2022 (10) TMI 755 - AT - Income Tax

Exemption u/s 11(1)(a) - Non-granting of exemption of 15% allowed u/s 11(1)(a) - accumulation of income - whether the accumulation to the extent of 15% is required to be allowed on Gross income or Net income? - HELD THAT - The assessee has earned capital gains of Rs.22.75 crores and the same has been claimed as exempt u/s 11(1A) of the Act. From the order passed by Ld CIT(A), we notice that the said claim has been accepted by the AO. The remaining income earned from assets held for charitable purposes which consisted of corpus donations and other income - The corpus donation is exempt u/s 11(1)(d) of the Act. The other income earned from assets held for charitable purposes - The assessee has applied a sum for charitable purposes, meaning thereby, the amount applied by the assessee for charitable purposes has exceeded the amount of other income referred above. Hence, there was no necessity for the assessee to accumulate income to the extent of 15% u/s 11(1)(a) of the Act. It is pertinent to note that the exemption of 15% allowed u/s 11(1)(a) of the Act is not a standard deduction allowed. It only allows accumulation of income without any conditions, if there is any shortfall in application of income, i.e., if the application of income falls short of 85% of the income. In the instant case, we have seen that there is no shortfall in application of income. Hence the question of allowing accumulation of income to the extent of 15% of income does not arise. Since the assessee is not eligible for accumulation granted u/s 11(1)(a) of the Act during this year, the question that the same is required to be allowed on gross income or net income will not arise. Hence those case laws are not applicable to the issue under consideration. Accordingly, we hold that the assessee is not eligible to claim accumulation of income u/s 11(1)(a) of the Act and hence the AO was justified in rejecting the claim for accumulation of income u/s 11(1)(a). Credit of TDS amount - AO has assessed income so offered by the assessee without allowing corresponding tax credit - HELD THAT - We notice that Rule 37BA(3)(ii) allows splitting up of TDS amount when the corresponding income is assessable over a number of years. It is stated that the credit for TDS shall be allowed across those years in the same proportion in which the income is assessable to tax. Accordingly, we restore this issue to the file of AO for allowing proportionate tax credit in terms of Rule 37BA(3)(ii) of I T Rules. Appeal filed by the assessee is treated as partly allowed.

Summary

Issues:
1. Non-granting of exemption of 15% allowed u/s 11(1)(a) of the Act.
2. Non-granting of TDS of Rs.13,30,586/-

Analysis:
1. The first issue pertains to the rejection of the claim for exemption u/s 11(1)(a) of the Act. The assessee, a charitable trust, claimed an exemption of Rs.4,97,45,885/- under this provision, which was disallowed by the assessing officer (AO). The contention was that the conditions for making investments, as prescribed under sec.11(2) of the Act, were not applicable to the amount accumulated u/s 11(1)(a). The Department argued that since the amount applied for charitable purposes exceeded the income, there was no need to allow accumulation to the extent of 15% of income. The Tribunal held that as there was no shortfall in the application of income, the accumulation of income to the extent of 15% was not warranted, thereby upholding the rejection of the claim by the AO and CIT(A).

2. The second issue revolved around the claim for credit of TDS amount. The assessee had split certain income between two or more years as per accounting principles, and accordingly, the TDS credit was also split proportionately. The AO assessed the income without allowing the corresponding tax credit, a decision upheld by the CIT(A). However, Rule 37BA(3)(ii) permits splitting up of TDS amount when income is assessable over multiple years, with the credit to be allowed across those years in proportion to the assessable income. The Tribunal directed the AO to allow proportionate tax credit in line with Rule 37BA(3)(ii) of the Income Tax Rules, thereby partially allowing the appeal filed by the assessee.

In conclusion, the Tribunal upheld the rejection of the claim for exemption u/s 11(1)(a) of the Act due to the absence of a shortfall in the application of income, while directing the AO to allow proportionate tax credit for TDS amount split over multiple years. The appeal was treated as partly allowed, with the order pronounced on 16.09.2022 by the Tribunal.