TMI Blog2023 (12) TMI 1259X X X X Extracts X X X X X X X X Extracts X X X X ..... en there would be huge loss from these activities of organizing and holding meetings, seminars and meetings meaning thereby that the assessee has not been even charging from these sponsors, participants, members or non-members which are barely enough to cover the cost of the ICC and therefore it can be reasonable presumed that ICC has provided these activities even below the cost. We are inclined to hold that the ICC is not carrying on any activity of holding meetings, seminars and conferences for business purpose but only in support its main object and it charges from its participants, members and non-members the amount of fee which does not even covers the cost of holding such events. So much so that the administrative and other incidental expenses of holding and organizing such seminars, conferences and meetings are met out of other charitable income received form interest on FDRs, rental and miscellaneous income. Therefore in view of that the ICC is entitled to exemption u/s 11 of the Act as the activities of the advancement of main object is not hit by the proviso to Section 2(15) of the Act even post amendments. Accumulation of income and investment - Provisions of 11(1) prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2017 (12) TMI 1067 - SUPREME COURT] wherein it was held that besides claiming the full deduction of cost of fixed asset in the year and the assessee would be entitled to depreciation thereon. By considering the ratio laid down in the said decision, we are of the view that even if the entire cost has been claimed as application of income even then the assessee is entitled to claim the deduction of WDV from the sales consideration in order to calculate the capital gain. Accordingly we set aside the order of Ld. CIT(A) on this issue and direct the AO to delete the addition. Deduction u/s 11(1)(a) @ 15% on the net income and not on the gross receipt of the ICC - HELD THAT:- We find that accumulation u/s 11 is to be computed on the gross receipts and not the net receipts. The issue settled by the Hon ble Surpeme Court in the case of ACIT vs. A.L.N. Rao Charitable Trust [ 1995 (10) TMI 2 - SUPREME COURT] wherein it has been held that statutory accumulation u/s 11(1)(a) has to be computed on the gross receipts of the assessee - Thus we are inclined to direct the AO to allow the accumulation u/s 11(1)(a) of the Act on the gross receipt of the assessee and not on the net receipt. Accordingl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meetings, conferences and seminars resulting into revenue, the expenditure thereof was far in excess of the receipt and therefore, do not fall w the nature of trade, commerce or business and, therefore, the action of the GIT(A) in upholding the order of the Assessing Officer and further enhancing the income/surplus by Rs. 1,90,76,680/- by invoking his power of enhancement is bad in law. 3. Facts in brief are that the assessee filed return of income on 17.09.2013 declaring total income at NIL. The assessee the Indian Chamber of Commerce (in short ICC) is an association of industrialist, being a company registered u/s 25 of Companies Act as non-profit making company and does not distribute any dividends to its members. Its entire receipts/revenue are being spent for the fulfillment of its objectives as per its Memorandum and Articles of Association(hereinafter referred to as MAA). The assessee is formed as association of various industrialists, organizations and other commercial entities for the development of trade, commerce and industry. The membership of ICC comprises of business houses, corporate houses within country and abroad. The ICC was set up with the sole purpose of promot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and charitable receipts/income based on the gross quantum of receipts under these heads vide order dated 17.03.2016 passed u/s 143(3) of the Act. 4. The said order of the AO was assailed before the Ld. CIT(A) and the Ld. CIT(A) after taking into account the contentions and submissions of the assessee enhanced the income after issuing notice u/s 251(2) of the Act on the ground that the AO has wrongly bifurcated the income into business and charitable segment thereby rejecting the exemption u/s 11 of the Act in respect of charitable income as allowed by the AO. The Ld. CIT(A) while making the enhancement relied on the decision of Hon ble Apex Court in the case of ACIT(Exemption) vs. Ahmedabad Urban Development Authority [2022] 144 taxmann.com 78 (SC) by observing that the Hon ble Apex Court has confirmed the legislative intent behind various amendments and accordingly held that test of charity being driven by the predominant object would not be determining factor for charitable purpose. The Ld. CIT(A) further held that the assessee company/(ICC) was not eligible for exemption under section 11 of the Act because it has exceeded the monetary limit as prescribed in second proviso to Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commerce and business for a cess, fee or any other consideration and thus has earned profit from these activities. The Ld. A.R submitted that, while disallowing exemption u/s 11 of the Act ,the AO observed that the assessee has received sponsorship fees from the sponsors for the purpose of holding meetings, conferences and seminars and in exchange they were allowed to display their banners and promote their business and brand names on its platforms and also for taking part in the deliberation of the said meetings, seminars etc. The Ld. A.R also referred to AO s reference in the assessment order to the decision of Co-ordinate Bench of Kolkata in the assessee s very case earlier years for AY 2008-09 and 2009-10 wherein the activities of the assessee of holding meetings, conferences and seminar were held to be non business in nature and were only incidental to the main object of the ICC. The ld AR contended that however the main contention of the AO was that the insertion of Section 13(8) on the Statute book w.e.f AY 2008-09 and CBDT Circular No. 387 dated 06.07.1984 were neither mentioned in the assessment orders for the said assessment years nor the same was brought to notice of Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 21,99,772/- which is equal to 2% of the total receipt from the meetings, conferences and seminars which is very nominal whereas in the subsequent assessment year in AY 2014-15 it was a substantial loss. The Ld. A.R submitted that there should not be any bifurcation of income into business and charitable as the activities of the ICC are squarely covered by the provisions of Section 2(15), section 11 and 13(8) of the Act. Without prejudice, the Ld. A.R submitted that had the expenses been allocated on some rational and scientific basis in both the assessment years, they would have been considerable loss from the business which proved beyond doubt that the consideration received by the assessee by way of sponsorships for meetings, conferences and seminars were even below the cost incurred by the ICC of holding such events and part of the expenditure were met out of the income arising out of interest and from rental from the properties. Therefore Ld. A.R prayed that on this count along ,the order of Ld. CIT(A) may be reversed and the AO may be directed to allow the claim u/s 11 of the Act. The Ld. A.R. stated that where such meetings, conferences and seminars are organized , highly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities in the case of Apparel Export Promotion Council and has observed that organizing meetings, disseminating information through publications holding awareness camps and events, would be broadly covered by trade promotion however when the trade promotion body provides individualized or specialized service such as conducting paid workshops, training courses, skill development courses certified by it and hires venues which then let out to industrial, trading or business organizations, to promote and advertise their respective businesses, the claim for GPU status needs to be scrutinized more closely and scrupulously. Such activities are in relation to trade, commerce or business. These activities and the facility of consultations or skill development courses, are meant to improve business activities and make them more efficient. The Hon ble Court held that receipts from such activities clearly are fee or other consideration for providing services in relation to trade, commerce or business. The Ld. A.R therefore submitted that the Hon ble Apex Court has also differentiated the activities which are of the nature of services in relation to trade, commerce or business in the case of tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, charitable in nature. Hence the Co-ordinate Bench has held that the assessee is not falling under proviso to Section 2(15) of the Act. The Ld. A.R submitted that in the present case income as computed by the AO was Rs. 21,99,772/- in AY 2013-14 and (-)Rs. 77,87,698/- in AY 2014-15 after apportioning the administrative expenditure on the basis of turnover/gross receipts of business and charitable segment as is held by the AO. Had the correct allocation of expenses been made on a more rational and scientific basis ,thenin both the years there would have been substantial losses from the activity of holding meetings, seminars and conferences. The Ld. A.R therefore submitted that the order of authorities below in not following the decision of Co-ordinate Bench in assessee own case which is a binding decision in violation of judicial discipline which the AO and Ld. CIT(A) are supposed to observe as the revenue has not challenged the said decision before the Hon ble High Court. The Ld. A.R further submitted that there is no change in facts and law in the instant assessment year vis- -vis AY 2009-10 and therefore in view of ratio laid down by Hon ble Apex Court in the cases of CIT v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not taxable by virtue of principle of mutuality. There exists no difference between two persons (i.e. they are one and the same) and a person cannot make profit from himself. The Ld .Counsel for the assessee relied on the decision of Hon ble Apex Court in the case of Secunderabad Club vs. CIT [2023] 457 ITR 263 (SC) which has dealt with the principle of mutuality . The Ld. A.R also relied on a series of decision passed by other judicial forums such as CIT vs. Deloitte Touche Tohmasu in ITA NO. 399 402/2022 vide order dated 18.10.2023 and Grant Thornton Advisory Pvt. Ltd. vs. DCIT in ITA No. 3259/Del/2017 dated 29.04.2022. 11. As regards other income comprising of the interest income, rental income and miscellaneous income. The Ld. A.R argued that the interest is earned from the fixed deposits made with bank as per provisions of Section 11(5)(iii) of the Act the details whereof i.e. fixed deposits are provided under Schedule J of the ITR and rental income and miscellaneous income are earned from the building held by the assessee. The Ld. A.R ,while referring to the provisions of Section 11(1) (2) of the Act, submitted that in terms of Section 11(1) of the Act 15% of the gross receip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om organizing the meetings, seminars and conferences which are hit by the proviso to Section 2(15) read with Section 13(8) of the Act and therefore the order of Ld. CIT(A) may kindly be upheld by dismissing the ground raised by the assessee. 13. After hearing the rival contentions and perusing the material on record, we note that the ICC is non-profit making company registered u/s 25 of the Companies Act, 1956 the main object of the assessee is to promote and protect the trade, commerce and industries and in particular the trade, commerce and industries in or with which Indians are engaged or associated with. We further find that the ICC with main object of promoting and protecting trade, commerce and industries carries on certain activities in the form of holding meetings, seminars and conferences to create awareness among its members and non members meaning thereby that it meetings/conferences/seminars are not confined to its members only. The ICC derives income by way of sponsorships of such seminars, conferences and meetings from various industrial houses/trading and commercial entities and this has been so in the instant year also. The assessee received sum of Rs. 9,48,14,435/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity: Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is twenty- five lakh rupees or less in the previous year, 13.1. A perusal of the above reveals that the 1st proviso provides that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves carrying on of any activity in the nature of trade ,commerce or business or any activity of rendering service in relation to trade ,commerce or business for a fee or a cess or any other consideration irrespective of the nature of use or application or retention of the income from such activity and the 2nd proviso provides that 1st proviso shall not be application if the receipts from the activities as referred to herein is Rs. 25. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ority (supra) and observed that the Hon ble Apex Court has nowhere held that the activities carried on by the charitable entity which are supportive to the attainment of main object are to be treated as noncharitable activities. The Hon ble Court has even held that activities of charging of any amounts towards consideration for any activity (advancing general public utility) which is on cost basis or nominally above cost, cannot be considered to be trade, commerce or business or any services in relation thereto in Para 253 page 82. The Hon ble Court has held as under: A.3. Generally, the charging of any amount towards consideration for such an activity (advancing general public utility), which is on cost-basis or nominally above cost, cannot be considered to be trade, commerce or business or any services in relation thereto, It is only when the charges are markedly or significantly above the cost incurred by the assessee in question, that they would fall within the mischief or cess, or fee, or any other consideration towards trade, commerce or business. In this regard, the Court has clarified through illustrations wheat kind of services or goods provided on cost or nominal basis wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncement of main object is not hit by the proviso to Section 2(15) of the Act even post amendments. 16. We also note that the assessee s case is squarely covered in its own case by the decision of Hon ble Bench in ITA No. 1284/kol/2012 for A.Y. 2009-10 wherein the issue was decided by the coordinate bench in favour of the assessee and the revenue has not preferred any appeal against the decision of Co-ordinate Bench before the Hon ble High Court and the issue has attained finality. The operative part of the decision in ITA No. 1284/Kol/ 2012 is extracted as under: 32. We have already discussed the facts above in ITA No1491/Kol/2012 for AY 2008-09, which are unchanged in this appeal also i.e. for AY 2009-10 but in view of amendment in Section 2(15) of the Act vide Finance Act 2008, w.e.f. 01/04/2009, whereby new proviso was inserted and according to lower authorities the activities of assessee association of conducting Environment Management Centres, meetings, conferences seminars and issuance of certificate of origin were all in the nature of rendering of service in relation to business, for consideration and falling under the last limb of charitable purpose, i.e. advancement of any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , commerce or business, for a fee or cess or any other consideration, irrespective of the nature of use or application of the income from such activity, or the retention of such income, by the concerned entity. Further CBDT explained this proviso vide its Circular No. 11 of 2008, dt. 19th Dec., 2008 (2009) 308 ITR (St) 5 on the issue which reads as under: CBDT Circular No. 11/2008 19th December, 2008 Subject:- Definition of Charitable purpose under section 2(15) of the Income Tax Act, 1961-reg. Section 2(15) of the Income Tax Act, 1961 ( Act ) defines charitable purpose to include the following:- i) Relief of the poor ii) Education iii) Medical relief, and iv) The advancement of any other object of general public utility. An entity with a charitable object of the above nature was eligible for exemption from tax under section 11 or alternatively under section 10(23C) of the Act. However, it was seen that a number of entities who were engaged in commercial activities were also claiming exemption on the ground that such activities were for the advancement of objects of general public utility in terms of the fourth limb of the definition of charitable purpose . Therefore, section 2(15) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng on an activity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of the activity. 3.1 There are industry and trade associations who claim exemption from tax u/s 11 on the ground that their objects are for charitable purpose as these are covered under any other object of general public utility . Under the principle of mutuality, if trading takes place between persons who are associated together and contribute to a common fund for the financing of some venture or object and in this respect have no dealings or relations with any outside body, then any surplus returned to the persons forming such association is not chargeable to tax. In such cases, there must be complete identity between the contributors and the participants. Therefore, where industry or trade associations claim both to be charitable institutions as well as mutual organizations and their activities are restricted to contributions from and participation of only their members, these would not fall under the purview of the proviso to section 2(15) owing to the principle of mutuality. However, if such organizations have dealings with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the past history of the assessee, which is discussed in detail above. From the above facts, we are clear that the assessee has never been dominantly engaged in any commercial activities and is a Charitable Institution registered as such u/s 12A of the Act, set up for the promotion and protection of Indian business and industry. The main purpose of this Institution is promotion and protection of trade and commerce in the country and not to conduct any commercial activities. Further, it has also never been the contention of the revenue that the assessee is engaged in commercial activities but it is hit by the proviso to section 2(15) of the act and thus will be deemed to be engaged in commercial activities. What will be the position to an institution engaged in advancement of any other object of general public utility, which lays down that such an institute will be deemed to be not charitable if it is involved in carrying on any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business. According to us, part of the proviso being any activity of rendering any service in relation to any trade, comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carry on business in the incidental or ancillary activity is established. In such cases, the onus of proof of an independent intention to carry on business connected with or incidental or ancillary sales will rest on the Department. Thus, if the main activity of a person is not trade, commerce etc., ordinarily incidental or ancillary activity may not come within the meaning of business . To put it differently, the inclusion of incidental or ancillary activity in the definition of business presupposes the existence of trade, commerce etc. The definition of dealer contained in Section 2(11) of the Act clearly indicates that in order to hold a person to be a dealer he must carry on business and then only he may also be deemed to be carrying on business in respect of transaction incidental or ancillary thereto. We have stated above that the main and dominant activity of the Trust in furtherance of its object is to spread message. Hence, such activity does not amount to business . Publication for the purpose of spreading message is incidental to the main activity which the Trust does not carry on as business. In this view, the activity of the Trust in bringing out publications and selli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the Trust either was dealer or was carrying on trade, commerce etc. The Trust is not carrying on trade, commerce etc., n the sense of occupation to be a dealer as its main object is to spread message of Saibaba of Shirdias already noticed above. Having regard to all aspects of the matter, the High Court was right in answering the question referred by the Tribunal in the affirmative and in favour of the respondent-assessee. We must however add here that whether a particular person is a dealer and whether he carries on business , are the mattes to be decided on facts and in the circumstances of each case. 34. Thus from the above, the logical corollary which inexorably flows from a careful perusal of the above laid decision is that in the cases of many institutions / associations whose main activity is not business the connected incidental or ancillary activities of sales carried out in furtherance of and to accomplish their main objects would not, normally, amount to business, unless an independent intention to conduct business in these connected, incidental or ancillary activities is established by the revenue. Therefore, the issue whether a professional institution is or is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the above, we thus now turn to examine and analyse in full details the particular facts of the present case. That the assessee association is a Charitable Institution, duly registered as such u/s. 12A of the Act, carrying on its main object of development of trade, industries and commerce. The main objects for which the association came into existence, are clearly set out in clause 3 of the Memorandum of Association which duly records and reads as under: 3(a) To promote and protect the trade, commerce and industries and in particular the trade, commerce and industries in or with which Indians are engaged or concerned. The activities of conducting Environment Management Centre, Meetings, Conferences Seminar and issuance of Certificate of Origin, being the activities stated to be services in relation to trade, commerce or business were all well covered by the main object being fully connected, incidental and ancillary to the main purpose and were conducted solely for the empowerment, betterment and for creating awareness amongst the industrialists in order to bring about the development of trade and industries in India. Further it is to be noticed that the Memorandum has also spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orities held that the same substantially changed the position of law and thus the principle of consistency did not apply. But we are of the view that a detailed reading of the various judicial decisions through the years, interpreting the definition of charitable purpose as laid out in section 2(15) of the Act and also the definition of business in relation to the said section amply revels that the theory of dominant purpose has always, all through the years, been upheld to be the determining factor laying down whether the Institution is Charitable in nature or not. Where the main object of the Institution was charitable in nature, then the activities carried out towards the achievement of the said, being incidental or ancillary to the main object, even if resulting in profit and even if carried out with non members, were all held to be charitable in nature. Hon'ble Apex Court in the earliest case of Andhra Chamber of Commerce (supra) had clearly laid out the principle that if the primary purpose of an Institution was advancement of objects of general public utility, it would remain charitable even if an incidental or ancillary activity or purpose, for achieving the main purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15) and that the assessee was entitled to exemption under s 11(1)(a) Again the Hon'ble Apex Court in the case of Federation of Indian Chambers of Commerce Industry (supra) held that that the dominant object with which the Federation was constituted being a charitable purpose viz. promotion, protection and development of trade, commerce and industry, there being no motive to earn profits, the respondent was not engaged in any activity in the nature of business or trade, and, if any income arose from such activity, it was only incidental or ancillary to the dominant object for the welfare and common good of the country s trade, commerce and industry, and its income was, therefore, exempt from tax under s.11 of the IT Act, 1961 Again reiterating the dominant purpose theory, the Hon'ble SC in the case of Sai Publication Fund (supra) laid out as follows: If the main activity is not business, then any transaction incidental or ancillary would not normally amount to business unless an independent intention to carry on business in the incidental or ancillary activity is established. In such cases, the onus of proof of an independent intention to carry on business : connected with o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) of the Act. We find that section 28(iii) of the Act provides that the income derived by a trade, professional or similar association from specific services performed for its members will be brought to charge under the head profits and gains of business or profession . The underlying idea behind s. 28(iii) is that there must be a business from which income is derived and that in the course of such business specific services must be rendered for its members. The concept behind s.28(iii) is to cut at the mutuality principle being relied on in support of a claim for exemption, when the assessee was actually deriving income or making profits as a result of rendering specific services for its members in a commercial way. The reason for the introduction of Section 28(iii) of Act, to ignore the principle of mutuality and reach the surplus arising to the mutual association and this is clear from the fact that these provisions are confirmed to services performed by the association for its members . Such income would either be charged as business income or under the residual head, depending upon the question whether the activities of the association with the non-members amount to a busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ects of general public utility and it would remain charitable even if an incidental or ancillary activity or purpose, for achieving the main purpose was profitable in nature. Hence, assessee is not hit by newly inserted proviso to section 2(15) of the Act. This issue of assessee s appeal is allowed. 17.1. In the impugned assessment yearalso , there is no change in facts or law vis- vis AY 2009-10 and therefore the department cannot be allowed to take a different stand on the same facts. The case of the assessee is squarely covered by the decision of Hon ble Apex Court in the case of CIT vs. Radhasoami Satsang (supra) and by subsequent decision of the Apex Court in the case of CIT vs. M/s PFH Mall amp; Retail Management Pvt. Ltd. (supra). Similar view has also been taken by the coordinate bench in DCIT vs. Kolkata Port Trust (supra) wherein it was held that there is no change in the facts and law , the revenue cannot be allowed to take a different view. Accordingly we are inclined to hold that the rule of consistency has to be applied. Pertinent to state that revenue authorities have failed to adhere to the principle of judicial discipline in following the decision of the Tribunal w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arried on to the main object of the ICC for promotion and protection of trade, commerce and industry. 19. We also note that the other income comprises of interest income, rental income and other miscellaneous income. We further note that the interest income is accrued and earned from fixed deposits with the Banks which are maintained as per the provisions of Section 11(5)(iii) of the Act. The assessee has furnished the details of fixed deposits in schedule J of the ITR which is filed at page 50 and 95 of PB. Rental income and miscellaneous income were earned from building held by the assessee. Section 11(2) of the Act provides that the income of the institution falls short of 85% of the gross/total receipts or the said shortfall can be accumulated and set apart to be spent on the activities of the institutions over a period of 5 years. In other words the assessee can be said to have applied the said income over the said period provided that the said income is accumulated or set apart in terms of provision of Section 11(5) of the Act. Whereas provisions of 11(1) provides for accumulation of income of the trust to the extent of 15% of the gross receipts in perpetuity. In other words ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erfere with the same. 3. It may be mentioned that most of the High Courts have taken the aforesaid view with only exception thereto by the High Court of Kerala which has taken a contrary view in Lissie Medical Institutions vs. CIT [2012] 24 taxmann.com 9/209 Taxman 19 (Mag.)/348 ITR 344. 4. It may also be mentioned at this stage that the legislature, realizing that there was no specific provision in this behalf in the Income Tax Act, has made amendment in Section 11(6) of the Act vide Finance Act No. 2/2014 which became effective from the Assessment Year 2015-16. The Delhi High Court has taken the view and rightly so, that the said amendment is prospective in nature. 5. It also follows that once assessee is allowed depreciation, he shall be entitled to carry forward the depreciation as well. 6. For the aforesaid reasons, we affirm the view taken by the High Courts in these cases and dismiss these matters. 24. Considering the facts of case and the decision of Hon ble Apex Court, we set aside the order of Ld. CIT(A) and direct the AO to allow the depreciation on fixed asset as application of income/expenses. Accordingly ground nos. 6 and 7 are allowed. 25. Issue raised in ground no. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ICC whereas the Ld. CIT(A) has not decided the issue on the ground of denial of exemption of assessee u/s 11 of the Act. 30. Facts in brief are that the assessee has computed the accumulation u/s 11(1)(a) of the Act on the total receipt thereby computing admissible amount of Rs. 2,41,45,442/- whereas the AO has computed the deduction u/s 11(1)(a) on net receipt at Rs. 58,85,340/-. 31. The assessee raised said issue before the Ld. CIT(A) but the Ld. CIT(A) did not decide the same on the ground that exemption to the assessee has been denied as a result of enhancement of income and thus there is no need to adjudicate the same thereby dismissing the ground raised by the assessee. 32. After hearing the rival contentions and perusing the material on record, we find that accumulation u/s 11 is to be computed on the gross receipts and not the net receipts. The issue settled by the Hon ble Surpeme Court in the case of ACIT vs. A.L.N. Rao Charitable Trust [1995] 83 Taxman 252 (SC) wherein it has been held that statutory accumulation u/s 11(1)(a) has to be computed on the gross receipts of the assessee. The relevant extract of the decision held as under: A mere look at section 11(1)( a ) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from income-tax as imposed by section 11(1)( a ) would get lifted if additional accumulated income beyond 25 per cent or Rs. 10,000 whichever is higher, as the case may be, is invested as laid down by section 11(2) after following the procedure laid down therein. Therefore, sub-section (2) only will have to operate qua the balance of 75 per cent of the total income of the previous year or income beyond Rs. 10,000, whichever is higher, which has not got the benefit of tax exemption under section 11(1)( a ). If 100 per cent of the accumulated income of the previous year was to be invested under section 11(2) to get exemption from income-tax then the ceiling of 25 per cent or Rs. 10,000, whichever is higher which was available for accumulation of income of the previous year for the trust to earn exemption from income-tax as laid down by section 11(1)( a ) would be rendered redundant and the said exemption provision would become otios. Out of the accumulated income of the previous year an amount of Rs. 10,000 or 25 per cent of the total income from property, whichever is higher, is given exemption from income-tax by section 11(1)( a ) itself. That exemption is unfettered and not subjec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rst part of section 11(1)( a ). ( ii ) Out of the remaining accumulated income of Rs. 80,000 for the previous year, a further sum of Rs. 25,000 would 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 during the previous year, that is, Rs. 1 lakh, Rs. 45,000 in all, would 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 Rs. 25,000 of accumulated income from property of previous year, would get lifted under section 11(2) to the extent the balance of such accumulated income was invested as laid down by section 11(2). To take an illustration if, say an additional amount of Rs. 20,000 out of the balance of accumulated income of Rs. 55,000 was invested as per section 11(2) then this additional amount of Rs. 20,000 of accumulated income would get excluded from the tax net as per section 11(2). ( iv ) The remaining balance of the accumulated income out of Rs. 55,000 that is Rs. 35,000 if not invested as per sub-section (2) of section 11 would be added to the taxable income of the trust and would not get exempted from the t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
