAX ACT AND THAT THE INCOME OF THE CHARITABLE TRUST WAS NOT ASSESSABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS' UNDE R 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 AD JUSTED 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 RELIGIOUS PURPOSES IN THE EARLIER YEARS AGAINST THE INCOME EARNED BY THE TRUST IN THE SUBSEQUENT YEAR WILL HAVE TO BE RE GARDED AS APPLICATION OF INCOME OF THE TRUST FOR CHARITABLE AND . RELIGIOUS PURPOSES IN THE SUBSEQUENT YEAR IN WHICH ADJUSTMENT HAS BEEN MADE H AVING REGARD TO THE BENEVOLENT PROVISIONS CONTAINED IN SECTION 11 OF TH E ACT AND THAT SUCH ADJUSTMENT WILL HAVE TO BE EXCLUDED FROM THE INCOME OF THE TRUST UNDER SECTION LL(L)(A)OF THE ACT. OUR VIEW IS ALSO SUPPOR TED BY THE JUDGMENT OF THE GUJARAT HIGH COURT IN THE CASE OF CIT V. SHRI PLOT SWETAMBER MURTI PUJAK JAIN MANDAL (1995) 211 ITR 293 (GUJ). ACCORDINGLY, WE ANSWER QUESTION NO. 3 IN THE AFFIRMATIVE I.E., IN FAVOUR OF THE ASS ESSEE AND AGAINST THE DEPARTMENT ' 5.1.5 IN THE DIRECTOR OF INCOME-TAX (EXEMPTION) VS. M/S, GEM & JEWELLERY EXPORTS PROMOTION COUNCIL, INCOME TAX APPEAL (LOD) NO. 1113 OF 2010 DATED 15 TH FEBRUARY 2011, ONE OF THE TWO QUESTIONS RAISED BY THE DEPARTMENT BEFORE THE HON. BOMBAY HIGH COURT WAS 'W HETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE TRIBUNAL WAS RIGHT IN DIRECTING THE A.O. TO SET OFF THE DEFICIT OF EARLIE R YEARS TO THE SURPLUS OF THIS 5 ITA 6755/MUM/2017 YEAR AND CONSIDER SUCH ADJUSTMENT AS APPLICATION OF INCOME FOR CHARITABLE PURPOSE'. THE HON. HIGH COURT HELD AS FOLLOWS:- '4. AS REGARDS SECOND QUESTION IS CONCERNED, COUNSEL ON BOTH SIDES AGREE THAT THE SAID QUESTION IS COVERED AGAINST THE REVEN UE BY THE DECISION OF THIS COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. INSTITUTE OF BANKING REPORTED IN [2003] 264 L.T.R 110. IN THIS VIEW OF T HE MATTER, WE SEE NO MERIT IN THE APPEAL AND THE SAME IS DISMISSED WITH NO ORD ER AS TO COSTS.' 5.1.6 SIMILARLY, IN A RECENT DECISION OF TH E HON. ITAT, MUMBAI BENCH 'J', MUMBAI IN ITA NO. 5143/MUM/2016 FOR THE A.Y. 2011- 12 J DATED 12.5.2017 IN THE CASE OF ITO(EXEMPRION)-L(L) MUMBAI VS BOMBAY NATURAL HISTORY SOCIETY, THE GROUNDS OF APPE AL FILED BY THE REVENUE READ AS UNDER: '/. WHETHER ON THE FACTS ON THE CASE AND IN LAW THE LD. CIT(A) ERRED IN ALLOWING THE CARRY FORWARD OF DEFICIT OF RS. 52,98, 149/~ AND ALLOWING SET OFF AGAINST THE INCOME OF THE SUBSEQUENT YEARS. II. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING THE CLAIM OF THE ASSES SEE FOR CARRY FORWARD OF THE SAID DEFICIT, IGNORING THE FACT THAT THERE WAS NO EXPRESS PROVISION IN THE I, T. ACT, 1961 PERMITTING ALLOWANCE OF SUCH CLAIM. HI. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASES AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING THE CLAIM OF THE A SSESSEE FOR CARRY FORWARD OF THE SAID DEFICIT BY RELYING UPON THE JUDGEMENT O F HON'BLE HIGH COURT IN THE CASE OF INSTITUTE OF BANKING PERSONNEL SELECT/O N, IGNORING THE FACT THAT THE DEPARTMENT HAS NOT ACCEPTED THE SAID DECISION O F THE JURISDICTIONAL HIGH COURT ON MERIT OF THE CASE, ' 5.1.7 THE HON. ITAT, HELD THAT THE ID. CIT(A) HAS R IGHTLY FOLLOWED THE JUDGEMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE C ASE OF INSTITUTE OF BANKING PERSONNEL AND DIRECTED THE A.O. TO ALLOW TH E CARRY FORWARD AND SET OFF OF DEFICIT AFTER DUE VERIFICATION OF FACTS. THE HON. ITAT UPHELD THE ORDER OF LEARNED CIT(A). 5.1.8 THE CIT(A) IS BOUND TO FOLLOW THE ORDER OF TH E HON. JURISDICTIONAL HIGH COURT AND HON. THE ITAT. THE HON'BLE HIGH COURT OF BOMBAY, IN THE CASE OF DIRECTOR OF INCOME TAX (EXEM.) V/S. MAHARASHTRA INDUSTRIAL DEVELOPMENT CORPORATION [MIDCJ [ITA NO. 2652 OF 201 1] AFTER RELYING ON THE DECISION OF CIT V/S. INSTITUTE OF BANKING [264 ITR 110] [BOMBAY HIGH COURT], HAS DISMISSED THE APPEAL FILED BY THE DEPAR TMENT ON THE ISSUE OF CARRY FORWARD DEFICIT. HOWEVER, IT APPEARS THAT THE DEPARTMENT HAS FILED SLP BEFORE THE APEX COURT (SLP (CIVIL) 9891 OF 2014 ) AND THE MATTER IS PENDING BEFORE THE HON'BLE SUPREME COURT. THEREFORE , AS THE MATTER STANDS AS OF NOW, THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE HON. BOMBAY HIGH COURT. RESPECTFULLY FOLLOWING THE DECISIONS OF THE HON. BOMBAY HIGH COURT, I HOLD THAT THE DEFICIT OF THE C URRENT YEAR IS REQUIRED TO BE ALLOWED TO BE CARRIED FORWARD, IF CLAIMED BY THE ASSESSEE IN THE RETURN OF INCOME. 5.1.9 HOWEVER, FOR WORKING OUT THE DEFICIT FOR THE YEAR, BENEFIT OF ACCUMULATION OF 15% OF THE INCOME SHALL NOT BE ALLO WED TO THE ASSESSEE. , THE PRESENT CASE IS NOT A CASE WHERE THE WHOLE OF T HE INCOME HAS NOT BEEN APPLIED FOR CHARITABLE PURPOSES. RATHER, THE P RESENT CASE BEFORE US IS A CASE WHERE MORE THAN THE INCOME DERIVED BY THE ASSESSEE HAS BEEN APPLIED FOR CHARITABLE PURPOSES. THE QUESTION OF AN Y ACCUMULATION, 6 ITA 6755/MUM/2017 THEREFORE, WOULD NOT ARISE. THIS IS BECAUSE IF THER E IS NO INCOME AVAILABLE, THE QUESTION OF ACCUMULATING ANY INCOME WOULD NOT A RISE. MY ABOVE DECISION IS SUPPORTED BY THE DECISION OF T HE HON. ITAT 'G' BENCH MUMBAI IN THE CASE OF DAWAT INSTITUTE OF DAWO ODI BOHRA COMMUNITY IN ITA NO. 4309/MUM/2005 FOR THE A.Y. 200 1-02 DATED 30.4.2013, WHEREIN THE SAME ISSUE WAS INVOLVED. IT WAS HELD BY THE HON. ITAT AS FOLLOWS: '5. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVA L CONTENTIONS CAREFULLY. THE DISPUTE RAISED IN THIS APPEAL IS WHE THER THE ASSESSEE CAN STILL BE ALLOWED STATUTORY ACCUMULATION OF 25% OF THE INC OME U/S 11 (L)(A) OF THE IT ACT EVEN IF THE ENTIRE INCOME HAS BEEN APPLIED F OR THE YEAR AND NO INCOME IS LEFT FOR ACCUMULATION. THE AUTHORITIES BE LOW HAVE DISALLOWED THE CLAIM ON THE GROUND THAT THE ASSESSEE HAD INCURRED MORE EXPENDITURE TOWARDS THE APPLICATION OF INCOME THAN THE INCOME E ARNED. THEREFORE, THE CLAIM OF ACCUMULATION CANNOT BE ALLOWED. THE LEARNE D AR FOR THE ASSESSEE HAS HOWEVER ARGUED THAT THE ASSESSEE IS ENTITLED FO R STATUTORY ACCUMULATION OF 25% OF GROSS INCOME IRRESPECTIVE OF THE FACT WHE THER ANY INCOME IS LEFT FOR APPLICATION OR NOT. RELIANCE HAS BEEN PLACED ON THE JUDGMENTS OF THE JUHSDICTIONAL HIGH AND THE SUPREME COURT AS WELL AS THE DECISION OF COORDINATE BENCH OF TRIBUNAL IN ASSESSEE'S OWN CASE . WE HAVE CAREFULLY GONE THROUGH THE JUDGMENTS CITED. IN CASE OF CIT VS . PROGRAMME FOR COMMUNITY ORGANIZATION (SUPRA), THE ISSUE BEFORE TH E HORIBTE SUPREME COURT WAS WHETHER ACCUMULATION U/S LL(L)(A) HAS TO BE COMPUTED ON GROSS INCOME OR THE NET INCOME, IN THAT CASE INCOME RECEIVED BY THE TRUST WAS RS. 2,57,376/- AGAINST WHICH A SUM OF RS. 170369/-HAD BEEN APPLIED DURING THE YEAR LEAVING A BALANCE OF RS. 87 ,013/~. THE ISSUE WAS WHETHER PERCENTAGE OF ACCUMULATION SHOULD BE CO MPUTED WITH RESPECT TO THE GROSS INCOME OF RS. 2,57,3767- OR THE NET INCOME OF RS. 87,016/-. THE MON'BLE SUPREME COURT HELD THAT ACCUM ULATION HAD TO BE COMOUTED WITH RESPECT TO GROSS INCOME. THERE WAS NO ISSUE BEFORE THE HON'B/E SUPREME COURT AS TO WHETHER ACCUMULATION HA D TO BE ALLOWED OR NOT EVEN IF THE ENTIRE INCOME HAD BEEN APPLIED A ND NOTHING HAD BEEN LEFT DURING THE YEAR. 5.1 THE LEARNED AR FOR THE ASSESSEE HAS ARGUED THAT ACCUMULATION U/S LL(L)(A) WAS ABSOLUTE AND UNFETTERED IRRESPECTIVE O F THE FACT WHETHER SOME INCOME WAS LEFT FOR APPLICATION OR NOT. RELIANCE HA S BEEN PLACED ON THE JUDGMENT OF HON'BLE SUPREME COURT IN CASE OF ADDITI ONAL CIT VS. ALN RAO CHARITABLE TRUST (SUPRA) AND ON THE JUDGMENT OF HON'BLE HIGH COURT OF BOMBAY IN CASE OF CIT VS. TRUSTEES OF BHAT FAMIL Y RESEARCH FOUNDATION (SUPRA). WE HAVE CAREFULLY PERUSED THE S AID JUDGMENTS BUT DO NOT FOUND ANY RULING TO THE EFFECT THAT ACCUMULA TION U/S 11 (1) (A) HAS TO BE ALLOWED EVEN IF THE ENTIRE INCOME HAS ALREADY BEEN APPLIED DURING THE YEAR. IN CASE OF ADDITIONAL CIT VS. ALN RAO CHA RITABLE TRUST (SUPRA) THE ISSUE WAS WHETHER CONDITIONS PRESCRIBED U/S 11( 2) HAVE TO BE FULFILLED EVEN IN RESPECT OF ACCUMULATION MENTIONED IN SECTION 11 (1) (A). HON'BLE SUPREME COURT OBSERVED THAT IF THE ENTIRE I NCOME WAS SPENT ON CHARITABLE PURPOSES, THEN IT WILL NEVER TAXABLE BUT IN CASE THERE WAS SAVING, 25% OR TEN THOUSAND WHICHEVER WAS MORE COUL D NOT BE INCLUDED IN THE TOTAL INCOME. HON'BLE SUPREME COURT ALSO OBS ERVED THAT SECTION 11(2) FURTHER ENLARGED AND LIBERALIZED THE EXEMPTIO N. THE SECTION LL(2)WAS PRESSED INTO SERVICE IF THERE WAS STILL SO ME ACCUMULATED INCOME 7 ITA 6755/MUM/2017 LEFT TO BE DEALT WITH I.E. BEYOND 25% OR TEN THOUSA ND WHICHEVER WAS MORE. THIS ADDITIONAL INCOME COULD BE ACCUMULATED U /S 11(2) SUBJECT TO THE FULFILLMENT OF CONDITIONS MENTIONED THERE IN. B UT IN RESPECT OF ACCUMULATION OF 25% OR 10 THOUSAND WHICHEVER IS MOR E U/S LL(L)(A) F THE CONDITIONS MENTIONED U/S 11(2) COULD NOT BE APPLIED . IN OTHER WORDS, HON'BLE SUPREME COURT HELD THAT ACCUMULATION OF 25% OR 10 THOUSAND WHICHEVER WAS MORE WAS ABSOLUTE AND UNFETTERED WITHOUT ANY CONDITIONS. THUS OBSERVATIONS 'ABSOLUTE AND UNFETTERED EXEMPTIO N' WAS ONLY IN RELATION TO FULFILLMENT OF CONDITIONS MENTIONED IN SECTION 1 1(2). IT WAS NOT HELD BY THE HON'BLE SUPREME COURT THAT SUCH ACCUMULATION HAD TO BE ALLOWED EVEN IF THERE WAS NO INCOME LEFT FOR APPLICATION. 5.2 SIMILAR WAS THE POSITION IN CASE OF CIT VS. TRU STEES OF BHAT FAMILY RESEARCH FOUNDATION (SUPRA) IN WHICH THE FOUNDATION HAD EARNED INCOME OF RS. 4L,S13/- AGAINST WHICH IT HAD APPLIED THE SU M OF RS. 8,ISO/- LEAVING A BALANCE OF RS. 33,363/-. THE ASSESSING OFFICER HELD THAT FOR ALLOWING EXEMPTION, THE ENTIRE BALANCE AMOUNT OF RS. 33363/- HAS TO BE INVESTED IN GOVERNMENT SECURITIES AND BONDS AS PROVIDED IN SECT ION 11(2). THE HIGH COURT HELD THAT THE CONDITIONS OF INVESTMENT IN GOV ERNMENT SECURITIES AND BONDS WAS ONLY IN RELATION TO ANY ACCUMULATION BEYO ND THE ACCUMULATION OF 25% OR 10 THOUSAND WHICHEVER WAS MORE AS PROVIDED I N SECTION 11(1 )(A). IT WAS THUS HELD THAT IN SO FAR AS ACCUMULATION OF 25% OF INCOME I.E. RS. 10,378/- WAS CONCERNED, CONDITIONS FOR INVESTMENT I N GOVERNMENT SECURITIES WERE NOT REQUIRED TO BE FULFILLED AS THI S EXEMPTION WAS UNQUALIFIED AND UNCONDITIONAL. THE CONDITIONS WERE ONLY IN RESP ECT OF FURTHER ACCUMULATION OF BALANCE AMOUNT I.E. THE SUM OF RS. 22,900/- (33363- 10378). THUS EVEN IN THIS CASE, THERE WAS NO RULING THAT ACCUMULATION U/S LL(L)(A) HAS TO BE ALLOWED TO THE ASSESSES, EVEN IF THERE WAS NO INCOME LEFT FOR ACCUMULATION AND ENTIRE INCOME HAD ALREADY BEEN APPLIED. 5.3 AS REGARDS, THE DECISIONS OF TRIBUNAL IN ASSESS EE'S OWN CASE, WE FIND, THAT IN ASSESSMENT YEAR 2005-06, THE TRIBUNAL IN IT A NO 1588/MUM/2000 IN ASSESSEE'S OWN CASE ALLOWED THE CLAIM OF THE APPLIC ATION WITH RESPECT TO GROSS INCOME EVEN WHEN THERE WAS NO INCOME LEFT FOR APPLICATION, FOLLOWING THE DECISION OF SPECIAL BENCH OF TRIBUNAL IN CASE O F BAI SONABAI HIRJI TRUST VS. ITO (85 TTJ 907). THE TRIBUNAL HAD NOT DISCUSSE D THE ISSUE AS TO WHETHER ACCUMULATION CAN BE ALLOWED EVEN IF THERE I S NO INCOME LEFT. HOWEVER, ON PERUSAL OF DECISION OF SPECIAL BENCH OF TRIBUNAL (SUPRA) WE FIND, THAT THE ISSUE IN THE CASE WAS NOT WHETHER TH E ACCUMULATION CAN BE ALLOWED EVEN IF THE ENTIRE INCOME HAS ALREADY BEEN APPLIED. THE ISSUE WAS WHETHER THE PERCENTAGE OF ACCUMULATION HAD TO BE CO MPUTED WITH RESPECT TO THE GROSS INCOME OR NET INCOME. THUS THE TRIBUNA L IN THE ASSESSEE'S OWN CASE IN ASSESSMENT YEAR 2005-06 HAS ALLOWED THE CLA IM OF THE ASSESSEE WITHOUT ANY DISCUSSION ON THE ISSUE AND UNDER THE I MPRESSION THAT THE ISSUE HAD BEEN DECIDED BY THE SPECIAL BENCH OF TRIBUNAL ( SUPRA), IN CASE OF BAI SONABAI HIRJI TRUST VS. ITO THE DECISION WAS THUS B ASED ON INCORRECT ASSUMPTION OF FACTS. SUCH SUBSISTENTIO ORDER OF THE TRIBUNAL CANNOT BE CONSIDERED AS BINDING PRECEDENT. 5.1.10 THE SAID DECISION OF TRIBUNAL WAS ALSO FOLLO WED BY ANOTHER BENCH OF TRIBUNAL IN THE ASSESSEE'S OWN CASE IN THE ASSESSME NT YEARS 97-98-& 98-99 (SUPRA) IN WHICH THE TRIBUNAL ALSO REFERRED TO THE JUDGMENT OF HON'BLE SUPREME COURT IN CASE OF PROGRAMME FOR COMMUNITY ORGANIZATI ON (SUPRA) BUT AS POINTED OUT EARLIER THE ISSUE DECIDED BY THE APEX COURT IN CASE OF PROGRAMME FOR COMMUNITY ORGANIZATION (SUPRA) WAS NOT WHETHER ACCU MULATION HAD TO BE ALLOWED EVEN IF THERE WAS NO INCOME LEFT FOR APPLIC ATION BUT THE ISSUE WAS WHETHER 8 ITA 6755/MUM/2017 ACCUMULATION HAD TO BE COMPUTED WITH RESPECT TO GRO SS INCOME OR NET INCOME. SIMILARLY, THE TRIBUNAL ALLOWED THE CLAIM OF THE AS SESSEE IN THE ASSESSMENT YEARS 2002-03 AND 2003-04 (SUPRA) IN THE SAME MANNER. THE REFORE, THE DECISION OF TRIBUNAL IN ASSESSEE'S OWN CASE IN EARLIER YEARS IN OUR VIEW, CANNOT BE CONSIDERED AS BINDING PRECEDENT. AS REGARDS THE DEC ISION OF CIT (A) IN ASSESSMENT YEAR 2004-05 (SUPRA) NOTHING HAS BEEN PR ODUCED ON RECORD TO SHOW THAT IT WAS A CONSCIOUS DECISION OF THE GOVERNMENT TO ACCEPT THE ORDER. MERE FAILURE OF AN OFFICIAL TO NOT FILE APPEAL IN ONE YE AR COULD NOT BE THE GROUND TO MAKE A CLAIM IN THE SUBSEQUENT YEAR. THE INCOME CAN BE A CCUMULATED U/S LL(L)(A) IF SOMETHING REMAINED UNSPENT BUT IF THE ENTIRE INCOME HAS ALREADY BEEN SPENT, THE SAME IS FULLY EXEMPT FROM TAX AND THERE IS NOTHING LEFT TO BE ACCUMULATED. WE ARE THEREFORE, UNABLE TO ACCEPT THE ARGUMENTS ADVANCED ON BEHALF OF THE ASSESSEE THAT THE ACCUMULATION HAS TO BE ALLOWED EVEN IF THE ENTIRE INCOME HAS ALREADY BEEN SPENT BY THE ASSESSEE. WE ACCORDINGLY CONFIRM THE ORDER OF CIT (A) DISALLOWING THE CLAIM OF THE ASSESSEE. ' 5.1.10 IN THE CASE OF DAWAT INSTITUTE OF DAWOODI BO HRA COMMUNITY 116 TTJ MUM 673, THE ONLY GROUND TAKEN BY THE ASSESSEE WAS THAT THE CIT(A) HAVE ERRED IN UPHOLDING THE AO'S ORDER OF NOT ALLOW ING STATUTORY DEDUCTION AT 25 PERCENT OF THE GROSS TOTAL INCOME EVEN THOUGH THE SAME WAS LEGITIMATE CLAIM OF ACCUMULATION OF INCOME, DISREGA RDING THE PREVIOUS ORDERS OF THE CIT(A) AND THE JUDGMENT OF THE HON'BL E SUPREME COURT IN THE CASE OF CIT V. PROGRAMME FOR COMMUNITY ORGANISATION . THE HON'BLE ITAT IN PARA 13 OF THE ORDER HAVE HELD AS FOLLOWS ; '13. THE ISSUE IN DISPUTE IS WHETHER THE ASSESSEE I S ENTITLED TO FIRST ACCUMULATE OR SET APART 25 PER CENT OF THE TOTAL IN COME OF THE TRUST AND THEN CLAIM A CARRY FORWARD OF THE EXCESS AMOUNT, INCURRE D ON APPLICATION FOR PURPOSES OF THE TRUST, OVER AND ABOVE THE REMAINING INCOME I. E. 75 PER CENT OF THE TOTAL INCOME FOR ITS SET OFF AGAINST TH E INCOME OF THE TRUST IN SUCCEEDING YEAR. THE CARVING OF THE FUNDS TO THE EX TENT OF 25 PER CENT OF THE TOTAL INCOME IS HYPOTHETICAL SITUATION AND IT W AS NOT ENVISAGED BY THE LEGISLATURE. THE HON'BLE BOMBAY HIGH COURT IN THE C ASE OF INSTITUTE OF BANKING (SUPRA) HAVE EXAMINED THE SITUATION WHERE T HE ASSESSEE HAS INCURRED OR APPLIED THE EXPENDITURE MORE THAN THE T OTAL INCOME OF THE TRUST IN A PARTICULAR YEAR AND CLAIMED CARRY FORWARD OF T HE EXCESS EXPENDITURE TO SUCCEEDING YEAR FOR ITS SET OFF AGAINST THE INCOME OF THE TRUST AND THEIR LORDSHIPS HAVE HELD THAT THE INCOME DERIVED FROM TH E TRUST PROPERTY HAS ALSO GOT TO BE COMPUTED ON COMMERCIAL PRINCIPLES AN D IF THE COMMERCIAL PRINCIPLES ARE APPLIED THEN THE ADJUSTMENTS OF EXPE NSES INCURRED BY THE TRUST FOR CHARITABLE AND RELIGIOUS PURPOSES IN EARL IER YEARS AGAINST THE INCOME EARNED BY THE TRUST IN THE SUBSEQUENT YEAR W ILL HAVE TO BE REGARDED AS APPLICATION OF INCOME OF THE TRUST FOR CHARITABL E AND RELIGIOUS PURPOSES IN SUBSEQUENT YEARS IN WHICH THE ADJUSTMENTS HAVE BEEN MADE HAVING REGARD TO THE BENEVOLENT PROVISIONS CONTAINED IN SECTION 1 1 OF THE ACT, BUT IN THE INSTANT CASE, THE ASSESSEE HAS CLAIMED THE ACCUMULA TION OR SET APART OF 25 PER CENT OF TOTAL INCOME FIRST AND THEREAFTER CARRY FORWARD OF THE EXCESS EXPENDITURE INCURRED FOR CHARITABLE PURPOSES TO SUC CEEDING YEAR FOR ITS SET OFF AGAINST THE INCOME OF THE TRUST. THIS PROPOSITI ON OF THE ASSESSEE CANNOT BE ACCEPTED AS THE EXEMPTION IS TO BE ALLOWED ON AP PLICATION OF THE INCOME OF THE ASSESSEE AND NOT FOR ITS ACCUMULATION. THE A CCUMULATION OF 25 PER CENT OF THE TOTAL INCOME IS PERMISSIBLE WHEN THE AS SESSEE FAILED TO APPLY THE TOTAL INCOME OF THE TRUST IN A PARTICULAR YEAR. IF THE ASSESSEE APPLIES THE ENTIRE INCOME OF THE TRUST HE IS ENTITLED TO CLAIM 100 PER CENT EXEMPTION AND THERE IS NO QUESTION OF FURTHER ACCUMULATION OF 25 PER CENT OF THE TOTAL 9 ITA 6755/MUM/2017 INCOME OF THE ASSESSEE. IF THE ASSESSEE INCURS MORE EXPENDITURE THAN THE TOTAL INCOME OF THE TRUST THE EXPENDITURE OVER AND ABOVE TO THE INCOME CAN BE CARRIED FORWARD AND IS ALLOWED TO BE SET OFF AGA INST THE INCOME IN SUCCEEDING YEAR. IN THE INSTANT CASE, THE ASSESSES HAS INCURRED EXPENDITURE OR APPLIED FOR CHARITABLE RELIGIOUS PUR POSES RS. 58,09,87,048 AGAINST THE TOTAL INCOME OF RS. 35,60,82,101. IN TH IS CASE, HE IS ENTITLED TO CLAIM THE CARRY FORWARD OF THE EXCESS EXPENDITURE B UT HE WILL NOT BE ALLOWED TO ACCUMULATE 25 PER CENT OF THE TOTAL INCOME FIRST AND THEN CLAIM THE EXCESS EXPENDITURE FOR ITS CARRY FORWARD TO SUBSEQU ENT YEARS. WE ACCORDINGLY SET ASIDE THE ORDER OF THE CIT(A) AND R ESTORE THE MATTER TO THE FILE OF THE AO WITH A DIRECTION TO ALLOW THE CARRY FORWARD OF THE EXCESS EXPENDITURE INCURRED BY THE ASSESSEE TO SUBSEQUENT YEAR FOR ITS SET OFF ONLY IN TERMS INDICATED ABOVE. ' 5.1.11 IN THE CASE OF ITO(E)-II(1) VS LAKSHMI AND U SHA MITTAL (FORMERLY KNOWN AS THE LNM FOUNDATION), THE QUESTION RAISED B Y THE DEPARTMENT BEFORE THE HON. ITAT A BENCH MUMBAI IN ITA NO. 5383 /MUM/2011 FOR THE AY 2005-06 WERE AS FOLLOWS: '3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LD.CIT(A), MUMBAI ERRED IN DIRECTING THE AO TO CARR Y FORWARD THE DEFICIT OF RS. 2,78,81,409/- TO THE SUBSEQUENT YEAR IGNORING T HAT THE DEFICIT SO CLAIMED HAS ARISEN DUE TO EXCESS EXPENDITURE INCURR ED BY THE ASSESSEE TRUST.' 6. THE APPELLANT PRAYS THAT THE ORDER OF THE COMMISSIO NER OF INCOME- TAX (APPEALS)-XXX, MUMBAI BE SET-ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 7. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY.' 5.1.12 THE FACTS IN THAT CASE WERE THAT THE ASSESSE E-TRUST, FILED ITS RETURN OF INCOME AT RS. NIL ON 30-10-2005. AS PER THE CRITERI A OF CDBT CIRCULAR, THE CASE WAS SELECTED FOR SCRUTINY AND WAS FINALIZED U/ S. 143(3) OF THE INCOME- TAX ACT, 1961(ACT) BY THE ASSESSING OFFICER (AO). D URING THE YEAR UNDER CONSIDERATION, ASSESSEE-TRUST HAD RECEIVED GROSS-RE CEIPTS AMOUNTING TO RS. 10.35 CRORES AND HAD INCURRED A SUM OF RS. 11.5 8 CRORES FOR THE PURPOSES OF THE TRUST. AS PER THE CLAIM MADE BY THE ASSESSEE, IT WAS PERMITTED TO ACCUMULATE/SET-ASIDE 15% OF THE GROSS- RECEIPTS FOR APPLICATION FOR THE PURPOSES OF THE TRUST. ACCORDIN GLY, A CLAIM AMOUNTING TO RS. 1.55 CRORES (I.E. 15% OF THE GROSS RECEIPTS) WA S MADE U/S. LL(L)(A) OF THE ACT. AS PER THE ASSESSEE, AFTER CONSIDERING THE ACCUMULATED/SET ASIDE SUM AND THE ADDITIONAL SUM SPENT BY IT OVER ACCUMUL ATION, IT WAS ENTITLED TO CARRY FORWARD THE DEFICIT OF RS. 2.78 CRORES FOR SETTING OFF AGAINST FUTURE RECEIPTS OF SUBSEQUENT YEARS. AO REJECTED THE CLAIM MADE BY THE TRUST FOR CARRY FORWARDING OF THE SAID DEFICIT I.E. OF RS. 2. 78 CRORES. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTH ORITY (FAA). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDER, FAA HELD THAT THE ISSUE RAISED BY THE ASSESSEE-TRUS T WAS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION DELIVERED BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF INSTITUTE OF BANKING PERSONNEL (264 ITR 110). HE FURTHER MENTIONED THAT IN THE ASSESSEE'S OWN CASE F OR THE ASSESSMENT YEAR 2002-03, TRIBUNAL HAD DECIDED THE MATER IN FAV OUR OF THE ASSESSEE. 10 ITA 6755/MUM/2017 APPEAL FILED BY THE ASSESSEE-TRUST WAS ALLOWED BY T HE FAA. ON FURTHER APPEAL BY THE DEPARTMENT, THE HON. ITAT HELD AS FOL LOWS: 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, AND IN LAW, THE LD.CIT(A), MUMBAI ERRED IN NOT APPRECIATING THAT TH ERE IS NO PROVISION IN THE ACT TO CARRY FORWARD THE DEFICIT WHERE THE EXPENDIT URE WHICH CASES THE DEFICIT EXCEEDS THE INCOME.' 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, AND IN LAW, THE LD.CIT(A), MUMBAI ERRED IN APPRECIATING THE FACT TH AT THE PROVISIONS OF SEC. 11 CONTEMPLATE SUCH INCOME TO BE FROM THE CURRENT Y EAR WHICH IS TO BE APPLIED ON THE OBJECTS OF THE TRUST AND THE EARLIER YEARS ACCUMULATION OR OTHERWISE CANNOT BE EXPANDED ON THE OBJECTS OF THE TRUST RESULTING INTO DEFICIT. SUCH DEFICIT CANNOT BE ALLOWED TO BE CARRI ED FORWARD TO THE SUBSEQUENT YEARS AS THE SAME BEING AGAINST THE PRIN CIPLE AND LAW LAID DOWN UNDER THE ACT.' 'WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE PERUSED M ATERIAL PLACED BEFORE US. WE FIND THAT 'A' BENCH OF ITAT, MUMBAI V IDE ITS ORDER DTD.13- 05-2009 (ITA NO, 170/M/08 AY 2003-04) HAS DECIDED T HE SAME ISSUE VIDE PARA NO, 3 OF ITS ORDER AS UNDER: LAKSHMI AND USHA MITTAL (FORMERLY KNOWN AS THE LNM FOUNDATION) 'WE HAVE HEARD BOTH THE PARTIES, PERUSE THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE ISSUE WHETHER DEFICIT IN THE INCOME AND EXPENDITURE IN CASE OF CHARITABLE INSTITUTIONS CAN BE CARRIED FORWARD TO SUBSEQUENT YEAR AND ADJUSTED TOWARDS APPLICATION OF INCOME HAS BEEN DECIDED BY THE JURISDICTIONAL HIGH COURT IN THE CAS E OF INSTITUTE OF BANKING (SUPRA), IN WHICH IT HAS BEEN HELD THAT EXC ESS EXPENDITURE IN E.ARLIER YEAR CAN BE ADJUSTED AGAINST INCOME IN THE SUBSEQUENT YEAR AND SUCH ADJUSTMENT HAS TO BE TREATED AS APPLICATION OF INCOME IN THE SUBSEQUENT YEAR. THUS THE ASSESSEE WOULD BE ENTITLE D FOR CARRYING FORWARD OF DEFICIT TO SUBSEQUENT YEAR, WHICH WOULD BE TREATED AS APPLICATION OF INCOME IN THAT YEAR, HOWEVER, IN COM PUTING THE DEFICIT, ADDITION @ 15% OF THE GROSS RECEIPT CANNOT BE A/LOW ED AS SUCH ACCUMULATION IS PERMISSIBLE ONLY WHEN THE EXPENDITU RE IS LESS THAN THE INCOME WHICH IS NOT SO IN THIS CASE. THEREFORE, THE DEFICIT AVAILABLE FOR CARRY FORWARD TO THE SUBSEQUENT YEAR WILL BE ONLY R S. 75,58,503/-. THIS VIEW IS ALSO SUPPORTED BY THE DECISION OF THE TRIBU NAL IN THE CASE OF THE L.N.M. FOUNDATION IN ITA NO. 4422/M/05 IT IS, THERE FORE HELD THAT THE ASSESSEE WOULD BE ENTITLED FOR CARRY FORWARD OF DEF ICIT OF RS. 75,58,503/- WHICH WOULD BE TREATED AS APPLICATION OF INCOME IN THE SUBSEQUENT YEAR. WE HOLD, ACCORDINGLY.' 5.1.13 IN VIEW OF THE AFORESAID REASONS, AND IN VIE W OF THE DECISION OF THE HON. ITAT IN THE CASE OF LAKSHMI AND USHA MITTAL FO UNDATION AND IN THE CASE OF DAWAT INSTITUTE OF DAWOODI BOHRA COMMUNITY, THROUGH HIS HOLINESS DR. SYEDNA MOHAMMED BURHANUDDIN SANEB, ITA NO. 4309/MUM/2005 DATED 30.04.2013, AND THE DECISION OF THE HON'BLE ITAT MUMBAI BENCH IN 116 TTJ MUM 673, I AM OF THE VIEW T HAT THE ACCUMULATION OF 15% AS CLAIMED BY THE ASSESSEE FOR WORKING OUT THE DEFICIT IS NOT ALLOWABLE TO IT. THE AO SHALL COMPUT E THE DEFICIT FOR THE YEAR WITHOUT GIVING BENEFIT OF 15% ACCUMULATION. 11 ITA 6755/MUM/2017 4. NONE APPEARED FOR THE ASSESSEE. WE HAVE HEARD T HE LD.DR AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ISSUE INVOL VED IN THE PRESENT APPEAL, I.E. WHETHER CHARITABLE TRUST REGISTERED U/S 12A OF THE INCOME-TAX ACT, 1961 CAN CARRY FORWARD EXCESS APPLICATION OF INCOME OVER AND ABOVE INCOME DERIVED FROM PROPERTY HELD UNDER TRUST TO SUBSEQUENT YEAR O R NOT, IS NOT RES INTEGRA. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS INSTITUTE OF BANKING & PERSONNEL SELECTION (SUPRA) HAS CONSIDERED AN IDENT ICAL ISSUE IN THE LIGHT OF PROVISIONS OF SECTION 11 AND HELD THAT INCOME DERIV ED FROM TRUST PROPERTY HAS ALSO GOT TO BE COMPUTED AT COMMERCIAL PRINCIPLES AN D IF COMMERCIAL PRINCIPLES ARE APPLIED, THEN ADJUSTMENT OF EXPENSES INCURRED B Y THE TRUST FOR CHARITABLE AND RELIGIOUS PURPOSE IN THE EARLIER YEARS AGAINST INCOME EARNED BY TRUST IN THE SUBSEQUENT YEAR WILL HAVE TO BE REGARDED AS APPLICA TION OF INCOME OF THE TRUST FOR CHARITABLE AND RELIGIOUS PURPOSE IN THE SUBSEQU ENT YEAR FOR WHICH ADJUSTMENT HAS BEEN MADE HAVING REGARD TO THE BENEV OLENT PROVISIONS CONTAINED IN SECTION 11 OF THE ACT AND THAT SUCH AD JUSTMENT WILL HAVE TO BE EXCLUDED FROM THE INCOME OF THE TRUST U/S 11(1)(A) OF THE ACT. THE RELEVANT OBSERVATIONS OF THE COURT ARE AS UNDER:- '5. NOW COMING TO QUESTION NO, 3, THE POINT WHICH ARISE S FOR CONSIDERATION IS : WHETHER EXCESS OF EXPENDITURE IN THE EARLIER Y EARS CAN BE ADJUSTED AGAINST THE INCOME OF THE SUBSEQUENT YEAR AND WHETH ER SUCH ADJUSTMENT SHOULD BE TREATED AS APPLICATION OF INCOME IN SUBSE QUENT YEAR FOR CHARITABLE PURPOSES? IT WAS ARGUED ON BEHALF OF THE DEPARTMENT THAT EXPENDITURE INCURRED IN THE EARLIER YEARS CANNOT BE MET OUT OF THE INCOME OF THE SUBSEQUENT YEAR AND THAT UTILIZATION OF SUCH INCOME FOR MEETING THE 12 ITA 6755/MUM/2017 EXPENDITURE OF EARLIER YEARS WOULD NOT AMOUNT TO AP PLICATION OF INCOME FOR CHARITABLE OR RELIGIOUS PURPOSES. IN THE PRESENT CA SE, THE ASSESSING OFFICER DID NOT ALLOW CARRY FORWARD OF THE EXCESS OF EXPEND ITURE 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 SECT/ON 11 TO SECTION 13 OF THE I NCOME TAX ACT AND THAT THE INCOME OF THE CHARITABLE TRUST WAS NOT ASSESSAB LE 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 SUBS EQUENT YEARS. WE DO NOT FIND ANY MERIT IN THIS ARGUMENT OF THE DEPARTMENT. INCOM E 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 RELIGIOUS PURPOSES IN THE EARLIER YE ARS AGAINST THE 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 ADJUSTMENT HAS BEEN MADE HAVING REGARD TO THE BENEVOLENT PROVISIONS CONTAINED IN SECTION 11 OF THE ACT AND THAT SUCH AD JUSTMENT WILL HAVE TO BE EXCLUDED FROM THE INCOME OF THE TRUST UNDER SECTION LL(L)(A)OF THE ACT. OUR VIEW IS ALSO SUPPORTED BY THE JUDGMENT OF THE GUJARAT HIGH COURT IN THE CASE OF CIT V. SHRI PLOT SWETAMBER MURTI PUJAK JAIN MANDAL (1995) 211 ITR 293 (GUJ). ACCORDINGLY, WE ANSWER QUESTION NO. 3 IN THE AFFIRM ATIVE I.E., IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT ' 5. IN THIS VIEW OF THE MATTER AND RESPECTFULLY FOLL OWING THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS INS TITUTE OF BANKING & PERSONNEL SELECTION (SUPRA), WE ARE OF THE CONSIDER ED VIEW THAT THERE IS NO ERROR IN THE FINDINGS RECORDED BY THE LD.CIT(A) TO ALLOW CARRY FORWARD AND SET OFF OF EXCESS APPLICATION OF INCOME FOR CHARITABLE PURPOSE, HENCE, WE ARE INCLINED TO UPHOLD THE FINDINGS OF THE LD.CIT(A) AN D DISMISS APPEAL FILED BY THE REVENUE. 6. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED. 13 ITA 6755/MUM/2017 ORDER PRONOUNCED IN THE OPEN COURT ON 15-02-201 9. SD/- SD/- (SANDEEP GOSAIN) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 15 TH FEBRUARY, 2019 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI