2018 (3) TMI 1192 - AT - Income Tax

Exemption available u/s 11(1)(a) - deduction of 15% for accumulation disallowed - Held that - Exemption available under section 11(1)(a) i.e. 15% of income is invested and not subject to any condition. There is no bar in law and there is no specific provision in the act which says that such deduction of 15% for accumulation will not be allowed in case of deficit but such 15% accumulation is allowable irrespective of whether 15% of income have been applied or not. Similar is the position in the case of ACIT vs. A.L.N. Rao Charitable Trust (1995 (10) TMI 2 - SUPREME Court) here the meaning of applied in this context means that the income is actually applied for the charitable or religious purposes of the trust but the word applied need not necessarily imply spent. Even if the income is irretrievably earmarked and allocated for the charitable or religious purposes or purposes it may be under section 11 (1)(a) of the Act. A sum of ₹ 66,24,580/- being 15% of the gross income even though the entire income has been applied on the object of the trust as an application of income and there left no income for accumulation. However, as requested by the learned Sr. DR that the facts are not cleared, the same can be verified by the AO but only verification of figures. Accordingly, we set aside the orders of the lower authorities and allow the appeal of the assessee.

Summary

Issues Involved:
- Disallowance of accumulation claim under section 11(1)(a) of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Disallowance of Accumulation Claim
The appeals by the assessee arose from the order of the Commissioner of Income Tax (Appeals) confirming the disallowance of the claim of accumulation or setting apart at 15% of the gross income. The assessee, a public charitable trust, filed its return of income for the relevant assessment years, declaring income and applying an amount towards the trust's object, resulting in a deficit. The claim for accumulation under section 11(1)(a) of the Act was disallowed by the Assessing Officer (AO) as the entire income had been spent on the trust's object, leaving no income unspent for accumulation. The AO's decision was upheld by the CIT(A), leading to the appeal before the tribunal.

Issue 1 Analysis:
The tribunal analyzed the provisions of section 11(1)(a) of the Act, which allows accumulation for charitable purposes to the extent of 15% of the income of the trust. It emphasized that the income for accumulation should be based on the accounts of the trust and not the income as assessed. Referring to relevant case laws and CBDT circulars, the tribunal highlighted that the exemption for accumulation is based on gross receipts and not total income as determined by the AO. The tribunal cited the Supreme Court's decision in CIT Vs. Programme for Community Organisation, emphasizing the entitlement to accumulate a percentage of gross income. Despite the deficit, the tribunal held that the assessee was entitled to accumulation under section 11(1)(a) at the rate of 15% of the gross income, as there was no statutory bar on allowing accumulation in case of a deficit.

Conclusion:
The tribunal allowed the appeals of the assessee, setting aside the orders of the lower authorities. It held that the assessee was entitled to accumulate 15% of the gross income, even though the entire income had been applied to the trust's object, as there was no legal restriction on allowing accumulation in case of a deficit. The consistent view was taken for both assessment years, and the appeals were allowed in favor of the assessee.