income tax

Trust Expenditure Offsets: ITAT Ruling in DCIT vs. Shree Bhartimaiya Memorial Foundation

Introduction

This article examines the case of DCIT (E) vs. Shree Bhartimaiya Memorial Foundation as adjudicated by the ITAT Ahmedabad. The main issue pertains to whether a trust can set off excess expenditure incurred in prior years against income in subsequent years, specifically under Section 11 of the Income Tax Act.

Overview of the Case

The appeal brought forth by the Revenue challenges the decision of the Commissioner of Income Tax (Appeals)-9, Ahmedabad (CIT(A)), issued on September 19, 2017, following the assessment order passed by the Assessing Officer (AO) on March 30, 2016. This relates to the assessment year 2013-14.

Revenue's Ground of Appeal

The Revenue's primary contention is stated as follows:

  1. The Ld. CIT(A) erred by permitting the carry forward of excess expenditure for future years against future income, despite the absence of explicit provisions in the Act regarding such action.

Details of the Trust’s Claim

The appellant is a public charitable trust registered under Section 12A(a) of the Income Tax Act. For the assessment year in question, the trust claimed a set off of deficits totaling ₹1,21,07,908 from the earlier assessment year 2009-10. The AO disallowed this claim during the assessment under Section 143(3) of the Act.

CIT(A)'s Ruling

In the first appeal, the CIT(A) ruled in favor of the trust, allowing the carry forward of excess expenses to future years.

Tribunal's Review

The Revenue, unhappy with the CIT(A)'s decision, appealed to the Tribunal. Here are the critical aspects of the Tribunal's assessment:

  1. The core question addressed is whether the trust incurred a deficit from excess spending in the reported year and if prior years' excess expenditure could be set off against subsequent income under Section 11 of the Act.

  2. The Hon'ble Gujarat High Court's decision in CIT vs. Shri Plot Shwetamber Murti Pujak Jain Mandal (1995) 211 ITR 293 supports the position favoring the assessee. It confirms that Section 11(1)(a) does not stipulate that income must be applied solely in the year it is generated. Instead, prior year expenditures can be settled with subsequent year incomes.

  3. This interpretation reinforces that income derived from trust property should be calculated based on commercial principles, allowing deficits from prior years to be offset against surpluses in later years.

  4. The Tribunal endorses similar conclusions found in cases such as CIT vs. Maharana of Mewar Charitable Foundation (1987) 164 ITR 439 and CIT vs. Matriseva Trust (2000) 242 ITR 20. The Supreme Court's decision in CIT(Exemption) vs. Subros Education Society (2018) 303 CTR 1 further clarifies this position.

Conclusion

The Tribunal finds no reasons to dispute the CIT(A)'s ruling based on established judicial precedents. Accordingly, the appeal filed by the Revenue is dismissed, affirming the proper application of the law concerning the trust's expenditure and income treatment.