2024 (9) TMI 274 - AT - Income Tax

Allowance of Standard deduction u/s 24(a) if the income is computed in the case of a Charitable Trust granting exemption u/s 11 - HELD THAT - Issue decided against the assessee by decision of ITAT for the A.Y. 2012-13 2019 (4) TMI 762 - ITAT MUMBAI where the Tribunal after considering the relevant facts held that standard deduction of rental income @30% u/s. 24A of the Act cannot be allowed while computing income of interest claim u/s.11. Not allowing deduction for actual repairs as reflected in Income and Expenditure Account - Decision of the Hon ble Coordinate Bench for the A.Y. 2012-13 2019 (4) TMI 762 - ITAT MUMBAI has covered the said ground as held it is settled position of law that once income of a trust / institution is computed under the provisions of section 11 of the Act, whatever income derived from the property held under trust is to be taken into account and against which actual expenditure incurred for the objects of the trust has to be considered as application of income. Therefore, while arriving at income u/s 11, the AO needs to allow deduction towards actual repairs and maintenance expenses incurred - we direct the AO to allow deduction towards actual repairs and maintenance expenditure incurred before arriving at income available for accumulation u/s 11(2) / taxable income of the trust / institution. Deduction of amount of accumulation u/s. 11(2) - As decided in 2019 (4) TMI 762 - ITAT MUMBAI the facts with regard to the availability of funds for making investments are under dispute. The assessee failed to file any details with regard to the availability of funds for making investments in the modes specified u/s 11(5) of the Income-tax Act, 1961. Therefore, we are of the considered view that there is no merit in the argument of the assessee that it has accumulated income u/s 11(2) of the Act, for the purpose of object of the trust in compliance with provisions of section 11(5) of the Income-tax Act, 1961. Therefore, we reject the ground taken by the assessee.

Issues Involved:

1. Deduction of 30% as Standard Deduction under Section 24(a) of the Income Tax Act, 1961.
2. Computation of income for charitable trusts under Section 11 of the Act.
3. Allowance of actual repairs and maintenance expenses.
4. Accumulation of income under Section 11(2) of the Act.
5. Charging of interest under Section 234C of the Act.

Issue-wise Detailed Analysis:

1. Deduction of 30% as Standard Deduction under Section 24(a) of the Income Tax Act, 1961:

The appellant/assessee, a charitable trust, contested the disallowance of a 30% standard deduction under Section 24(a) for rental income derived from property held under trust. The assessee argued that the income of a trust claiming exemptions under Section 11 should be computed in accordance with the provisions of the Act applicable to other assessees. However, the Tribunal, referencing its previous decisions for earlier years (e.g., A.Y. 2012-13), held that the standard deduction under Section 24(a) could not be allowed while computing the income of a trust claiming exemption under Section 11. The Tribunal emphasized that income of a trust should be computed under normal commercial principles without resorting to the computation mechanism provided under respective heads of income for determining income available for application under Section 11.

2. Computation of Income for Charitable Trusts under Section 11 of the Act:

The Tribunal upheld the lower authorities' decision that the income of a charitable trust should be computed under normal commercial principles and not under the specific computation provisions of the Act. It was clarified that the income available for application under Section 11 should be computed without allowing the standard deduction under Section 24(a). This approach was consistent with previous judgments, including those of the Hon'ble Bombay High Court and the Supreme Court, which emphasized that the income of a trust should be computed in a commercial sense.

3. Allowance of Actual Repairs and Maintenance Expenses:

The Tribunal addressed the issue of actual repairs and maintenance expenses claimed by the assessee. It was noted that while the standard deduction under Section 24(a) was disallowed, the actual expenditure incurred as per the books of account should be allowed. The Tribunal directed the Assessing Officer (AO) to allow the deduction for actual repairs and maintenance expenses incurred before arriving at the income available for accumulation under Section 11(2) or the taxable income of the trust.

4. Accumulation of Income under Section 11(2) of the Act:

The assessee contested the restriction of the deduction under Section 11(2) to the amounts initially claimed in Form No. 10. The Tribunal, referencing its previous decision for A.Y. 2012-13, held that the assessee could not revise the accumulation of income after the assessment was completed. It was emphasized that the benefit of accumulation under Section 11(2) should be claimed within the stipulated time and in compliance with the necessary formalities, including investment in specified modes under Section 11(5). The Tribunal found no merit in the revised claim for additional accumulation and upheld the AO's decision.

5. Charging of Interest under Section 234C of the Act:

The assessee challenged the charging of interest under Section 234C. The Tribunal noted that the CIT(A) had treated this as a consequential issue and found no legal infirmity in this approach. The Tribunal confirmed the CIT(A)'s decision that no separate ruling was required on this ground.

Conclusion:

The Tribunal dismissed the appeals filed by the assessee, upholding the decisions of the lower authorities on all contested grounds. The Tribunal's order emphasized the consistent application of legal principles regarding the computation of income for charitable trusts and the disallowance of the standard deduction under Section 24(a). The appeals were disposed of in the terms outlined above, and the order was pronounced in the open court on 23.07.2024.

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