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2016 (12) TMI 301 - ITAT AHMEDABAD

2016 (12) TMI 301 - ITAT AHMEDABAD - TMI - Denial of 15% deduction out of total fund available with the assessee for application under section 11(1) - Held that:- In the case of Karnal Improvement Trust [2011 (10) TMI 193 - ITAT DELHI], the Tribunal has not emphased that 85% of the total income should be applied on the objects of the trust only, then 15% will be available. The proposition laid down by the Tribunal is that if no income was applied by the trust for its objects under section 11(1) .....

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ese two proposition while denying the exemption to the assessee. Therefore, I allow the appeal of the assessee and set aside the impugned order of the ld.CIT(A) and direct the AO to grant deduction of ₹ 1,75,804/- being 15% of ₹ 11,11,185/- i.e. income derived by the assessee form the trust-property. - Decided in favour of assessee - ITA.No.3015/Ahd/2013 - Dated:- 15-11-2016 - SHRI RAJPAL YADAV, JUDICIAL MEMBER For The Assessee : Shri Rushi Parikh, and Shri Jayraj Dhakan For The Reve .....

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e that the assessee is a trust and enjoying registration under section 12A(a) of the Income Tax Act. It has filed its return of income on 28.12.2010 declaring income of ₹ 1,44,200/-. Controversy involved in this appeal is whether deduction available under section 11(1) of the Income Tax Act at the rate of 15% is a standard deduction or it is to be allowed, if assessee has applied some part of its income on its objects during the relevant year. The ld.CIT(A) has held that total application .....

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otal income of the appellant is of ₹ 11,11,185/-, apart from this the appellant has received donations of ₹ 14,81,000/-. Therefore, the income of the appellant for the purpose of determining 85 % of income under clause 11 (2) should be ₹ 25,92,185, in view of Explanation below section 11(1)( d) of the Act, if the nature of donation is such that these are covered by section 12(1). 7.6 Under section 11 (2) of the Income Tax Act, the appellant is entitled to transfer the income wh .....

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further application of only ₹ 1,93,862/-is required and the expenses of the appellant are ₹ 1,41,181 (supra). However, since an amount of ₹ 6, 50,000/- has been accumulated, the condition of 85 % is met as per appellant. 7.7 Moreover, it is not very clear from the assessment order as to whether donations of ₹ 14,81,000/- are covered u/s 12(1) of the Income Tax Act or not ? If these donations were specific contributions, which should form part of corpus of the Trust, then .....

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a short fall which is a correct working by the assessing officer. 7.8 Since the appellant has failed to apply 85 % of the income, therefore, it will be entitled to deduction only to the extent of income applied, i.e. of ₹ 6, 50,000/-. The deduction of 15% of ₹ 11,11,1857- will not be allowed as deduction as held by the ITAT Delhi D Bench in its decision dated 21.10.2011 in the case of ACIT v/s Karnal Improvement Trust reported in 40 SOT 258. Therefore, ground no. 4 is allowed in fav .....

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if the assessee applies 85 per cent of its income for its objects during the year, the whole of the income shall be exempt. However, in a case where assessee does not apply any amount of income for its objects, the question arises as to whether the entire income will be liable to be taxed or only 85 per cent of such income. Therefore, it is to be seen whether 15 per cent of income is a standard deduction which has to be allowed in each and every case. As per provisions of section 11(2) where 85 .....

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eceipt or accumulate u/s 11(2) for specified purpose to be spent in specified period. 9. Hon'ble Delhi High Court had an occasion to explain the decision of Hon'ble Supreme Court in the case of CIT Vs. ALN Rao Charitable Trust (supra) in the case of CIT Vs. Bagri Foundation relied upon by the assessee. It has been observed that the exemption under section 11(1)(a) [then to the extent of 25 per cent and which was reduced to 15 per cent, also by the Finance Act, 2002] is unfettered and not .....

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1(1)(a). In this regard, it was further noticed that section 11(2) does not contain any non-obstante clause like "notwithstanding the provision of sub section (1)". Consequently, it was held that after section 11(1)(a) has held full play and still if any accumulated income of the previous year is left to be dealt with and to be considered for the purpose of income exemption, sub section (2) of section 11 can be pressed in service and if it is complied with, then such additional accumul .....

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intended only to apply in respect of accumulation in excess of 15 per cent and not to accumulation upto 15 per cent under section 11(1)(a) of the Act. In view of the decision of Hon'ble Delhi High Court it is held that the income applied u/s 11(1)(a) and accumulated u/s11(2) taken together should 85% in order to claim 100% exemption of the income derived by the assessee u/s section 11 of the Act. Any portion of income fall short of 85% will be liable to tax. Consequently in a case where neit .....

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ative intention for enacting section 11 of the Act. 5. Before adverting to the facts of the present case, I would like to make reference to the decision of the Hon ble Supreme Court in the case of ACIT Vs. ALN Rao Charitable Trust, 83 Taxman 252 (SC). This decision was referred by the ld.CIT(A) also and it has been considered by the Tribunal in Karnal Improvement Trust (supra). The Hon ble Supreme Court has summarized the proposition laid down in this decision in para-12 of the judgment and it i .....

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further sum of ₹ 25,000/- will get exempted from payment of income tax as per second part of Section 11(1)(a). Thus out of the total income derived from property as aforesaid during previous year, that is, ₹ 1,00,000/-, ₹ 45,000/- in all will get excluded from the tax net on a combined operation of first and second part of Section 11(1)(a). (iii)The aforesaid ceiling of ₹ 25,000/- of accumulated income property of previous year, will get c under Section 11(2) to the exte .....

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