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2016 (12) TMI 301 - AT - Income TaxDenial of 15% deduction out of total fund available with the assessee for application under section 11(1) - Held that - In the case of Karnal Improvement Trust 2011 (10) TMI 193 - ITAT DELHI , the Tribunal has not emphased that 85% of the total income should be applied on the objects of the trust only, then 15% will be available. The proposition laid down by the Tribunal is that if no income was applied by the trust for its objects under section 11(1) and no amount was applied for accumulation under section 11(2), then 15% deduction cannot be claimed as standard deduction. Similarly, if one looks into the proposition no.2 laid down by the Hon ble Supreme Court in the case of ACIT Vs. ALN Rao Charitable Trust 1995 (10) TMI 2 - SUPREME Court , then it would be clear that the assessee will be entitled for exemption qua the income which has been applied for its objects, plus 15% of the total income. The ld.CIT(A) has failed to construe these two proposition while denying the exemption to the assessee. Therefore, I allow the appeal of the assessee and set aside the impugned order of the ld.CIT(A) and direct the AO to grant deduction of ₹ 1,75,804/- being 15% of ₹ 11,11,185/- i.e. income derived by the assessee form the trust-property. - Decided in favour of assessee
Issues:
Single issue: Denial of 15% deduction under section 11(1) of the Income Tax Act. Comprehensive Analysis: The appeal before the Appellate Tribunal ITAT Ahmedabad revolves around the denial of a 15% deduction under section 11(1) of the Income Tax Act. The controversy lies in whether this deduction is a standard deduction or should be allowed if the assessee has applied some part of its income on its objects during the relevant year. The ld.CIT(A) upheld the denial of the deduction, stating that the total application of income for the assessee's object did not meet the 85% threshold required. The reference was made to the ITAT decision in the case of ACIT Vs. Karnal Improvement Trust. The ld.CIT(A) held that since the assessee failed to apply 85% of the income, it would only be entitled to a deduction to the extent of income applied, i.e., ?6,50,000. The 15% deduction of ?11,11,185 was not allowed, following the ITAT Delhi 'D' Bench decision in the Karnal Improvement Trust case. The Tribunal discussed the provisions of section 11(1)(a) and emphasized that if the trust applies 85% of its income for its objects, the entire income shall be exempt from tax. It was clarified that the exemption under section 11(1)(a) is unfettered and absolute, subject to certain conditions. The Hon'ble Delhi High Court's decision highlighted that the additional condition under section 11(2) applies to accumulation beyond 15%, not to the accumulation up to 15% under section 11(1)(a). The Tribunal concluded that to claim 100% exemption, the income applied under section 11(1)(a) and accumulated under section 11(2) should total 85%. Failure to meet this threshold would render any portion of income falling short of 85% liable to tax. In light of the above decisions and interpretations, the Tribunal found that the ld.CIT(A) had erred in denying the exemption to the assessee. The Tribunal clarified that if no income was applied for the trust's objects under section 11(1) and no amount was applied for accumulation under section 11(2), then the 15% deduction could not be claimed as a standard deduction. The Tribunal allowed the appeal of the assessee, setting aside the ld.CIT(A)'s order, and directed the AO to grant a deduction of ?1,75,804, being 15% of the income derived by the assessee from the trust-property. In conclusion, the Tribunal allowed the appeal of the assessee, emphasizing the correct interpretation of the provisions of section 11(1)(a) and section 11(2) regarding deductions and exemptions under the Income Tax Act.
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