TATA Trust Allowed to Carry Forward of Deficit from Excess Charitable Expenditure for Set-Off in Subsequent Years: ITAT [Read Order]

The Mumbai Bench of the Income Tax AppellateTribunal (ITAT) held that a charitable trust can carry forward and set off the deficit resulting from spending more than its income on charitable activities against the income of subsequent years.

Tata Education Trust (assessee) for whom the Assessing Officer (AO) had disallowed the carry forward of the deficit. The assessee contended that once the calculation of its income was correctly restored by allowing its claim for exemption under section 10(34) and 10(35) of the Act, the resulting deficit from excess charitable expenditure must be allowed to be carried forward.

The AO's stance was rooted in the denial of other exemptions to the Trust, which in turn led to a computation showing a shortfall in the mandatory 85% application of funds under Section 11 of theIncome Tax Act.

Aggrieved by the AO’s order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) confirmed the AO’s order. Aggrieved by the CIT(A)’s order, the assessee filed an appeal before the ITAT.

The counsel for the assessee argued that the calculation of its income was restored by allowing its claim of exemption under section 10(34) and 10(35) of the Income Tax Act. Therefore, the counsel submitted that the deficit from excess charitable expenditure must be allowed to be carried forward.

The two-member bench comprising Saktijit Dey (Vice President) and Narendra Kumar Billaiya (Accountant Member) noted that this issue was settled by binding judicial precedents.

Relying on the decision of the Coordinate Bench in the case of DCIT vs. Sir Dorabji Tata Trust and the Supreme Court’s observations in CIT (Exemption) vs. Subros Educational Society, the tribunal ruled in favour of the assessee.

The bench held that since the issue stands concluded by higher judicial forums, the deficit arising due to the excess application of funds toward charitable purposes is eligible to be carried forward for set-off against the income of subsequent years. In the result, the appeal filed by the assessee on this ground was allowed.

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