1990-VIL-89-ITAT-

Equivalent Citation: ITD 033, 320,

Income Tax Appellate Tribunal BOMBAY

Date: 28.02.1990

SEVENTH INCOME-TAX OFFICER.

Vs

TRUSTEES OF SRI SATHYA SAI TRUST.

BENCH

Member(s)  : N. R. PRABHU., JORDAN KACHCHAP.

JUDGMENT

Per N.R. Prabhu, A.M. --- This is a departmental appeal and the only ground of appeal is that the Appellate Assistant Commissioner was in error in directing the I.T.O. to carry forward the deficit of the current year of Rs. 7,28,290 for set off against the capital gains of a future year.

2. It is contended on behalf of the Department that such order of the AAC is without any justification. Under the provisions of sec. 11, an assessee could claim that it might be permitted to set apart a part of the income within the limits prescribed under the statute for a specific purpose. Where the amounts have been spent in excess of the income of the trust, there could be no carry forward of the deficit and for that reason, the order of the AAC would appear to be erroneous. The AAC in ordering the ITO to carry forward the deficit has traversed beyond the provisions of the Act and thus exceeded his jurisdiction.

3. The learned counsel for the assessee, on the other hand, contends that the order passed by the AAC is not open to any serious challenge. The assessee is, admittedly, a charitable institution and it would be open to the assessee in any particular year to spend the amount in excess of the income of the trust. In such a case for the purpose of determining whether the income applied for charitable purpose in a subsequent year exceed or is less than the income of the trust, the deficit of the earlier year should be considered. Apart from this, the amount spent was the amount received by the assessee as an advance in respect of the sale of the property. This remained as advance only for the reason that the Deed transferring the property could not be registered during the current year. Such advance has to be treated as income of the trust and if that is done, there would be no deficit. The income for the purpose of sec. 11 of the I.T. Act is not to be regarded in a commercial sense. Any amount that comes within the coffers of the trust would be its income. In the circumstances, the order passed by the AAC has to be upheld. Our attention in this connection is invited the decision of the Tribunal in First ITO v. Trustees of Balkanji-Bari [1979] 2 Taxman 377 (Bom.), where the Tribunal has taken a view similar to the one taken by the AAC. While granting the impugned relief, the AAC has in fact relied on this decision of the Tribunal.

4. We have heard the parties to the dispute and in our opinion, the order passed by the ITO in which he did not allow the carry forward of the deficit cannot be called in question. The primary object of the scheme dealing with the charitable trust is to grant exemption to an institution which wholly exists for charitable purposes, in regard to its income. Such income is confined to the income applied for charitable purpose. This is for the reason that charity is a laudable object and has to be encouraged. But where expenditure has been incurred in excess of the income, the same cannot be allowed to be carried forward. There is provision for accumulation of a part of the income if the same is for a specific purpose. But there is no provision in the Act to carry forward the deficit where the expenditure which causes this deficit exceeds the income and even if such expenditure is for the object of the trust. Provisions of section 11 would clearly go to show that the exemption that is contemplated is in respect of the income mentioned in that section and which is otherwise includible in the total income. The scheme contemplates a computation of the total income by the ITO as the first step. Income applied for charitable purpose is thereafter made exempt. If there is a loss or deficit in the computation of the total income, that alone, therefore, could be carried forward. Where the deficit arises as a result of excess spending for charitable purposes, such excess will not form part of the total income or loss and the same therefore cannot be carried forward. The claim of the assessee that the advance received by it in regard to the sale of property is in the nature of income has also to be rejected for the simple reason that such advance cannot go into the computation of the total income. It would be so even if we regard as claimed by the assessee that the income of the trust for the purpose of the Act cannot be regarded in a commercial sense. Thus, what emerges is that there is no loss in the computation of the total income of the trust which is entitled to be carried forward. The deficit arises out of the application of sums not in the nature of income and such deficit is not capable of being carried forward, because there is no provision in the Act even remotely suggesting such procedure. We are aware of the apprehension of the assessee that in the year in which transfer takes a concrete shape, capital gains would be determined and that might be subject to tax ignoring the application of such income in the earlier years. But that is a matter which is to be considered in the year in which the income under the head Capital gains arises. We are also of the view that reliance placed by the assessee on the case in Trustees of Balkan-ji-Bari would not in any way advance its case. That was a case where the Tribunal had observed that if there were substantial carry forward losses in respect of its activities, the assessee charitable trust would be entitled to recoup the deficits by not spending subsequent income fully. The facts are not on all fours and we are of the view that the reliance on that decision is totally misplaced.

5. In the result, the appeal is dismissed

 

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