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TMI Blog2011 (12) TMI 598X X X X Extracts X X X X X X X X Extracts X X X X ..... the The Hon'ble Anddra Pradesh High Court in the case of is a charitable trust registered u/s 12A of the IT Act vide CIT, Bikaner's order dated 17-12-2007. From the plain reading of the provisions of Section 40(a)(ia), it is seen that it would be applicable only when the income is chargeable to tax under the head profits and gains of business of profession. In the instant case, the income of the income of the appellant trust is not chargeable to tax under the head profit and gains of business and profession. Secondly, the provisions of Section 40(a)(ia) would be attracted only if there existed a contractual relationship between the appellant and RSAMB. It is only the RSAMB which is the executing agency for construction/ repair work and not the appellant. The appellant is only providing funds to the RSAMB and not executing construction/ repair work itself. Thirdly, the issue is covered by the decision of Hon'ble ITAT, Jodhpur stated above. The only difference being that in that case the issue of the assessee having been registered u/s 12A was not established and the matter was set aside for fresh consideration. In the instant case that is not the position because the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) are not applicable. It will be useful to reproduce relevant paras from the order of Jaipur bench in the case of ITO vs KUMS, Baran (ITA No. 560 &561/JP/2010 dated 06-01- 2011. ''6. The Hon'ble Gujrat High Court in the case of Zaverchand Laxmi Chand & Co. V CIT 55 ITR 486 has considered the difference between assessable profit under I.Tax act and profit based on commercial principles and observed as under :- "The company has been allowed depreciation of Rs. 2,32,234 of which the normal depreciation is only Rs. 1,86,143 according to the department representative. The depreciation in excess of the normal depreciation is not strictly depreciation but an inducement to set up new machinery. We consider that normal depreciation is alone allowable in the computation of profits." In our view, the Tribunal was not correct in the way it looked at this question, and the error was in not appreciating the distinction between the depreciation calculated on the basis of the statutory provisions of the Income-tax Act for the purpose of computing assessable profits on the one hand and depreciation computed by a business concern for purpose of arriving at its true commercial profits. It is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value of the assets." 8.. The Hon'ble Andhra Pradesh High Court in the case of CIT v Trustee of H.E.H. The Nizam Supplemental Religious endorsement trust 127 ITR 378 had an occasion to consider as to how the income of the trust is to be computed. It was stated that the commercial or amounting profits or actual profits earned by the assessee are to be calculated on commercial principles. It is not the total income as would be assessed by the A.O. is not relevant for the purpose of investing the funds of the trust or assessing the income of the trust. It is the accounts of the trust alone will have to be considered. Payment of income Tax and Wealth tax were expenses incidental to the carrying out of charitable purpose of the trust. Under normal provisions of computation of business income, income tax is to be added while computing total income. 9. The Hon'ble Madras High Court in the case of CIT v Rao Bahadur Calavala Cunnan Chetly Charities 135 ITR 485 has held that in case of trust, income is to be arrived at in commercial manner without reference to section 14. Accumulation to be determined out of such income. The Hon'ble Madras High Court at Page 492 observed as under :- " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipts and deduct therefrom the expenses necessary for earning or looking after that income. The net amount that remains would be available for distribution or application for charitable purpose. In applying the income for charitable purposes, even capital expenditure may be incurred. Therefore, the nature of the expenditure in the hands of the entity which receives the money is not the criterion. So long as the assessee disburses the amount for charitable purposes, whether the amounts are utilized for capital or revenue purposes by the charity concerned, the assessee would have complied with that part of the requirement of s. 11, namely application of the income for charitable purposes. The authorities will have to find out as to whether they are really charitable purposes or not. Subject to such examination, the application of the income for charitable purposes will have to be excluded and it is only the balance that would require examination for finding out whether the assessee has complied with the rule of accumulation to the extent of Rs. 10,000 or 25 per cent. Of the income, whichever is higher. 10. The Hon'ble Madras High Court in the casse of CIT Vs.Estate of V.L.Ethir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omputed under the various heads enumerated in the Income-tax Act. It held that the income from the properties held under trust would have to be arrived at in the normal commercial manner without classification under the various heads set out in section 14. It held that the expression "income" has to be understood in the popular or general sense and not in the sense in which the income is arrived at for the purpose of assessment to tax by application of some artificial provisions either giving or denying deduction. It observed that the computation under the different categories or heads arises only for the purposes of ascertaining the total income for the purposes of charge. Those provisionsd cannot be introduced to find out what the income derived from the property held under trust to be excluded from the total income is, for the purpose of the exemptions under Chapter III. We are in respectful agreement with the view taken by the Karnataka, Madhya Prsdesh and Madras High Courts. We, therefore, answer both the questions referred to us in the affirmative and against the Revenue. 16. The Hon'ble Kerala High Court in the case of CIT v Programme for community organization 228 ITR 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue is that the ld. CIT(A) has erred in deleting the addition of Rs. 1,71,07,719/- made u/s 40(a)(ia) of he Act holding that the provisions of Section u/s 40(a)(ia) are not applicable in the instant case. 4.2 This issue has been decided against the Revenue while disposing off the appeal in the case of Krishi Upaj Mandi Samit, Sri Vijaynagar. Following our findings in that case, we hold that the ld.CIT(A) was justified in deleting the addition. 4.3 The second ground of assessee is that the ld. CIT(A) has erred in deleting the addition of Rs. 45,33,798/- made by the AO on ground that the expenditure was not for the objects of the trust. 4.4 This issue has also been decided in favour of the assessee while disposing off the appeal in the case of Krishi Upaj Mandi Samit, Sri Vijaynagar. Following our findings in that case, we hold that the ld.CIT(A) was justified in deleting the addition ITA No. 246/JU/2010 - KUMS , Rawla 5.1 The first ground of Revenue is that the ld. CIT(A) has erred in deleting the addition of Rs. 22,40,000/- made u/s 40(a)(ia) of he Act holding that the provisions of Section u/s 40(a)(ia) are not applicable in the instant case. 5.2 This issue has been decid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e instant case. 8.2 This issue has been decided against the Revenue while disposing off the appeal in the case of Krishi Upaj Mandi Samit, Sri Vijaynagar. Following our findings in that case, we hold that the ld.CIT(A) was justified in deleting the addition. 8.3 The second ground of assessee is that the ld. CIT(A) has erred in deleting the addition of Rs. 39,66,760/- made by the AO on ground that the expenditure was not for the objects of the trust. 8.4 This issue has also been decided in favour of the assessee while disposing off the appeal in the case of Krishi Upaj Mandi Samit, Sri Vijaynagar. Following our findings in that case, we hold that the ld.CIT(A) was justified in deleting the addition ITA No. 99/JU/2010 - KUMS , Padampur 9.1 The first ground of Revenue is that the ld. CIT(A) has erred in deleting the addition of Rs. 1,30,00,000/- made u/s 40(a)(ia) of he Act holding that the provisions of Section u/s 40(a)(ia) are not applicable in the instant case. 9.2 This issue has been decided against the Revenue while disposing off the appeal in the case of Krishi Upaj Mandi Samit, Sri Vijaynagar. Following our findings in that case, we hold that the ld.CIT(A) was justified ..... X X X X Extracts X X X X X X X X Extracts X X X X
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