2022 (6) TMI 1512 - AT - Income Tax

Denial of deduction u/s 11(1)(a) - there is no balance left to accumulate 25% at gross receipts - AR submitted that manner of computation done by AO is not correct and that the deduction under section 11(1)(a) should be adjusted first before considering any other deduction - HELD THAT - Though the Act does not specify the chronological order in which the deductions under section 11 are to be allowed, the sequence of the section implies that the deduction under section 11(1)(a) is to be deducted first before considering any other deduction. From the plain reading of section 11(1)(a) it is clear that 25% of income of the trust should be allowed as a deduction. Hon ble Supreme Court in the case of CIT Vs. Programme for Community Organisation 2000 (11) TMI 4 - SUPREME COURT held that 25% should be calculated on the gross receipts of income and not on the net income. The ratio laid down by the Hon ble Supreme Court in the case of Programme for Community Organisation (supra) is that for the purpose of accumulation of income, the gross receipts of the Trust need to be considered. We notice that the assessee in the computation of income has claimed the deduction u/s. 11(1)(a) on the net income. We also notice that the AO in the computation disallowing depreciation did not give deduction under section 11(1)(a) and has directly gone into 11(2) deduction. This in our view is not the right way. We remand the issue back to the AO to recompute the income of the assessee as per the law. The AO is directed to consider the ratio laid down by the Hon ble Supreme Court while recomputing the total income of the assessee and give a reasonable opportunity of being heard to the assessee. Assessee appeal is allowed for statistical purposes.

Summary

Issues:
1. Denial of deduction under section 11(1)(a) by the Assessing Officer.
2. Correct computation of income and deductions under section 11 of the Income Tax Act.

Analysis:

Issue 1: Denial of deduction under section 11(1)(a)
The case involved an appeal against the order of the CIT(A)-4, Bengaluru, regarding the denial of deduction under section 11(1)(a) for the Assessment Year 2013-14. The assessee, a charitable trust, contested the denial of the deduction by the Assessing Officer, which was partially upheld by the CIT(A). The Assessing Officer disallowed the deduction under section 11(1)(a) and recomputed the income, leading to the appeal before the Tribunal. The learned AR argued that the deduction under section 11(1)(a) should be allowed before considering any other deduction, citing a decision of the Coordinate Bench of the Tribunal in a similar case. The Tribunal noted that the Act does not specify the order of deductions but implied that section 11(1)(a) should be deducted first. The Tribunal referred to a Supreme Court decision emphasizing that 25% should be calculated on gross receipts, not net income. Consequently, the Tribunal remanded the issue back to the Assessing Officer to recompute the income in line with the law and directed the assessee to cooperate with the proceedings.

Issue 2: Correct computation of income and deductions under section 11
The Tribunal highlighted the importance of correctly computing income and deductions under section 11 of the Income Tax Act. It emphasized that the deduction under section 11(1)(a) should be considered before other deductions and should be based on gross receipts, as per the Supreme Court's ruling. The Tribunal found the Assessing Officer's computation incorrect as it did not allow the deduction under section 11(1)(a) and directly moved to section 11(2) deduction. The Tribunal's decision to remand the issue back to the Assessing Officer aimed to ensure compliance with the legal provisions and the Supreme Court's interpretation. The Tribunal's order allowed the appeal for statistical purposes, indicating a procedural victory for the assessee.

This detailed analysis of the judgment provides insights into the issues raised, the legal arguments presented, and the Tribunal's decision to remand the matter for correct computation of income and deductions under section 11 of the Income Tax Act.