2016 (1) TMI 569 - AT - Income Tax

Refusal to allow accumulation under Section 11(1)(a) - Held that - Following the decision of the co-ordinate bench of this Tribunal in Jyothi Charitable Trust (2015 (11) TMI 1295 - ITAT BANGALORE), we hold and direct the Assessing Officer to allow the accumulation of income at 15% of the gross receipts as claimed by the assessee and not on the basis of net income as held by him and accordingly set aside the orders of the authorities below.

Issues Involved:
1. Accumulation of income under Section 11(1)(a) of the Income Tax Act.
2. Computation of the amount accumulated under Section 11(2) of the Income Tax Act.
3. Addition of income from the sale of a vehicle.

Issue-wise Detailed Analysis:

1. Accumulation of Income under Section 11(1)(a) of the Income Tax Act:
The primary issue revolved around the method of computing the accumulation of income under Section 11(1)(a) of the Income Tax Act. The assessee claimed accumulation at 15% of the gross receipts from the educational institutions. However, the Assessing Officer (AO) contended that the accumulation should be computed after deducting the expenses incurred to earn such income, referring to CBDT's Circular No.5P(LLX-C) dated 19.6.1968. Consequently, the AO did not allow any deduction towards accumulation under Section 11(1)(a) and treated the entire income as accumulation under Section 11(2).

The Tribunal examined the judicial precedents cited by the assessee, including the Supreme Court judgments in CIT v. Programme for Community Organisation (248 ITR 1) and CIT v. A.L.N. Rao Charitable Trust (216 ITR 697), which supported the assessee's stance that the accumulation should be computed on the basis of gross receipts. The Tribunal also referred to the decision of the co-ordinate bench in Jyothi Charitable Trust (ITA No.662/Bang/2015), which held that accumulation under Section 11(1)(a) should be on gross receipts.

The Tribunal concluded that the AO's approach of not allowing any accumulation under Section 11(1)(a) was erroneous. It directed the AO to allow the accumulation of income at 15% of the gross receipts as claimed by the assessee.

2. Computation of the Amount Accumulated under Section 11(2) of the Income Tax Act:
The assessee contested the computation of the amount accumulated under Section 11(2) by the AO, which was enhanced to Rs. 1,10,01,235 instead of Rs. 19,96,601 claimed by the assessee. The AO's computation was based on the net surplus after deducting revenue expenditure, whereas the assessee computed it on the gross income from the property held under trust.

The Tribunal, referring to the same judicial precedents and the co-ordinate bench's decision in Jyothi Charitable Trust, held that the accumulation under Section 11(1)(a) should be on the gross receipts. Consequently, the Tribunal directed the AO to recompute the accumulation under Section 11(2) accordingly.

3. Addition of Income from the Sale of a Vehicle:
The assessee challenged the addition of Rs. 88,882 as income from the sale of a vehicle. The AO had considered the entire sale price of Rs. 2,50,000 as income, while the assessee had credited only Rs. 1,61,118 as profit on sale of the vehicle.

However, this ground was not urged before the Tribunal and was accordingly dismissed as infructuous.

Conclusion:
The Tribunal allowed the assessee's appeal for Assessment Year 2011-12, directing the AO to allow the accumulation of income at 15% of the gross receipts under Section 11(1)(a) and to recompute the accumulation under Section 11(2) accordingly. The grounds related to the addition of income from the sale of the vehicle and other general grounds were dismissed as infructuous. The Tribunal's decision was pronounced in the open court on 23rd October 2015.

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