2013 (4) TMI 897 - AT - Income Tax

Exemption for Trusts - Statutory Accumulation of Income u/s 11 (1)(a) - To be computed on Gross inocme or net income - Assessee was a religious and charitable trust and had total income of ₹ 35,60,82,101/- against which it had applied income amounting to ₹ 58,09,87,048/-. A.O. computed the assessment at nil income as application of income including the capital expenditure was more than the income earned. Assessee contended before CIT (A) that AO had not allowed the statutory accumulation of 25% of the gross income which was required to be carried forward for application in the subsequent year u/s 11(1)(a). - HELD THAT - Under the provisions of section 11(1) (a), the assessee is entitled to accumulate 25% of the income and therefore even if the assessee had spent only 75% of the income, the entire income would be exempted. But in this case, there was no income left that could be accumulated. In fact, there was deficit, therefore, the claim of the assessee is rejected.

Summary

Issues:
Allowability of statutory accumulation of income at the rate of 25% of gross total income by the assessee.

Analysis:
The appeal by the assessee contested the order of the CIT(A) for the assessment year 2001-02, specifically disputing the allowability of statutory accumulation of income at the rate of 25% of gross total income. The Assessing Officer computed the net income of the trust at nil, rejecting the claim of depreciation of &8377; 36442731 for income from immovable properties. The CIT(A) upheld the decision, stating that as the assessee had applied more income than earned, there was no income left for accumulation, thus rejecting the claim. The assessee argued that statutory accumulation should be allowed based on the gross income, citing legal precedents. The revenue contended that accumulation could only be allowed from income earned, and the judgments referenced by the assessee were not applicable. The Tribunal analyzed the legal position, emphasizing that statutory accumulation is not absolute and unfettered if no income remains for application, eventually confirming the CIT(A)'s decision to disallow the claim.

The Tribunal examined various legal judgments cited by both parties, including the Supreme Court's ruling in CIT Vs. Programme for Community Organization and CIT Vs. ALN Rao Charitable Trust, as well as the High Court of Bombay's decision in CIT Vs. Trustees of Bhat Family Research Foundation. While acknowledging the principles outlined in these cases, the Tribunal concluded that accumulation under section 11(1)(a) cannot be allowed if the entire income has already been applied, as there is no income left for accumulation. The Tribunal highlighted that the previous decisions in the assessee's own case did not establish a binding precedent, as they did not address the specific issue of allowing accumulation when no income remained for application. Consequently, the Tribunal upheld the CIT(A)'s decision to disallow the claim for statutory accumulation.

Additionally, the revenue argued against allowing depreciation on assets used for charitable purposes, which had been fully deducted in earlier years. However, as the assessee did not raise this issue in the appeal, the Tribunal declined to address it, leading to the dismissal of the assessee's appeal.