IN INCOME TAX APPELLATE TRIBUNAL, BENCH- C, BANGALORE BEFORE SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA No.386 /Bang/2016 (Asst. Year 2006-07) Dy. Commissioner of Income-tax, (E) Circle-1, Bengaluru. . Appellant Vs. Federation of Karnataka Chambers of Commerce & Industry, Federation House, P.B. No.9996, Kempegowda Road, High Grounds Bengaluru-560 009. . Respondent Appellant by : Shri DK Jha, Addl. CIT Respondent by : Shri AC Raju, C.A Date of Hearing : 31-08-2016 Date of Pronouncement : 16-09-2016 ORDER PER ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER:` This appeal by Revenue is directed against order of Commissioner of Income-tax (Appeals) - 14 Bengaluru dated 28/12/2015 and it pertains to assessment year 2006-07. ITA No.386/B/16 2 2. While completing rectification order u/s. 154 of Income Tax Act, Assessing Officer had allowed set off for - A.Y. 1998-99 - Rs.10,85,310 A.Y. 1999-00 - Rs. 3,65,062 Rs.14,50,372 Restricted same to Rs.14,50,372/- without giving any reason against eligible amounts claimed by assessee. 3. Whereas assessee had claimed set off of:- Asst. Year Amount of deficit 2003-04 11,44,811 2002-2003 22,96,218 2001-2002 21,71,147 2000-2001 25,58,310 1999-2000 4,71,499 1998-1999 10,85,310 1997-1998 9,60,305 4. Aggrieved by this, assessee has come in appeal before CIT(A) and had raised following grounds: ITA No.386/B/16 3 i. DDIT is not correct in not setting off brought forward loss/deficit ii. DDIT is not correct in computing total income without considering loss or deficit relating to earlier. 5. assessee appeared for hearing and filed his written submissions and had relied on: CIT Vs.Maharana of Mewaar Charitable Foundation 164 ITR 39 (RAJ) DI Vs. Raghuvanshi Charitable Trust, 197 Taxman 170 (Del.) Trustees of Balkanji Bari (1979) 10 CTR (Trib.) 22 CIT Vs. Sacred Heart Church 278 ITR 180 (Guj) CIT Vs. Institute of Banking Personnel Selection 264 ITR 110 (Bom) Gem & Jewellery Export Promotion Council Vs. ITO (68 ITD 95) IT Appellate Tribunal Mumbai ITA No.386/B/16 4 Dy. Director of Income Tax (E)-I(1), Maharashtra Indl. Development Mumbai Tribunal in I.T.A. Nos. 4777/Mum/2009 Commissioner of Income Tax Vs. Matriseva Trust 242 ITR 20 (Madras High Court) 6. CIT(A) held as follows:- AR mentioned that as per section 1(1)(a) there is no restriction that entire income has to be applied in same year only, which means that excess application can be set-off in subsequent year out of receipt of income during next year. As corollary, therefore, it was claimed that excess application of any year can be set off in subsequent year. However, jurisdictional ITAT order in case of ACIT Vs City Hospital charitable trust (2015)42 ITR(Trib) 583 (Bangalore) and DCIT Vs Manipal Academy of Higher Education (2015)44 ITR(Trib) 18 (Bangalore) has considered issue in favour of assessee. However, department filed appeal on similar issue in Karnataka High Court and is pending. Respectfully following jurisdictional ITAT order in above cases, this ground of appeal is allowed. ITA No.386/B/16 5 7. Aggrieved department is in appeal before us and has raised following ground:- i) Whether, in given facts and circumstances, CIT(A) is correct without appreciating fact that normal computation of income under respective heads as envisaged u/s 15 to 59 are not applicable to computation of income in respect of charitable trust/institution for purpose of claiming exemption u/s 11, 12 and 13 and, therefore, provisions relating to set-off of loss from one source against 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 income of subsequent years as envisaged u/s 70 to 79 are also not applicable to charitable trust/institutions. ii) Whether, in given facts and circumstances, CIT(A) is correct without appreciating fact that issue of application of income more than income computed does not arise, except in case where assessee has incurred huge amount of capital expenditure sourced out of borrowed or corpus donations or 15% of income set part over period of time. However, expenditure incurred out of above sources cannot be termed as application of funds out of income earned in particular ITA No.386/B/16 6 assessment year in as much as loan borrowed does not fall under category of income earned by assessee, corpus fund donation does not come under income by virtue of section 11(1)(d) and 15% of income set apart in earlier assessment year cannot be construed as income of current year and 15% set apart out of current year income is also excluded from income available for application. As such, concept of application is only to show that income is fully utilized rather than claiming excess expenditure either revenue or capital over and above income so as to claim excess application or deficit/loss to be carried forward to subsequent assessment years. Even in case of excess application by virtue or borrowed funds/corpus fund donations/15% set apart of earlier years, income of assessee cannot be converted to loss but at best it can be made Nil. Hence, carry forward of excess application of income as claimed by assessee cannot be allowed. 8. We find that co-ordinate bench of tribunal has held as follows in case of Jyothy Charitable Trust [2015] 60 taxmann.com 165(Bangalore Trib.) ITA No.386/B/16 7 Section 11 of Income-tax Act, 1961 Charitable or religious trust Exemption of income from property held under (Application of income) Assessment year 2010-11 Whether in case of charitable trust whose income is exempt u/s 11, excess of expenditure incurred on religious and charitable purposes in earlier years can be adjusted against income of subsequent years and such adjustment would be regarded as application of income for subsequent years Held, yes [para 14] [In favour of assessee] 9. Respectfully following decision of co-ordinate bench in case of Jyothy Charitable Trust (Supra), Departmental appeal is dismissed. 10. In result, appeal filed by Department is dismissed. ITA No.386/B/16 8 Order pronounced in open court on 16th September, 2016. Sd/- (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER Bangalore Dated : 16/9/2016 Vms Copy to :1. Assessee 2. Revenue 3.The CIT concerned 4.The CIT(A) concerned 5.DR 6.GF By order Asst. Registrar, ITAT, Bangalore Dy. Commissioner of Income-tax, (E) Circle-1, Bengaluru v. Federation of Karnataka Chambers of Commerce & Industry