2017 (6) TMI 646 - AT - Income Tax

Permissible accumulation under Section 11(2) - accumulation @ 15% of the income would be considered on the gross receipts of the year or net receipts? - Held that - The accumulation under Section 11(1)(a) of the Act is allowable at 15% of the gross receipts. See Moogambigai Charitable and Educational Trust Vs. ACIT 2016 (7) TMI 1014 - ITAT BANGALORE - Decided against revenue

Summary

Issues:
- Whether accumulation under Section 11(2) of the Income Tax Act should be considered on gross receipts or net receipts.

Analysis:
The appeal was against the Commissioner of Income Tax (Appeals) order for the Assessment Year 2011-12. The main issue was whether the permissible accumulation under Section 11(2) of the Income Tax Act should be calculated at 15% of the income based on gross receipts or net receipts. The Departmental Representative argued for the accumulation to be calculated at 15% of net receipts after deducting necessary expenditures. On the contrary, the Authorised Representative referred to previous Tribunal decisions and argued for accumulation at 15% of gross receipts. The Tribunal noted a similar issue addressed in a previous case and cited a Co-ordinate Bench decision that supported accumulation at 15% of gross receipts. They highlighted the importance of the income derived by the trust from property and emphasized that any expenditure considered as an application of income should not be included in the calculation for accumulation. The Tribunal decided in favor of the assessee, directing the Assessing Officer to consider the allowable accumulation of income at 15% of the gross receipts. Consequently, the appeal of the revenue was dismissed, and the accumulation under Section 11(1)(a) of the Act was deemed allowable at 15% of the gross receipts.

This judgment clarifies the method for calculating accumulation under Section 11(1)(a) of the Income Tax Act, specifically addressing whether it should be based on gross receipts or net receipts after deducting expenditures. The decision emphasizes the importance of considering income derived by the trust from property and excluding any expenditure categorized as an application of income from the accumulation calculation. By citing relevant precedents and Co-ordinate Bench decisions, the Tribunal establishes a consistent approach in favor of calculating accumulation at 15% of gross receipts. This ruling provides clarity on the interpretation of the Act and ensures a standardized method for determining allowable accumulation for charitable trusts.