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2021 (1) TMI 1351 - AT - Income TaxAssessment of trust - accumulation of 15% on the gross receipts OR 15% of the net receipt - HELD THAT - This issue is no more res-integra. This Bench of the Tribunal in the assessee s own case 2020 (7) TMI 846 - ITAT KOLKATA as held the assessee is entitled to the accumulation of 15% on the gross receipt as per provisions of Section 11 of the Act. Disallowance of claim u/s. 11(2) - assessee submitted that the accumulation u/s. 11(2) of the Act should have been granted to the assessee as it filed Form No. 10B as required under the Act - HELD THAT - We find that the Hon ble Karnataka High Court in the case of Gokula Education Foundation 2016 (11) TMI 1313 - KARNATAKA HIGH COURT as held appeal is a continuous proceeding it cannot be said that the CIT(A) had no authority to accept Revised Form No. 10 nor can it be said that Revised Form No. 10 could not at all be considered for allowing the claim made under section 11(2) of the Act.We find that the Tribunal was right in allowing the claim of the assessee under section 11 (2) of the Act. Whether depreciation could be considered as application of funds ? - This issue is no more res-integra. The Hon ble Supreme Court in the case of Rajasthan and Gujarati Charitable Foundation 2017 (12) TMI 1067 - SUPREME COURT adjudicated the issue in favour of the assessee. Respectfully following the same we allow this ground of the assessee.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal in this appeal are:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Calculation of 15% accumulation under Section 11 of the Act - gross receipts or net receipts? Relevant Legal Framework and Precedents: Section 11(1) of the Income Tax Act allows a charitable trust to accumulate up to 15% of its income for future application towards charitable purposes. The Supreme Court in CIT vs. Programme for Community Organisation [2001] 248 ITR 1 (SC) held that accumulation should be calculated on the gross income of the trust and not on the income remaining after application for charitable purposes. Further, the ITAT Kolkata Bench had earlier ruled in the assessee's own case for Assessment Year 2012-13 (ITA No. 2436/Kol/2018) that the 15% exemption is to be allowed on gross receipts. Court's Interpretation and Reasoning: The Tribunal respectfully followed the binding precedent of the Supreme Court and its own earlier decisions, interpreting Section 11(1) as mandating calculation of the 15% accumulation on gross income rather than net income. The Tribunal noted that the statutory language "...15% of the income" clearly refers to gross income. Key Evidence and Findings: The Tribunal relied on the assessee's own prior case law and the Supreme Court ruling, which established the principle that accumulation is to be computed on gross receipts. Application of Law to Facts: Applying this principle to the facts, the Tribunal held that the assessee was entitled to claim exemption on 15% of the gross receipts and directed the Assessing Officer to allow the claim accordingly. Treatment of Competing Arguments: The Tribunal did not find merit in the Revenue's contention that accumulation should be calculated on net receipts and distinguished the issue as no longer res-integra. Conclusion: The assessee is entitled to claim 15% accumulation exemption on gross receipts under Section 11(1) of the Act. Issue 2: Allowance of accumulation claim under Section 11(2) of the Act in presence of Form No. 10B filing and vague purpose of accumulation Relevant Legal Framework and Precedents: Section 11(2) permits accumulation of income for specific purposes, subject to filing Form No. 10. The Supreme Court in CIT v. Nagpur Hotel Owners' Association (2001) 247 ITR 201 held that failure to file Form No. 10 precludes claiming accumulation exemption. However, the Karnataka High Court in CIT vs. Gokula Education Foundation (2017) 394 ITR 236 clarified that even a general purpose stated in Form No. 10 may suffice for exemption. The Gujarat High Court in CIT v. Mayur Foundation (2005) 274 ITR 562 also held that revised Form No. 10 filed during appeal proceedings can be accepted. Court's Interpretation and Reasoning: The Tribunal followed the Karnataka High Court's reasoning that where Form No. 10 (or revised Form No. 10) is filed and accepted by the Commissioner (Appeals), the claim under Section 11(2) should be allowed even if the purpose is general or vaguely stated. The Tribunal distinguished the facts from the Supreme Court's Nagpur Hotel Owners' Association case where no Form No. 10 was filed at all. Key Evidence and Findings: The assessee had filed Form No. 10B as required, and the revised Form No. 10 was accepted by the CIT(A). The Assessing Officer and CIT(A)'s rejection on the ground of vague purpose was contrary to the binding precedents. Application of Law to Facts: Given the acceptance of Form No. 10B and the legal precedents, the Tribunal allowed the claim for accumulation under Section 11(2) despite the purported general nature of the stated purpose. Treatment of Competing Arguments: The Tribunal rejected the Revenue's reliance on the assessment order's para 8 and the strict interpretation of the Supreme Court's Nagpur Hotel Owners' Association decision, emphasizing the factual distinction and continuous nature of appeal proceedings. Conclusion: The assessee's claim under Section 11(2) of the Act is allowed as the filing and acceptance of Form No. 10B satisfies the statutory requirement, and accumulation for a general purpose is permissible. Issue 3: Whether depreciation can be treated as application of funds under Section 11 Relevant Legal Framework and Precedents: The Supreme Court in Rajasthan and Gujarati Charitable Foundation [2018] 402 ITR 441 (SC) held that depreciation is to be considered as application of funds for charitable purposes under Section 11. Court's Interpretation and Reasoning: Following this authoritative ruling, the Tribunal held that depreciation qualifies as application of income and thus amounts to application of funds for charitable purposes. Key Evidence and Findings: The Tribunal relied on the Supreme Court's clear pronouncement without disputing any factual matrix. Application of Law to Facts: The Tribunal allowed the assessee's claim treating depreciation as application of funds. Treatment of Competing Arguments: The Tribunal did not find any contrary argument of sufficient merit to depart from the Supreme Court's ruling. Conclusion: Depreciation can be treated as application of income under Section 11 of the Act. Issue 4: General grounds The Tribunal noted that the fourth ground was general in nature and did not require separate adjudication. 3. SIGNIFICANT HOLDINGS The Tribunal made the following crucial legal determinations: On the calculation of accumulation under Section 11(1), it held: "... it is gross income of the assessee trust and not the net income. Therefore, based on this factual position as mentioned in Section 11(1) as noted above, we direct the Assessing Officer to allow 15% exemption on gross receipts." On the claim under Section 11(2), the Tribunal observed: "If the matter is considered in light of the above referred decision of the High Court of Gujarat in the case of Mayur Foundation (supra) and is considered that the appeal is a continuous proceeding, it cannot be said that the CIT(A) had no authority to accept Revised Form No. 10 nor can it be said that Revised Form No. 10 could not at all be considered for allowing the claim made under section 11(2) of the Act." On depreciation as application of funds, the Tribunal stated: "The Hon'ble Supreme Court in the case of Rajasthan and Gujarati Charitable Foundation, [2018] 402 ITR 441 (SC), adjudicated the issue in favour of the assessee." Final determinations:
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