2004 (9) TMI 300 - AT - Income Tax

Exemption under section 11 - Charitable And Religious Trust - Calculation of 25% accumulation u/s 11(1) of the IT Act - Whether the decision in the case of Parsi Zorastrian Anjuman Trust MHOW v. CIT 1986 (7) TMI 69 - MADHYA PRADESH HIGH COURT applicable in the assessee s case? - HELD THAT - Having found that trust is entitled to exemption u/s 11(1) we are to go to the stage of income before application thereof and take into account 25% of such income. Their Lordships have pointed that the same has to be taken on Commercial basis and not total income as computed under the Income-tax Act. Their Lordships in the decided case rejected the contention of the Revenue that the sum of Rs. 1, 70, 369 which was spent and applied by the assessee for charitable purposes was required to be excluded for purpose of taking amount to be accumulated. Having regard to the clear pronouncement of Their Lordships of the Supreme Court it is difficult to accept that outgoings which are in the nature of application of income are to be excluded. The income available to the assessee before it was applied is directed to be taken and the same in the present case. Twenty five per cent of the above income is to be allowed as a deduction. Similar view has also been taken by the Hon ble Madhya Pradesh High Court in Parsi Zorastrian Anjuman Trust v. CIT 1986 (7) TMI 69 - MADHYA PRADESH HIGH COURT . No reason on whatsoever has been given by the revenue authorities for deducting Rs. 2, 17, 126 in this case for purposes of section 11(1)(a)- The decision cited on behalf of the revenue did not take into account the decision of the Supreme Court. Accordingly the question referred to us is answered in the affirmative and in favour of the assessee. The Tribunal concluded that the assessee s case was covered by the Supreme Court decision in the case of Programme for Community Organisation and thus 25% of the gross income should be allowed to be accumulated. The technical objection raised by the CIT DR was rejected. The Tribunal directed that other grounds of appeal raised by the assessee should be heard and decided by the Regular Bench.

Summary

Issues Involved:
1. Applicability of the decision in the case of Parsi Zorastrian Anjuman Trust v. CIT [1987] 163 ITR 832.
2. Calculation of 25% accumulation u/s 11(1) of the IT Act.
3. Technical objection regarding the reference to the Special Bench.

Summary:

1. Applicability of the Decision in Parsi Zorastrian Anjuman Trust v. CIT:
The Tribunal was tasked with determining whether the decision in the case of Parsi Zorastrian Anjuman Trust v. CIT [1987] 163 ITR 832 was applicable to the assessee's case. The assessee, a Public-Charitable Trust, argued that their case was covered by this decision, which held that for the purposes of section 11(1), the income should be considered in its commercial sense and not as computed under the IT Act. The Tribunal noted that a similar issue had arisen in the past and was referred to the Special Bench for adjudication.

2. Calculation of 25% Accumulation u/s 11(1) of the IT Act:
The core issue was whether the 25% accumulation should be calculated on the gross income or the net income after deducting outgoings and depreciation. The assessee contended that the 25% should be calculated on the gross income, citing the Supreme Court decision in CIT v. Programme for Community Organisation [2001] 248 ITR 1, which affirmed that 25% of the gross income should be allowed to be accumulated. The Tribunal agreed with this interpretation, stating that any expenditure in the nature of application of income should not be deducted when calculating the 25% accumulation.

3. Technical Objection Regarding the Reference to the Special Bench:
The CIT DR raised a technical objection, arguing that the reference to the Special Bench did not arise from the grounds of appeal. The Tribunal rejected this objection, stating that the Regular Bench had made a detailed reference to the President, ITAT, for constituting a Special Bench, which indicated that the ground was admitted by the Bench. Therefore, the Special Bench was bound to decide the issue u/s 255(3) of the IT Act.

Conclusion:
The Tribunal concluded that the assessee's case was covered by the Supreme Court decision in the case of Programme for Community Organisation, and thus, 25% of the gross income should be allowed to be accumulated. The technical objection raised by the CIT DR was rejected. The Tribunal directed that other grounds of appeal raised by the assessee should be heard and decided by the Regular Bench.