Chitradurga Zilla Reddy Jana Sangha (R) Vs ITO (ITAT Bangalore)
Charitable Trust Allowed to Set-off Earlier Years’ Excess Application Against Current Income; Form 9A Not Required
The assessee, a charitable trust registered u/s 12A, filed its return for AY 2017-18 declaring nil income. In the intimation issued u/s 143(1), the CPC disallowed ₹76.29 lakh on the ground that the trust claimed exemption under “deemed application of income” but had not filed Form 9A within the prescribed time under Rule 17.
Before the appellate authorities, the assessee explained that the surplus was wrongly claimed under deemed application due to lack of awareness about Form 9A compliance. The assessee clarified that out of the surplus, ₹26.05 lakh represented permissible 15% accumulation, while the balance ₹50.23 lakh should be adjusted against excess expenditure of earlier years. The CIT(A) partly accepted the contention and restricted the taxable amount to ₹50.23 lakh.
Before the Tribunal, the assessee argued that the amount of ₹50.23 lakh should be set off against accumulated deficit of earlier years, which exceeded ₹4.33 crore. The Tribunal held that prior to the amendment introduced by the Finance Act, 2021 (effective from 01-04-2022), there was no restriction under Section 11 preventing charitable trusts from setting off excess application of earlier years against income of subsequent years.
Relying on several judicial precedents including decisions of various High Courts and the Supreme Court, the Tribunal held that adjustment of earlier years’ excess expenditure against subsequent year’s income constitutes application of income for charitable purposes. Consequently, filing of Form 9A is not required when a trust merely sets off earlier years’ excess application against current income.
The Tribunal therefore directed the AO to allow set-off of earlier years’ excess application against the current year’s income after verification.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This appeal at the instant of the assessee is directed against the order of ld. Addl/JCIT(A)-7, Kolkata dated 2.4.2025 vide DIN and Order No. ITBA/APL/S/250/2025-26/1075426187(1) passed u/s. 250 of the Income Tax Act, 1961 (in short “the Act”) for the AY 2017-18.
