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2015 (12) TMI 105 - ITAT BANGALORE

2015 (12) TMI 105 - ITAT BANGALORE - TMI - Accumulation of income - 15% accumulation for application in future has to be calculated on gross receipts or net receipts after deduction of revenue expenditure? - Held that:- As per the statutory language of section 11(1)(a) the income which is to be taken for purpose of accumulation is the income derived by the trust from property any expenditure which is in the shape of application of income is not to be taken into account. Having found that trust i .....

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V. Srinivasan, CA For The Respondent : Dr. P.K. Srihari, Addl. CIT(DR) ORDER PER SMT ASHA VIJAYARAGHAVAN, JM: This appeal by the assessee is directed against the order of the CIT(Appeals)-14, LTU, Bangalore relating to assessment year 2011-12. 2. The assessee is a public religious cum public charitable institution registered under the Karnataka Societies Act, 1960 and also registered u/s. 12A of the Income Tax Act. It is engaged in educational activities through running of St. Francis School and .....

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able fully for application to charitable purposes in India since the expenditure for running the educational activities, which are necessary for earning such income, would have to be factored in. The assessee s claim of accumulation at 15% of gross receipt was not allowed since the AO was of the view that this method is applicable only to a Trust which is running purely on donations and where no amount has been spent for getting such donations. 5. Aggrieved, the assessee filed appeal before the .....

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Hon ble Supreme Court in case of CIT vs Programme for Community Organization 248 ITR 1 to emphasize its stand that the accumulation of income provided for after application of income for charitable purposes u/s 11(1)(a), should be with reference to gross and not net income. 7. The ld. CIT(Appeals) was of the opinion that assessee s reading of the said judgment was incorrect since the decision deals with a case where only voluntary contributions were received and utilized for rendering charitable .....

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ion of income under section 11(1)(a) of the Income Tax Act is to be granted at 25% (now reduced to 15%) of the gross receipts or 25% (now reduced to 15%) of the income from property held under trust. The CIT(Appeals) held that the cited decisions were delivered on a completely different set of facts and legal issues. 9. The CIT(Appeals) also observed as follows:- 3.2 The Central Board of Direct Taxes in its Circular No.5-P(LXX-6) dt. 19.06.1968 has also clarified that the income of the charitabl .....

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ome from house property interest on securities, capital gains, or other sources, the word income should be understood in its commercial sense, i.e., book income, after adding back any appropriations or applications thereof towards the purposes of the trust or otherwise, and also after adding back any debits made for capital expenditure incurred for the purposes of the trust or otherwise. It should be noted, in this connection, that the amounts so added back will become chargeable to tax u/s 11(3 .....

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ccount rather than above the line i.e Income and Expenditure Account. The circular, therefore, does not indicate that even revenue expenditure has to be added back in the case of charitable or religious trusts which are running hospitals, educational institutions or any other activities for which they charge a service fee, in order to arrive at income within the meaning of section 11(1)(a). 10. The ld. CIT(Appeals) finally concluded as follows:- 3.7 I find from the appellant s Income and Expendi .....

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tent the appellant receives donations and voluntary contributions, the accumulation from such receipts are to be treated in terms of the Hon ble Supreme Court s decision in case of Programme for Community Organization (supra). The receipts from the educational institutions, even if fixed at non commercial rates (subject to verification and recording clearly by the AO) could be earned only through the incurring of operational expenses relating to salary, academic material, maintenance etc. for th .....

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ssee is in appeal before us and has raised the following grounds; 1. The orders of the authorities below in so far as they are against the assessee are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case. 2. The ld.CIT(A) is not justified in holding that the computation of the income accumulated u/s 11(1)(a) of the Act, at 15% of the income from property held under trust requires to be computed on the net income from charitable activities after reducing .....

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ter reckoning 15% of the accumulation in terms of section 11(1)(a)d of the Act on the net surplus after deducting revenue expenditure incurred by the assessee, instead of computing the same at 15% of the gross income from property held under trust, as done by the assessee under the facts and in the circumstances of the assessee s case. 4. For the above and other grounds that may be urged at the time of hearing of the assessee, your assessee humbly prays that the appeal may be allowed and justice .....

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receipts after deduction of revenue expenditure. The Assessee claimed accumulation of income for application for charitable purpose at 15% of the gross receipts. The AO was of the view that accumulation will be allowed only to the extent of 15% of the income after revenue expenditure. In other words income to be set apart u/s.1 1(1)(a) of the Act has to be computed at 15% of the net income i.e., gross receipts minus revenue expenditure and not on the gross receipts as claimed by the Assessee. Si .....

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e for charitable purpose i.e., the net receipts. This is issue is no longer res integra and has been decided by the Special Bench Mumbai in the case of Bai Sonabai Hirji Agiary Trust Vs. ITO 93 lTD 0070 (SB). The facts in the aforesaid case were that the assessee was a public charitable trust enjoying exemption under s. 11 of the IT Act. As per the requirement of s. 11(1) of the IT Act, as it prevailed at that point of time, the assessee had to apply 75 per cent of its income for the objects and .....

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tion of income, should be first deducted from the gross income and 25 per cent of only the remaining amount should be allowed to be accumulated or set apart. The Special Bench of the ITAT on the issue held as follows:- 9. Coming to the merits of the issue, we are of the view that the same is clearly covered by the decision of the Hon'ble Supreme Cour t in the case of CIT vs. Programme for Community Organization (supra). In the decision, their Lordships, after taking note of provisions of sec .....

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ntitled to accumulate only twenty five per cent of ₹ 87,010. For the aforesaid reasons, the civi l appeal is dismissed." It is clear from the above that deduction of twenty-five per cent was held to be allowable not on total income as computed under the IT Act. Any amount or expenditure, which was application of income, is not to be considered for determining twenty five per cent to be accumulated. Their Lordships, as noted earlier, affirmed the decision of Kerala High Court in (1997) .....

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understood to be in excess of 25 per cent of the income from such properties. In other words, the very language of the statutory provision under consideration sets apart 25 per cent of the income from the source of property with reference to the extent to which such income is appl ied f or such purposes, charitable or religious. In other words, for the purpose of s. ii(i)(a) of the Act, the income in terms of relevance would be the income of the trust from and out of which 25 per cent is set apa .....

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ia. Their Lordships in the above case have emphasized on the clear and unambiguous language of s. 1 1(1)(a) and decided the matter on the basis of the same. It has been held that as per the statutory language of the above section the income which is to be taken for purpose of accumulation is the income derived by the trust from property. If both the decisions are carefully read, it becomes evident that any expenditure which is in the shape of application of income is not to be taken into account .....

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