TMI Blog2004 (9) TMI 300X X X X Extracts X X X X X X X X Extracts X X X X ..... mportant question which arises is 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% of only the remaining amount should be allowed to be accumulated or set apart. During the previous year relevant to the assessment year under appeal, the assessee worked out 25% of the income in the following manner: Gross income Rs. 3,52,962 Less: Administrative expenses, etc. Rs. 47,984 Depreciation (as allowable) Rs. 24,646 Rs. 72,630 ------------- Rs. 2,80,332 Less: 25% of 2,80,332 Rs. 70,083 The Assessing Officer, however, determined the 25% only at Rs. 36,061, which is worked out in the following manner: Gross income as per assessee's computation Rs. 3,42,174 Less: Income from property separately considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure relating to house property was incurred by the assessee at Rs. 28,659. The ITAT, in that case, held that since the expenditure was more than income, no rental income was available to the assessee and therefore rent of Rs. 17,414 should be deducted from the gross income of Rs. 73,484 before quantifying accumulation at the rate of 25%. When the matter came up before the Madhya Pradesh High Court, it was held that reference under section 11(1) is not to 'total income' as defined in section 2(45) of the IT Act. It was held that for the purposes of section 11(1), the income of Rs. 73,484 was relevant and the rental income of Rs. 17,414 could not be deducted therefrom. 5. The ld. counsel for the assessee also invited our attention to the Supreme Court decision in the case of CIT v. Programme for Community Organisation [2001] 248 ITR 1, confirming the Kerala High Court decision in the case of CIT v. Programme for Community Organisation [1997] 228 ITR 620. The ld. counsel invited out attention to the following observation of the Hon'ble Supreme Court at page 2 of the Report: "The question that really requires consideration is whether, for the purposes of section 11(1)(a) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Special Bench does not arise either from the grounds of appeal taken before the CIT(A) or the grounds of appeal taken before the ITAT. It is submitted that this relevant question is nowhere reflected in the grounds raised by the assessee and therefore the reference made to the Special Bench should be returned unanswered. On merits of the claim of the assessee, Shri Maheshwari submitted that commercial income should be considered for calculating 25% and such commercial income has to be computed after deducting all such expenditure which have been incurred for earning the income. He relied on the ITAT, Mumbai 'A' Bench decision in the case of Gem Jewellery Export Promotion Council v. Sixth ITO [1999] 68 ITD 95. 7. The ld. counsel for the assessee, in his rejoinder, submitted that even though any written ground on this issue was not raised by the assessee, during the course of hearing before the Regular Bench, relevant oral grounds were raised, which were admitted by the Tribunal, which is proved from the fact that the Tribunal referred the matter to the Special Bench. It is contended that it is a purely legal issue and therefore the oral ground was rightly admitted by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 997] 228 ITR 620 wherein it is held as under: "At the outset, the statutory language of section 11(1)(a) of the Income-tax 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% of the income from such properties. In other words, the very language of the statutory provision under consideration sets apart 25% of the income from the source of property with reference to the extent to which such income is applied for such purposes, charitable or religious. In other words, for the purpose of the section 11(1)(a) of the Act, the income in terms of relevance would be the income of the trust from and out of which 25% is set apart in accordance with the spirit of the statutory provision." This means that when it is established that trust is entitled to lull benefit of exemption under section 11(1), the said trust is to get the benefit of twenty five per cent and this ..... X X X X Extracts X X X X X X X X Extracts X X X X
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