9911796707
TMI Blog2025 (5) TMI 1297X X X X Extracts X X X X X X X X Extracts X X X X ..... of allowable accumulation of 15% under section 11(1)(a) of the I. T. Act. Therefore Rs. 1,74,95,075/- is treated as charge on income but not as application of income. 2. Whether on the facts and circumstances of the case, Ld. CIT(A) has erred in allowing the accumulation u/s 11(2) of the Act of Rs. 1,90,00,000/- despite the fact that no specific purpose for such accumulation has been mentioned in form-10 thereby it and does not satisfy the requirement of section 11(2) of the Act." 3. Brief facts of the case are that the assessee is a society, registered under the West Bengal Societies Registration Act, 1961. The assessee is engaged in the business of micro-financing. It has been registered as a Charitable Institution u/s. 12A of the Act and is also approved u/s. 80G of the Act to receive donations. The assessee filed its return of income for the AY 2014-15 on 30.09.2014 declaring total income at Rs. Nil claiming refund. The return was selected for scrutiny and accordingly, notices were issued u/s. 143(2) and 142(1) of the Act. Subsequently, the assessment order was passed u/s. 143(3) making several additions/disallowances to the income of the assessee. 4. Ground no. 1 : In re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Such deemed application can be accumulated. 5.2.4. It is noteworthy to mention that, in 1968, the CBDT issued a clarification vide Circular bearing no. 5-P(LXX-6), dated 19.06.1968, with regard to taxability of income under Section 11 of the Act. It was clarified that where the trust derives income from separate heads such as 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. The relevant portion of the circular is reproduced herein below: "Where the trust derives income 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 purpose of the trust or otherwise, and also after adding back any debits made for capital expenditure incurred for the purpose of the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... placed in the case of 'CIT vs. Birla Janhit Trust (1994) 73 Taxman 465 (Cal HC)', where the Hon'ble Calcutta High Court while deciding this aforesaid issue held as under: the assessee has incurred the expenditure on salaries and miscellaneous expenses for the purpose of carrying out the objects and purposes of the trust and not only to earn the income from dividend. It is now well-settled that in determining the portion of income applied or accumulated for charitable or religious purposes, regard should be had to the trust income in a commercial sense or according to the accounts of the trust and not the total income as computed under the provisions of the Income-tax Act. Our attention has been drawn to several decisions in this connection. In Deo Radha Madhava Lalji Genda Trust v. Property Tax Officer, it has been observed that tax liability and other outgoings in respect of the trust property are all incidental expenses relating to and connected with the main objects of the trust, which are exclusively religious and charitable. If the trust property is not properly maintained and proper accounts are not kept, the very existence of the trust would be in jeopardy and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Taxman 41 (Mum) (SB). I note that this precise issue came up before this Tribunal of Bangalore Bench in Asstt. CIT (Exemption) v. Bhagwan Mahaveer Mamorial Jain Educational & Cultural Trust [IT Appeal Nos. 1514 and 1515 (Bang) of 2016, dated 21-8-2019] for AYs 2020-11 and 2011-12 and ITA No. 137/Bang/2017 for AY 2012-13 dated21-8-2019, wherein it was held as under: "16. The third issue that arises for consideration in ITA No. 1515/Bang/2016 for AY 2011-12 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 only to the extent of 15% of the income after revenue expenditure. In other words income to be set apart u/s.11(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. Since in the case of the Assessee, the gross receipts after revenue expenditure was nil, the AO denied the benefit of accumulation to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that it was entitled to accumulate only twenty five per cent of Rs. 87,010. For the aforesaid reasons, the civil 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] 141 CTR (Ker) 502 : [1997] 228 ITR 620 (Ker) (supra) wherein it is held as under : "At the outset, the statutory language of s. 11(1)(a) of the IT Act, 1961, relates to the income derived by the trust from property. The trust is required to be wholly for charitable or religious purposes, and the income is expected to have relation to the extent to which such income is applied 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 incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on whatsoever has been given by the Revenue authorities for deducting Rs. 2,17,126 in this case for purposes of s. 11(1)(a). The decision cited on behalf of the Revenue did not take into account the decision of the Supreme Court referred to above. The circular of CBDT has also been considered by the Hon'ble Kerala High Court in its decision referred to above. Accordingly the question referred to is answered in the affirmative and in favour of the assessee." 19. The aforesaid decision clearly supports the plea of the Assessee. Following the same, we hold that the accumulation u/s. 11(1)(a) of the Act should be allowed as claimed by the Assessee. The relevant ground of appeal of the revenue is accordingly dismissed." 6. Therefore, respectfully following the aforesaid Tribunal's decision in Bhagwan Mahaveer Memorial Jain Educational & Cultural Trust (supra) hold that the accumulation u/s. 11(1)(a) of the Act should be allowed as claimed by the assessee. This ground of appeal of assessee is allowed." 5.2.8. Further, special bench of the Mumbai ITAT in the case of 'Bai Sonabai Hirji Agiary Trust vs The 5Th ITO (2004) 272 ITR 67 (Mumbai SB)' has also considered this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income", hence it is gross income of the assessee and not the net income. Therefore, based on this factual position as mentioned in sec. 11(1) as noted above, we direct the AO to allow 15% exemption on gross receipts." 5.2.11. Reliance is also placed on the decision of the Hon'ble Lucknow High Court in the case of 'Krishi Utpadan Mandi Samiti vs. DCIT (2011) 12 taxmann.com 249 (Lucknow)', relevant portion of the judgement is as under: "Section 11 of the Income-tax Act, 1961 - Charitable or religious trust - Exemption of income from property held under - Assessment year 2006-07 - Whether benefit of accumulation upto 15 per cent of income should be calculated with reference to total receipts of charitable institution and not with reference to net income worked out for assessment being balance amount worked out after allowing deduction for administrative and other expenses - Held, yes" 5.2.12. The aforesaid judicial pronouncements emphasized that expenses incurred for the purpose of carrying out the trust's object and functions cannot be reduced from the gross receipt of income for calculating deemed application of 15% of such gross income. In this case, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... la Janahit Trust (1994) 73 Taxman 465 (Calcutta High Court) 7. The Ld. DR, however, has cited para 11 of the jurisdictional Calcutta High court order in the case of CIT Vs. Birla Janahit Trust (supra) which is reproduced as under: "11. In our view, therefore, the expenditure on salaries and miscellaneous expenses for the purpose of carrying out the objects and purposes of the trust must be considered as application for charitable purposes. However, in this case the quantum of the expenditure for carrying out the objects and purposes of the trust and the expenditure made to earn the income had not been separately allocated or determined. We, therefore, answer the second question by saying that the Tribunal was right in holding that the assessee will be entitled to the benefit of the expenditure made on salaries and miscellaneous expenses for the purpose of carrying out objects and purpose of the trust only; but any expenditure incurred for earning the income from dividend will not qualify as amounts spent for carrying out the object and purpose of the trust." 7.1. The Ld. DR in this respect has submitted that it has been held in the case of 'Birla Janahit Trust' (supra) that any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 11 of the Act and hence, rejected the assessee's claim. 6.2.2. From the facts on record, it appears that the appellant had specified only one objective in his Form 10 i.e. 'For relief, rehabilitation and medical care of poor and weaker section, instead of all the objectives as specified by the AO. Hence, it appears that the assessee had provided specific objective for utilisation of the accumulated amount. Till this extent, it appears that the AO had recorded and observed incorrect facts, which had led to denial of accumulation in terms of Section 11(2) of the Act. It is noteworthy to mention that Sec 11 (2) of the Act provides that 85% of the income which is not utilized by the Trust for charitable or religious purposes would not be included in the total income of the previous year of receipt of the income provided the conditions laid down in clauses (a) to (c) contained therein are already satisfied. Clause (a) in particular, which is applicable, provides that such person furnishes the statement in the prescribed form and in prescribed manner to the AO saying the purpose for which the income is being accumulated or set apart and the period for which the income is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tely stated, but that cannot be the reason to deny the said benefit. Our view gets strengthened by the judgment of Hon'ble Delhi High Court in the case of CIT Vs. Hotel & Restaurant Association (supra), on which the learned counsel for the assessee placed reliance. In that case, the object stated for accumulation was to apply the funds in next years to achieve the object, for which it had been incorporated. The Hon'ble High Court held as under: "Held, dismissing the appeal, that it is true that specification of a certain purpose or purposes was needed for accumulation of the trust's income under section 11(2) of the Act. At the same time the purpose or purposes to be specified cannot be beyond the objects of the trust. Plurality of the purposes of accumulation is not precluded but it depends on the precise purpose for which the accumulation is intended. In the present case, both the Commissioner (Appeals) and the Appellate Tribunal had recorded a concurrent finding that the income was sought to be accumulated by the assessee to achieve the object for which the assessee was incorporated. It was not the case of the Revenue that any of the objects of the assessee-company wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that in identical facts and circumstances the AO has allowed the accumulation u/s. 11(2) of the Act. We note that assessments for all the aforesaid assessment years have been carried out scrutiny assessment u/s. 143(3) of the Act and the claim of the assessee for accumulation u./s. 11(2) has been accepted. The Ld. AR has placed on following case laws to stress the point that the department should maintain consistency in its approach on the recurring issues for different assessment years. 1. Copy of Order passed by Hon'ble Calcutta High Court in the case of PCIT vs Salarpuria Simplex Dwelling LLP (455 ITR 712 dated 26.07.2022, 2. Copy of Order passed by Hon'ble Bombay High Court in the case of PCIT vs Quest Investment Advisors (P.) Ltd. 409 ITR 545 dated 28.06.2018, 3. Copy of Order passed by Hon'ble Kolkata ITAT in the case of DCIT vs J. Thomas & Co. P. Ltd. (167 ITD 572 dated 01.11.2017, 4. Copy of Order passed by Hon'ble Kolkata-ITAT in the case of EMC Projects P. Ltd. vs DCIT 209 ITD 411 dated 20.08.2024 & 5. Copy of order passed by Hon'ble Bangalore ITAT in the case of DCIT Vs. CMR Jnanadhara Trust 210 ITD 519 dated 03.12.2024. 10. The ld. Counsel h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obligation cast on the assessee under Section 11(2) has been discharged and the exemption, accordingly, may be granted to the assessee." 13. He relying on the aforesaid observations has submitted that the aforesaid question no. 1 framed by the Hon'ble Calcutta High Court has not been answered and the matter has been restored by the Hon'ble High Court to the Tribunal to examine as to whether the specific purpose for which the trust requires the accumulation of income exists ?. The Ld. DR has, therefore, pleaded that the issue in this respect be restored to the file of the Assessing Officer. 14. We are not convinced with the above argument of the ld. DR. The appeal before the Hon'ble Calcutta High Court was relating to an order passed u/s. 263 of the Act and further the question was as to whether the assessee was justified in listing all its objects and purposes as mentioned in the trust deed in Form 10 for the purpose of accumulation of income as provided u/s. 11(2) of the Act. However, in the case in hand as observed the Ld. CIT(A) has categorically observed that though the assessee has many objects but the assessee had mentioned only a specific object i.e. for rehabilitation and ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
