2015 (12) TMI 448 - AT - Income Tax

Calculation of the deduction u/s. 11(1)(a) - e accumulation @ of 15% on net receipts by the AO compared to the calculation on gross receipts by the assessee - Held that - The accumulation u/s 11(1)(a) of the Act should be allowed as claimed by the Assessee as relying on case of Jyothy Charitable Trust 2015 (11) TMI 1295 - ITAT BANGALORE wherein held this issue is no longer res integra and has been decided by the Special Bench Mumbai in the case of Bai Sonabai Hirji Agiary Trust 2004 (9) TMI 300 - ITAT BOMBAY-E any expenditure which is in the shape of application of income is not to be taken into account. Having found that trust is entitled to exemption under s. 11(1), we are to go to the stage of income before application thereof. Thus the accumulation u/s 11(1)(a) of the Act should be allowed as claimed by the Assessee - Decided in favour of assessee.

Summary

Issues:
Calculation of deduction under section 11(1)(a) on net receipts versus gross receipts.

Analysis:
The appeal concerned a public charitable and religious institution challenging the calculation method of the deduction of 15% under section 11(1)(a) of the Income Tax Act on net receipts by the Assessing Officer compared to the calculation on gross receipts by the assessee. The Assessing Officer contended that accumulation should be based on net income considering the necessary expenditure for running educational activities. The assessee argued for accumulation based on gross income, citing the decision in CIT vs Programme for Community Organization. However, the CIT(A) disagreed, emphasizing that the cited decisions were based on different facts and legal issues. The CIT(A) directed the Assessing Officer to bifurcate receipts based on activities with consideration and those without, applying accumulation differently. The assessee appealed, challenging the denial of accumulation based on gross receipts.

The Co-ordinate Bench decision in the case of Jyothy Charitable Trust was cited, addressing the issue of accumulation calculation on gross versus net receipts. The decision referred to the Special Bench Mumbai case of Bai Sonabai Hirji Agiary Trust vs. ITO, which clarified that accumulation should be based on income derived from property held under trust, excluding amounts expended for charitable purposes. The decision highlighted that 25% accumulation should be calculated on the income before application, not after. The Tribunal followed this interpretation, allowing the accumulation as claimed by the Assessee based on gross receipts. Consequently, the order of the CIT(A) was set aside, and the appeal of the assessee was allowed.

In conclusion, the Tribunal's decision aligned with the interpretation that accumulation under section 11(1)(a) should be calculated based on gross receipts, excluding amounts applied for charitable purposes. The judgment emphasized the need to consider income before application for determining the allowable accumulation percentage, in line with the statutory provisions and relevant legal precedents.