MRPL Education Trust Vs CIT (ITAT Bangalore)
Bangalore ITAT: Unregistered Educational Trust Assessed as AOP Entitled to Set-Off of Brought Forward Losses
The Bangalore ITAT held that an educational trust, though not registered under section 12A or eligible for exemption under section 10(23C), is entitled to carry forward and set off brought forward excess expenditure if it is assessed as an Association of Persons (AOP). The Tribunal observed that once the Revenue assesses the trust in the status of an AOP, it cannot deny the statutory benefits available to an AOP under the Income-tax Act merely because the trust lacks registration under section 12A or section 10(23C).
In the present case, the assessee’s claim for exemption under section 10(23C)(iiiad) was denied as its annual receipts exceeded the prescribed limit and it was not substantially financed by the Government. The PCIT, in proceedings under section 263, also disallowed the set-off of brought forward excess expenditure. Reversing this view, the Tribunal held that the assessee, having been assessed as an AOP, was entitled to the benefit of the provisions relating to carry forward and set-off of losses under section 72, subject to satisfaction of the statutory conditions. The Assessing Officer was accordingly directed to allow the claim if it otherwise complied with section 72.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
1. This appeal is filed by MRPL Education Trust against the order dated 23 July 2025 passed by the CIT(A), whereby the appeal filed by the assessee against the assessment order passed under section 143(3) read with sections 263 and 144B of the Income-tax Act, 1961, on 18 March 2024 by the National Faceless Assessment Centre, Delhi, was dismissed.
2. Grounds of the assessee are that The CIT (Exemptions) under the provisions of Section 263 has erred in not allowing set off of brought forward excess of expenditure over income of previous year with current year’s Income on the grounds that the Trust is not registered u/s. 12A of the Income-tax Act. An appeal was filed against the said order before the CIT(A) and CIT(A) confirmed the same without verifying the facts and just confirming the order passed by CIT (Exemptions), Bangalore. After scrutiny of the return filed for the A.Y. 2018-19, the Assessing Officer had passed order u/s.143(3) of the I.T. Act in favour of the Appellant. The Income Tax Department, CIT(Exemptions), Bengaluru, reopened the case issuing a notice u/s. 263 of the I.T. Act dated 16.02.2023 seeking explanation as to why the same should be allowed (excess of expenditure of earlier years to the income of current year by way of set off). Replies were filed by the Appellant and without considering the explanations given, the CIT (Exemptions) proceeded in not allowing the brought forward excess of expenditure over income of the earlier year against the income of the current year considering the same as AOP. For the Assessment Year 2010-11, 2013-14, 2016-17 and 2017-18 similar issues had been raised in the absence of availability of Registration u/s. 12A. The Trust was evidenced by a valid Trust Deed. However, at the time of applying for registration, the CIT Exemption pointed out that certain mandatory clauses had to be incorporated. The Trust being run by the Mangalore Refineries & Petrochemical Ltd.,(MRPL), a subsidiary of ONGC, a Government of India Enterprise represented by its Trustees who are employees of MRPL. For lack of change in the Trust Deed by incorporating the requisite clauses registration was not granted. The Appellant had filed appeal before the CIT (Appeals) for the A.Y. 2013-14 and by order dated 27.01.2016 considering the facts and circumstances and genuineness of the explanation given by the Appellant. Moreover, considering principles of natural justice, the CIT(Appeals) had passed an order in favour of the Appellant considering the Trust as AOP and brought forward excess of Expenditure over Income of earlier years were allowed to be set off against the income of the said year where appeal has been preferred. Relying on the decision of our own case, the excess of expenditure over income of the A.Y 2010-11, 2014-15 and 2017-18 was set off against the income of the A.Y. 2018-19.The Assessing Officer under the Faceless Assessment e-proceedings did not considered the orders passed by the jurisdictional Assessing Officer during various assessments as well as decision given by the CIT(Appeals) in Appellant’s favour, allowing the excess of expenditure over income of earlier years be allowed to be set off against the income of the year. If a Trust is not registered u/s.10(23C)(iad), an assessee has to be considered as AOP undertaking business and therefore all the expenses incurred have to be allowed as deduction from the income received and only the balance income has to be taken for considering levy of tax. It is submitted that the school receives various types of fees from the students and gives them education. This argument has been accepted in earlier assessments by the Preceding Officers. As per the order u/ s.143(3) r.w.s. 263 r.w.s. 144B of the I.T.Act the Assessing Officer did not allowed as sum of Rs.74,88,119/- being brought forward excess of Expenditure over Income of earlier years to be set off against the income for the year under consideration considering the Appellant as an AOP. The Appellant is a Public Charitable Trust rendering yeoman services in the field education. None of the Trustees nor the Authors have benefited from the activities of the Trust. Since the Trust was considered as AOP for earlier years excess of expenditure over income had been allowed to be carried forward and set off against income. Circular No.320 dated 11.01.1982 clearly states that where the trustees were not entitled to any share in the income of the Association of Persons, the provision of Section 167A are not attracted and accordingly tax will be payable in such cases at the rates ordinarily applicable to the total income of an Association of Persons. The provisions brought forward set off of losses u/s.72 and brought forward depreciation loss u/s. 32(1) available to AOP’s as an assessee under the Income-tax Act, as the Trust was considered as an AOP, but denying the same, the CIT(Exemptions) has denied the assessee the principles of natural justice.
2. The assessee is an educational society running Delhi Public School at MRPL Township, Mangalore, Karnataka, to provide education to the children of MRPL employees as well as other students. The assessee filed its return of income on 3 November 2018 and revised it on 23 March 2019, declaring nil income after claiming exemption under section 10(23C)(iiiad) of the Income-tax Act. The assessment was completed under section 143(3) of the Act on 10 January 2021 at the returned income, with the assessee assessed in the status of an Association of Persons. Subsequently, the learned PCIT invoked section 263 of the Act and set aside the assessment order by order dated 30 March 2023.
3. It was found that the assessee had total receipts of ₹7,15,38,825, including school fees of ₹6,59,79,386, other collections, and interest income. Since the aggregate annual receipts exceeded ₹1 crore, the assessee was held to be ineligible for exemption under section 10(23C)(iiiad). It was also found that the assessee was not a substantially government-financed institution entitled to claim exemption. Accordingly, the learned PCIT held that the surplus of ₹74,31,890 was taxable. The assessee contended that even if exemption under section 12A or section 10(23C) was not available, the brought-forward excess of expenditure over income from earlier years should still be allowed to be set off.
4. The assessee provides education to students and claimed exemption under section 10(23C)(iiiad). Since it was not registered under section 12A, it was assessed as an Association of Persons. Registration was denied because the Trust Deed did not include the mandatory clauses required by the CIT(Exemptions). The CIT(Exemptions) subsequently issued a notice under section 263, asking the assessee to explain why the brought-forward excess of expenditure over income should be permitted to be set off against the current year’s income.
5. The Assessing Officer completed the assessment after considering the income and expenditure details furnished by the assessee. However, in the order passed under section 263, the CIT(Exemptions) denied the set-off of brought-forward excess expenditure from earlier years against the current year’s income, on the ground that the assessee was not registered under section 12A or section 10(23C). Consequently, the assessee’s claim for set-off against the current year’s income was disallowed, leading to the present appeal.
6. We have heard the learned representatives and examined the material on record. The issue is whether the assessee may set off the brought-forward excess of expenditure over income from earlier years against the income of the current year. The learned Authorised Representative submitted that the absence of registration under section 12A of the Income-tax Act is immaterial, as the assessee has been assessed as an Association of Persons. In that capacity, the assessee is entitled to the deductions and set-off available under the Act. The learned Departmental Representative supported the orders of the lower authorities.
7. We find that, although the assessee was not registered under section 12A or section 10(23C), it was assessed as an Association of Persons. In that status, the assessee is entitled to the benefit of the provisions governing carry forward and set-off of losses under section 72 and depreciation under section 32(1). The denial of such set-off is therefore unjustified. Accordingly, the Assessing Officer is directed to allow the set-off of losses from earlier years, provided the claim is found to comply with section 72 of the Act.
8. We accordingly allow the appeal of the assessee.
Order pronounced in the open court on 30.07.2026.
