2020 (11) TMI 219 - AT - Income Tax

Exemption u/s 11 - computation of the quantum of 15% of the income derived - HELD THAT - Assessee has duly exercised the said option which is also accepted by the department and the amount which was set apart as per Explanation-I was reduced from the income derived from property held under trust. That once the income of trust is considered as the income received as well as accrued, then, at the time of allowing the relaxation of application of the said income u/s.11(1)(a) of the Act, a different parameter cannot be applied. DR has given much stress on the term receipt as appearing in Section 11(1) of the Act, however, the said term receipt of income is only in the context of the person who is in receipt and not in the context of income derived from the property held under the trust. The income derived from the property held under the trust remains the same for computing the benefits as provided u/s.11. Computation of the quantum of 15% of the income derived should be on the basis of the income as declared by the assessee, which is considered for all other purposes. A different meaning of income derived from property can be given for the purpose of calculating the relaxation of accumulation or set apart equivalent to 15% of such income. Hence, the adjustment made while processing the return of income is not in accordance with the provisions of Section 11(1) of the Act and the same is liable to be deleted. Appeal of assessee is allowed.

Summary

Issues:
Adjustment of ?2,15,216 made while processing the return of income under Section 11(1)(a) of the Income Tax Act.

Analysis:
The appeal dealt with the adjustment of ?2,15,216 made during the processing of the income tax return concerning the computation of 15% allowed under Section 11(1)(a) of the Act. The Central Processing Centre (CPC) recalculated the amount of 15% allowed under Section 11(1)(a) based on the gross receipts of the assessee, resulting in a variance with the amount claimed by the assessee. This variance arose due to the assessee setting apart an amount of ?14,34,775 due to non-receipt during the year, which was deducted from the gross receipts for the 15% accumulation calculation. The assessee contested this adjustment before the CIT(A) but was unsuccessful.

Before the Tribunal, the assessee argued that the adjustment was erroneous as only the income derived by the trust should be considered for computing the 15% accumulation under Section 11(1)(a) and not the actual receipt of income during the year. On the contrary, the Revenue contended that the receipt of income during the year is relevant for calculating the 15% relaxation as per Section 11(1)(a) and that the amount set apart due to non-receipt should be deducted from the total receipts. The Revenue supported the CIT(A)'s decision to calculate the 15% based on total receipts of ?61,07,568 instead of ?75,42,343.

The Tribunal noted that the assessee's total income during the relevant year was ?75,42,343, of which ?49,76,217 was applied for charitable purposes, and ?14,34,775 was set apart due to non-receipt. After considering the option exercised by the assessee and the provisions of Explanation-I to Section 11(1) allowing deferral of income application, it was concluded that the adjustment made during the return processing was not in line with Section 11(1) of the Act. The Tribunal emphasized that the computation of 15% of the income derived should be based on the income declared by the assessee for all purposes, and the term 'receipt' in Section 11(1) pertains to the person in receipt, not the income derived from trust property. Therefore, the adjustment was deemed unjustified, and the appeal of the assessee was allowed.