2022 (3) TMI 711 - AT - Income Tax

Accumulation under section 11(1)(a) - Whether CIT(A) has erred allowing the assessee accumulation u/s. 11(1)(a) at the rate of 15% instead of allowing the accumulation to the extent of available surplus funds/income as provided in section 11(1)(a) - HELD THAT - Tribunal the decision in the assessee's own case relating to the Asstt. Years 2010-11 and 2012-13 2015 (9) TMI 1637 - ITAT AHMEDABAD and 2019 (1) TMI 1340 - ITAT AHMEDABAD wherein this Tribunal has allowed claim of the assessee for accumulation of income and set off of income to the extent of 15% of the receipt as contemplated under section 11(1)(a) of the Act. Carry forward of excess expenses and set off of the same in the subsequent year - In view of above decisions of the co-ordinate bench in assessee's own case for the earlier asst. years 2010-11 and 2012-13, we have no hesitation in following the same ratio for the present asst. year 2015-16 and reject the Grounds filed by the Revenue and upheld the action of the assessee in accumulating 15% of income derives from property held under the Trust u/s. 11 1 a of the Act. On the second issue of carry forward and set off of losses against the income of the current year, this has been put at rest by the Apex Court and Hon'ble Jurisdictional High Court in favour of the assessee and therefore remains no more res integra. Thus, we do not find any merit in the appeal filed by the Revenue, which is dismissed.

Summary

Issues Involved:
1. Whether the Ld. CIT(A) erred in allowing the assessee accumulation u/s 11(1)(a) at the rate of 15% instead of the extent of available surplus funds/income.
2. Whether the Ld. CIT(A) erred in allowing the carry forward of deficit (notional deficit) due to the claim of deemed application of income (at flat 15%) u/s 11(1)(a) of the Act.

Issue-wise Detailed Analysis:

1. Accumulation u/s 11(1)(a) at 15%:
The Revenue contended that the assessee's accumulation under section 11(1)(a) should be limited to the extent of available surplus funds or income, not a flat 15%. The Assessing Officer (AO) held that the section does not allow a flat 15% deduction or accumulation but only to the extent of available surplus funds or a maximum of 15% of income, whichever is less. The AO thus denied the assessee's claim of ?1,94,34,107/- as 15% of total income for accumulation.

The Ld. CIT(A) allowed the assessee's claim, stating that the assessee correctly applied the provision of section 11(1)(a). The CIT(A) directed the AO to reduce ?1,94,34,107/- as 15% of the amount under section 11(1)(a) and then reduce the amount applied for the objects of the trust. The Tribunal upheld this decision, referencing the assessee's own case for earlier assessment years (2010-11 and 2012-13), where a similar claim was allowed. The Tribunal cited the Hon'ble Supreme Court's judgment in the case of CIT Vs. Programme for Community Organisation, which supported the assessee's right to accumulate 25% of income derived from property held under trust.

2. Carry Forward of Deficit:
The Revenue also challenged the Ld. CIT(A)'s decision to allow the carry forward of a notional deficit arising from the deemed application of income. The AO had argued that the income of the trust should be computed on commercial principles, and excess application of funds could not be carried forward.

The Ld. CIT(A) relied on the jurisdictional High Court's judgment in CIT Vs. Shri Plot Shwetambar Murtipuja Jain Mandal, which held that income derived from trust property must be determined on commercial principles. The High Court ruled that expenses incurred in an earlier year could be adjusted against the income of a subsequent year, and such adjustments should be regarded as an application of income for charitable purposes in the year of adjustment. The Tribunal followed this precedent and upheld the CIT(A)'s decision, also referencing the Hon'ble Supreme Court's judgment in CIT(Exemption) Vs. Subros Educational Society, which dismissed the Revenue's appeal on similar grounds.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the Ld. CIT(A)'s decisions on both issues. The Tribunal found no merit in the Revenue's arguments and upheld the assessee's right to accumulate 15% of income under section 11(1)(a) and carry forward the deficit for set-off in subsequent years. The judgments of the jurisdictional High Court and the Supreme Court were pivotal in the Tribunal's decision. The appeal of the Revenue was thus dismissed.