Devendra Kumar Garg Charitable Trust, ... vs Department Of Income Tax

ACIT, Circle-1, Vs. M/s Devendra Kumar Garg Meerut. Charitable Trust, 61, Shivaji Road, Meerut.

(PAN AABTD 0942 R)

(Appellant) (Respondent)

Date of hearing : 17.03.2015 Date of Pronouncement : 20.03.2015

Appellant by : Smt. Parwinder Kaur, Sr. DR. Respondent by : Sri Sampath, And Sri Raj Kumar, Advocates

ORDER

PER SHRI GEORGE GEORGE K, JM:

1. This appeal, at the instance of the Revenue is directed against the CIT(A)'s

order dated 29.04.2013. The relevant assessment year is AY 2008-09.

2. The Grounds raised in this appeal reads as follows:-

"1. Whether in the facts and circumstances of the case, the Ld. CIT (Appeals) has erred in law in allowing the loss of Rs.4,75,54,136/- claimed by the assessee trust on a/c of capital expenditure incurred during the year, ignoring the commercial principles according to which capital expenditure does not relate to income & expenditure account at all and hence, capital loss cannot be allowed to be carried forward for set off against future income.

ITA No.4118/Del /2013 2 2. Whether in the facts and circumstances of the case, the Ld. CIT (Appeals) has erred in law in allowing the loss of Rs. 4,75,54,136/- claimed by the assessee trust relying upon the various decisions as mentioned in the appellate order whereas the said decisions relate to some other distinguishable points i.e. allowability of brought forward business losses worked out according to commercial principles and not with the carry forward of losses on a/c of capital expenditure.

3. Whether in the facts and circumstances of the case, the Ld. CIT (Appeals) has erred in law in allowing the loss of Rs.4,75,54,136/- claimed by the assessee trust without rebutting the AO's finding that the loss claimed by the assessee was due to capital expenditure as admitted and mentioned by the assessee itself in computation of income enclosed with the return.

4. That the appellant craves leave to add, modify and/or delete any ground(s) of appeal.

5. In the facts and circumstances of the case, the order of the Commissioner of Income-tax (Appeals) may be set aside and that of the A.O. restored."

3. Briefly stated the facts of the case are as follows.

The assessee is a society running a school. The return of income was filed on

30.09.2008, disclosing a loss of Rs.4,75,54,136/-. The assessment was taken up for

scrutiny and assessment u/s 143(3) of the Act was completed by order dated

16.12.2010. The Assessing Officer denied the benefit of carry forward of loss. The

Assessing Officer was of the view, the loss was on account of capital expenditure

incurred during the year and same cannot be allowed to be carried forward to be set

off against the surplus of the subsequent year.

4. Aggrieved, the assessee preferred an appeal before the CIT(A). The CIT(A)

allowed the claim of the assessee. The relevant finding of the CIT(A) in allowing

the claim of the assessee reads as follows:-

"4......I have carefully considered the submissions filed by the appellant during the course of appellate proceedings and I have also gone through the various judgments of superior authorities as cited and relied upon by the appellant in support of its ITA No.4118/Del /2013 3

claim for carry forward and set off of losses against future year's surplus. I have also perused the relevant material available On record and find that the issue in question stands already resolved in favour of the assessee. The issue involved in the instant appeal is squarely covered by various judgments of superior authorities as cited by the appellant in. its written submission and I also find that in above judgments various Hon'ble Courts have held that in the cases of trust claiming exemption u/s. 11 of the I.T. Act, 1961, the losses have to be allowed to be carried forward for set off against the subsequent year's surplus, if any. In view of above, respectfully relying on above rulings of various Hon'ble Courts I hold that the income of the trust is to be computed on commercial principles and in case excess expenditure over and above the income received by the Society has been incurred in earlier year(s) on charitable purpose, such excess (loss) has to be carried forward and set off against the subsequent year's surplus, if any, and such adjustment of loss/deficit of current year against income / surplus of subsequent year would amount to application of income of the trust for charitable purpose in subsequent year within the meaning of section 11 (i) (a) of the I.T. Act, 1961."

5. The Revenue being aggrieved is in appeal before us. Ld. DR relied on the

order of the assessment. On the other hand, the Ld. counsel for the assessee

submitted that the issue in question is squarely covered by the order of the Tribunal

in the case of Addl. CIT Vs. M/s City Educational & Social Welfare Society in ITA

No. 5627/Del/2010 (order dated 26.08.2011).

6. We have heard rival submissions and perused the material on record. The

solitary issue that arises for our consideration is whether the CIT(A) is justified in

allowing the benefit of carried forward of loss. The Assessing Officer held that the

loss suffered was on account of capital expenditure and as such same cannot be

allowed to be carried forward to subsequent years. This issue according to us is no

longer res integra. The Delhi Bench of the Tribunal in the case of Addl. CIT Vs.

M/s City Educational & Social Welfare Society (supra) had held that the assessee is

entitled to carry forward the losses against the subsequent year's surplus. The

relevant findings of the coordinate Bench order reads as follows:- ITA No.4118/Del /2013 4

"5.......The CIT(A) has made a reference in those assessment years to section 11(4) of the Income-tax Act. In the case of CIT Vs. Institute of Banking reported in 264 ITR page 110 an argument was raised before the Hon'ble Mumbai High Court by the revenue that in the case of a charitable trust, their income was assessable under self contained code mentioned in section 11 to 13 of Income-tax Act and that the income of the charitable trust was not assessable under the head "profit and gains of business" u/s 28 in which the provision for carry forward of losses was relevant. According to the revenue, there was no provision for carry forward of the excess of expenditure of earlier years to be adjusted against the income of subsequent years. This argument was rejected by the Bombay High Court and it has been held that 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 religious purpose in the earlier years against the income earned by the trust in the subsequent year will have to be regarded as application of the income of the trust for charitable and religious purpose. The learned CIT(A) has followed this decision apart from others referred above......"

6. In result, the appeal of the revenue is dismissed."

7. In view of the above order of the Tribunal, we hold the CIT(A) is justified in

allowing the claim of the assessee to carry forward the losses of the current year

against surplus of the subsequent year. It is ordered accordingly.

8. In the result, the appeal filed by Revenue is dismissed.

The decision was pronounced in the open Court on 20th March, 2015.

Sd/- Sd/- (N.K. SAINI) (GEORGE GEORGE K.) Accountant Member Judicial Member

Dated: 20th March, 2015. Aks/-

Copy forwarded to 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi