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2015 (12) TMI 106 - ITAT BANGALORE

2015 (12) TMI 106 - 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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inivasan, CA For The Respondent : Shri Sunil Kumar Aggarwala, JCIT 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 as Society under the Karnataka Societies Act, 1960. Its main activity revolves around running and management of the Nirmala Hospital at Bhadravathi having 150 beds, a nursing school a .....

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ailable 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. 4. On appeal, the assessee relied upon the decis .....

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charitable/religious activities free of cost and there was no .income generating activity performed by the assessee. 6. The assessee also referred to earlier ruling of the Hon ble Supreme Court in the case of S.R.M. M.C.T.M. Tiruppani Trust Vs Commissioner of Income Tax (1998) reported in 230 ITR 636 (SC) and Commissioner of Income Tax vs ALN Rao Charitable Trust (1995) reported in 216 ITR 697 (SC) which have dealt with this issue wherein it was held that the deduction or exclusion on account o .....

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e charitable or religious trusts/organization shall be computed by applying the general commercial principles rather than the regular provisions of the Income Tax Act. The circular, therefore, held that it would be incorrect to assign to the word income used in section 11(1)(a) the same meaning as has been specifically assigned to the expression Total Income under section 2(45). The said circular contains the following mention which appears to have confused the matter for some - Where the trust .....

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ax u/s 11(3) to the extent that they represent outgoings for purposes other than those of the trust. The amounts spent or applied for the purposes of the trust from out of the income, computed in the aforesaid manner, should be not less than 75 percent of the latter, if the trust is to get the full benefit of the exemption u/s 11(1). (emphasis added) 3.3 The appropriations or applications referred supra actually mean the debit entries appearing below the line i.e. the Income and Expenditure Appr .....

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the different kinds of receipts available to the assessee through voluntary contributions, local donations, apart from income from Nirmala Hospitals and the Nursing College, has not been appreciated and the principle of 15% accumulation on net educational income has been applied without proper mind application. To the extent the appellant receives donations, 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 O .....

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furcate the receipts from donation and the consideration charging activities and treat the accumulation in the former in terms of gross receipt and in the latter in terms of net receipts. In view of this discussion, the grounds raised are partly accepted. 9. Aggrieved the assessee 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 ci .....

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under appeal under the facts and in the circumstances of the assessee s case. 3. The ld.CIT(A) is not justified in upholding the computation of the amount accumulated u/s 11(2) of the Act at ₹ 21,17,878/- as against a sum of ₹ 01,37,985/- computed by the assessee after 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 .....

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in the case of Jyothy Charitable Trust in ITA No.662/Bang/2015. The relevant extract is reproduced below; 15. The third issue that arises for consideration in this appeal is as to whether 15% accumulation for application in future has to be calculated on gross receipts or net 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 onl .....

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nce ground No-4 raised by the Assessee before the Tribunal. 17. The issue to be decided is therefore as to whether for the purpose of computing accumulation of income of 15% under section 11(1)(a) of the Act, one has to take the gross receipts or gross receipts after expenditure 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 .....

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tant question which arose was as to whether for this purpose, the gross income earned by the assessee is relevant or the income as computed in accordance with the provisions of IT Act. In other words, whether outgoings from out of gross income which are in the nature of application 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. .....

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operty held under trust. For the present purposes, the donations the assessee received, in the sum of ₹ 2,57,376, would constitute its property and it is entitled to accumulate twenty-five per cent thereout. It is unclear on what basis the Revenue contended that it was entitled 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 .....

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trust is required to be wholly for charitable or rel igious purposes, and the income is expected to have relation to the extent to which such income is appl ied to such purposes in India. It is thereafter the statutory provision proceeds further that such income is not to be 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 .....

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ive per cent and this twenty-five per cent has to be understood as income of the trust under the relevant head of s. 11(1). In other words, income that is not to be included for the purpose of computing the total income would be the amount expended for purposes of trust in India. Their Lordships in the above case have emphasized on the clear and unambiguous language of sec. 11(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 .....

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