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2015 (9) TMI 542 - ITAT BANGALORE

2015 (9) TMI 542 - ITAT BANGALORE - TMI - Meaning of expression “such income” in section 11(1)(a) - Held that:- Identical issue was considered by the Apex Court in Commissioner of Income-Tax Versus Programme For Community Organisation (2000 (11) TMI 4 - SUPREME Court ) which was also applied by the Special Bench of the ITAT Mumbai in Bai Sonabai Hirji Agiary Trust. Versus Income-Tax Officer. [2004 (9) TMI 300 - ITAT BOMBAY-E] holding that the expression “such income” means gross income and not t .....

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ng/2015 - Dated:- 25-8-2015 - SHRI D. MANMOHAN, J. For The Appellant : Shri P. Prathik, C.A. For The Respondent : Shri P.K. Sreehari, Addl. CIT(DR) ORDER This appeal by the assessee is directed against the order dated 30.01.2015 passed by the CIT(Appeals)-14, Large Taxpayers Unit, Bangalore and pertains to assessment year 2011-12. 2. The assessee is an educational society and it obtained registration under the provisions of section 12A of the I. T. Act vide registration dated 27.5.2009. For the .....

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ers and staff and other administrative expenses, excluding depreciation. The assessee has also applied a sum of ₹ 38,75,370 towards acquisition of fixed assets. The total expenditure incurred by the assessee with reference to gross amount received shows that the assessee society applied the funds to the tune of 93.77% and the balance 6.23% was accumulated out of the gross funds received. Since it is within the permissible limits of accumulation contained in section 11(1)(a) of the Act, acc .....

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om this perspective, the assessee cannot be said to have applied more than 85% for charitable activities. In other words, the surplus available with educational institution is more than 15%. The AO also observed that gross receipts can be taken into consideration only when the entire receipts are in the form of donations since an assessee need not spend anything on getting donations, whereas in the case of an educational institution, the assessee has to bear the revenue expenditure for earning t .....

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ation. As per the computation of the AO, the balance amount works out to ₹ 57,19,387, out of which the assessee has incurred capital expenditure of ₹ 38,75,380 and, to the extent of 15%, which works out to ₹ 8,57,908 the assessee is entitled to accumulate/set apart for application for charitable purposes u/s. 11(1)(a) and the balance was treated as taxable income. 5. In appeal filed by the assessee, the ld. CIT(Appeals) has adopted the same view and thus, the assessee is in app .....

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e learned Commissioner that there is nothing in the Circular to indicate that even revenue expenditure should be added back in the case of charitable or religious trusts running educational institutions or hospitals. Effectively, it is stated that revenue expenditure incurred by educational institutions does not constitute applications thereof towards the purposes of the Trust as clarified by the Circular, a view which runs counter to the ratio of the decision of the Calcutta High Court in CIT v .....

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answer the second question by saying that the Tribunal was right in holding that the assessee will be entitled to the benefit of the expenditure made on salaries and miscellaneous expenses for the purpose of carrying out the objects and purposes of the trust only; but any expenditure incurred for earning the income from dividend will not qualify as amounts spent for carrying out the objects and purposes of the trust. The said decision was cited during the course of the appellate proceedings, but .....

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diture incurred by the appellant was for the purposes of the objects of the Trust, and no fault has been found with that. That whether the activities of the Trust are charitable in nature has also not been questioned or doubted by either the learned Commissioner or the assessing officer. Nothing could therefore be more appropriate than to regard the expenditure incurred by the Trust as having been incurred for charitable purposes. 10. The decision of the Hon ble Supreme Court in the case of CIT .....

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net sum available after the application from out of such donations. But this decision was also distinguished by the learned Commissioner on the grounds that such decision was rendered only the context of a trust or institution running purely on donations and will therefore not apply to an educational institution which accepted fees and had to incur expenses to earn such fees. It is submitted that there is nothing in the aforesaid decision of the Hon ble Supreme Court to suggest that it is applic .....

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ble after deduction of all expenses, if at all, that has to be considered in computing the permissible accumulation. 11. The Hon ble Lucknow Bench of the Income-tax Appellate Tribunal in the case of Krishi Utpadan Mandi Samithi [131 ITD 335] while dealing with an appellant who was in receipt of income other than donations, and which had to incur administrative expenses for its functioning, has held in unequivocal terms that the ratio laid down by the Apex Court in 248 ITR 1 (supra) is applicable .....

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72 ITR (AT) 67], where on a combined reading of the judgement of the Hon ble Supreme Court in the case of Programme for Community Organisation (supra) and the earlier decision in the case of the same appellant by the Hon ble Kerala High Court, their Lordships opined as follows: .... It has been held that as per the statutory language of the above section the income which is to be taken for the purpose of accumulation is the income derived by the trust from property. If both the decisions are car .....

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ted the contention of the Revenue that the sum of ₹ 1,70,369 which was spent and applied by the assessee for charitable purposes was required to be excluded for the 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... 7. In particular, the assessee placed reliance upon the ITAT Mumbai Special Bench in the cas .....

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ala High Court (see [1997] 228 ITR 620), in the same case, has referred to the Board s Circular dated June 19, 1968, on the same subject and observed that income for the purposes of section 11(1), should be understood in its commercial sense. It was held by the Kerala High Court that 25 per cent of gross amount of ₹ 2,57,376 should be accumulated, and this finding has been confirmed by the hon ble Supreme Court. Shri V. H. Patil also contended that all out-goings including expenditure incu .....

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e 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 is ₹ 3,42,174. 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 Mhow v. CIT [1987] 163 ITR 832. No reason whatsoever has been g .....

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