2022 (4) TMI 1122 - AT - Income Tax

Exemption u/s 11 - assessee is a charitable trust registered u/s. 12AA - AO calculated the deduction u/s. 11(1)(a) at the rate of 15% on actual receipt of the assessee passed the order accordingly - HELD THAT - CIT(A) is mentioned that the deduction should not be on hypothetical income. But the gross income which was received by the assessee during the year is not hypothetical. The action directed by the Ld. CIT(A) is totally devoid of any logic. The gross income is entered in the books of the assessee and accordingly reflected in final accounts. The gross income should be ascertained from books of accounts of the assessee-trust. The calculation on actual receipt of assessee made by the Ld. AO is contrary to the view of the Act. Having regard to the clear pronouncement of their Lordships of the Supreme Court 2000 (11) TMI 4 - SUPREME COURT the assessee is eligible for deduction u/s. 11(1)(a) of the Act. Accordingly the grounds of the assesses are allowed.

Summary

Issues:
Interpretation of deduction under Section 11(1)(a) of the Income Tax Act, 1961 based on actual receipts for a charitable trust for A.Y. 2013-14.

Analysis:
The appeal was filed by a charitable trust against the order of the Ld. Commissioner of Income Tax(Appeals)-10, Bengaluru regarding the deduction under Section 11(1)(a) for A.Y. 2013-14. The trust's gross income was ?9,95,44,952, but the actual receipts were ?2,11,16,139. The Assessing Officer calculated the deduction at 15% on actual receipts, while the trust claimed a deduction on the gross income. The Ld. CIT(A) upheld the AO's order, leading to the appeal before the ITAT.

Regarding the deduction under Section 11(1)(a), the Ld. AO allowed 15% of the income available towards application as a deduction, based on funds available with the trust. The Ld. CIT(A) upheld the AO's decision, stating that deduction cannot be claimed on income not actually received during the year, emphasizing the need for real income for application to charitable purposes.

The trust's counsel cited a Supreme Court judgment to support their claim for deduction on the total income received, not just the actual receipts. The ITAT considered the gross income as reflected in the trust's final accounts and disagreed with the CIT(A)'s view, stating that the deduction should be based on actual gross income received, not hypothetical income. The ITAT allowed the trust's appeal, granting a deduction of ?60,65,330 under Section 11(1)(a) in line with the Supreme Court's interpretation.

In conclusion, the ITAT allowed the appeal of the assessee, emphasizing that the deduction under Section 11(1)(a) should be calculated based on the actual gross income received by the trust, as per the clear pronouncement of the Supreme Court. The judgment highlights the importance of interpreting tax provisions in alignment with legal precedents and the actual financial transactions of the taxpayer.