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2021 (12) TMI 874 - AT - Income TaxExemption u/s 11 - assessee claimed accumulation of income for application for charitable purpose at 15% of the gross receipts - AO was of the view that accumulation will be allowed only to the extent of 15% of the income after revenue expenditure - HELD THAT - . We find that this issue is no longer res integra as held by the Special Bench of the Mumbai in the case of Bai Sonabai Hirji Agency Trust 2004 (9) TMI 300 - ITAT BOMBAY-E - Also in the case BHAGWAN MAHAVEER MEMORIAL JAIN EDUCATIONAL AND CULTURAL TRUST, BANGALORE AND (VICE-VERSA) 2019 (8) TMI 1194 - ITAT BANGALORE to hold that the accumulation u/s. 11(1)(a) of the Act should be allowed as claimed by the assessee and the AO is directed to do so - Decided in favour of assessee.
Issues Involved:
1. Calculation of income accumulation under Section 11(1)(a) of the Income-tax Act, 1961. 2. Classification of certain expenses as "Administration & Establishment Expenses" and their impact on income accumulation. Issue-wise Detailed Analysis: 1. Calculation of Income Accumulation under Section 11(1)(a): The primary issue is whether the 15% accumulation of income under Section 11(1)(a) should be calculated on the gross receipts or the net receipts after deducting administrative and establishment expenses. The assessee argued that the accumulation should be based on the gross receipts, while the Assessing Officer (AO) and the CIT(A) contended that it should be on the net income after deducting these expenses. The Tribunal referred to the Special Bench decision in Bai Sonabai Hirji Agency Trust Vs. ITO, which clarified that the accumulation should be on the gross income before any application of income. This view was supported by the Supreme Court in CIT vs. Programme for Community Organization, where it was held that the trust is entitled to accumulate a percentage of its gross income derived from property, without deducting expenses applied for charitable purposes. The Tribunal also cited the Bangalore Bench decision in ACIT (Exemption) Vs. Bhagwan Mahaveer Memorial Jain Educational & Cultural Trust, which reiterated that the accumulation should be on the gross receipts and not net receipts after revenue expenditure. Following these precedents, the Tribunal concluded that the accumulation under Section 11(1)(a) should be allowed as claimed by the assessee, i.e., on the gross receipts. 2. Classification of Certain Expenses as "Administration & Establishment Expenses": The secondary issue involves the classification of certain expenses as "Administration & Establishment Expenses" and their impact on the calculation of income available for accumulation. The AO had identified and considered a part of the income claimed by the assessee as applied for charitable purposes as administrative and establishment expenses. The assessee argued that there are no specific provisions in the Income-tax Act, 1961, for such identification and consideration, and that the absence of machinery provision to ascertain the nature of these expenses makes the AO's method of computing income for accumulation flawed. The Tribunal noted that administrative and establishment expenses are necessary for earning income and are deductible from gross receipts under normal commercial principles. However, these expenses are not considered as application of income for charitable purposes under Section 11. The net income, after deducting these expenses, is available for charitable activities and should be the base for calculating the 15% accumulation. The Tribunal upheld the AO's approach in deducting these expenses from the gross receipts to determine the net income available for charitable purposes. However, based on the earlier issue's resolution, the accumulation should still be allowed on the gross receipts as per the Tribunal's decision in the Bhagwan Mahaveer Memorial Jain Educational & Cultural Trust case. Conclusion: The Tribunal allowed the appeal of the assessee, directing the AO to allow the accumulation under Section 11(1)(a) on the gross receipts as claimed by the assessee. This decision aligns with the precedents set by higher judicial authorities, ensuring that the accumulation is calculated on the gross income before any application of income for charitable purposes. The appeal was thus allowed, and the order was pronounced in the open court on 8th December 2021.
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