2015 (9) TMI 542 - AT - Income Tax

Meaning of expression such income in section 11(1)(a) - Held that - Identical issue was considered by the Apex Court in Commissioner of Income-Tax Versus Programme For Community Organisation (2000 (11) TMI 4 - SUPREME Court ) which was also applied by the Special Bench of the ITAT Mumbai in Bai Sonabai Hirji Agiary Trust. Versus Income-Tax Officer. 2004 (9) TMI 300 - ITAT BOMBAY-E holding that the expression such income means gross income and not the net income after deducting the administrative expenditure. Thus to hold that the claim of assessee is in accordance with law. Since the expenditure incurred by the assessee was more than 93% of the gross receipts, no part of the gross receipts are liable to be taxed in the year under consideration, since the balance amount was set apart for application in the next year. With these observations, the appeal filed by the assessee-trust is allowed. - Decided in favour of assessee.

Summary

Issues involved:
Interpretation of the expression "such income" in section 11(1)(a) of the Income Tax Act with regard to the calculation of taxable income for an educational society registered under section 12A.

Detailed Analysis:

1. Issue: Interpretation of "such income" in section 11(1)(a)
The primary issue in this case revolved around the interpretation of the term "such income" in section 11(1)(a) of the Income Tax Act concerning the calculation of taxable income for an educational society. The Assessing Officer contended that only the net surplus after deducting administrative expenses should be considered for charitable activities. However, the assessee argued that "such income" refers to gross income and not the net income after deductions. The assessee relied on case laws and circulars to support their interpretation.

2. Judicial Precedents and Interpretations:
The assessee referred to various judicial precedents to support their argument. They cited a decision by the Calcutta High Court that considered expenditure on salaries and miscellaneous expenses as application for charitable purposes. Additionally, the assessee highlighted a Supreme Court decision that allowed a charitable trust to accumulate 25% of its gross income derived from property held under trust. The assessee emphasized that all outgoings, including expenditures incurred by a charitable trust, should be considered as an application of income for the trust's objectives.

3. Application of Precedents:
The Tribunal analyzed the precedents cited by the assessee and concluded that the expression "such income" in section 11(1)(a) refers to gross income. By following the decision of a Special Bench of the ITAT Mumbai, the Tribunal held that the claim of the assessee, where the expenditure exceeded 93% of gross receipts, was in accordance with the law. Therefore, no part of the gross receipts was deemed taxable for the assessment year, as the balance amount was set apart for future charitable purposes.

4. Decision and Ruling:
The Tribunal allowed the appeal filed by the assessee-trust, emphasizing that the interpretation of "such income" as gross income aligned with legal principles. The ruling highlighted that since the expenditure by the assessee exceeded 93% of gross receipts, no taxation was applicable for the year under consideration. The Tribunal's decision was based on the interpretation of the term "such income" in section 11(1)(a) and the application of relevant judicial precedents.

In conclusion, the judgment by the Appellate Tribunal ITAT Bangalore clarified the interpretation of the term "such income" in section 11(1)(a) of the Income Tax Act for an educational society, emphasizing that it refers to gross income. The decision was based on the application of legal precedents and upheld the assessee's claim that no taxation was applicable for the assessment year as the expenditure exceeded 93% of gross receipts.