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2020 (6) TMI 22 - AT - Income TaxExemption u/s 11 - Corpus donations - HELD THAT - Out of 11 donors only 2 donors had submitted that they have donated not for corpus. All other donors have appeared and filed their respective covering letters stating that the donations given to the assessee was for the purpose of corpus. In such a scenario, the AO erred in drawing adverse inference against persons who had appeared and corroborated by deposing before the AO that they had made the donations for the corpus of the assessee. However since two (2) donors had submitted that donation is to be treated as donation not for corpus, therefore, we direct partial addition - Decided in favour of assessee. Calculation of the allowable (15%) accumulation of income - As per AO 15% accumulation of income allowed u/s. 11(1)(a) of the Act is to be computed with reference to the net income after deduction of expenses incurred for earning such income - HELD THAT - The issue under consideration in respect of accumulation of income allowed u/s. 11(1)(a) is no longer res integra. For that we rely on the decision of Green Wood High Trust Vs. ACIT(Exemption) 2018 (1) TMI 1105 - ITAT BANGALORE - direct the AO to allow the accumulation income u/s. 11(1)(a) of the Act at 15% of the gross receipt as claimed by the assessee and consequently ground raised by the assessee is allowed. Excess application of income - HELD THAT - Hon ble Supreme Court in CIT-Exemptions Vs. Subros Educational Society 2018 (4) TMI 1622 - SC ORDER wherein it was held that eligible trust which are enjoying the registration u/s. 12AA of the Act are entitled to carry forward and set off of the excess application of income - direct that the excess expenditure incurred by the assessee trust in earlier assessment year should be allowed to be set off against the income of this year and so I allow the claim of the assessee as application of income. Not allowing tax deducted at source - HELD THAT - As decided in JAYASHREE CHARITY TRUST 1984 (12) TMI 30 - CALCUTTA HIGH COURT there is no reason to deny the benefit of exemption granted by section 11 to that portion of income which had been taken away by deduction of tax at source on the ground that amount had not been spent/ accumulated for the purpose of charity. Direct the AO to allow tax deducted at source by assessee as application of income. Disallowing the establishment expenses as application of income - HELD THAT - Said issue is no longer res integra since Hon ble Calcutta High Court in Birla Janhit Trust 1990 (8) TMI 5 - CALCUTTA HIGH COURT held that salaries and miscellaneous expenses, which are incurred for carrying out the objects and purposes of the trust must be considered as application for charitable purposes. I note that the assessee had claimed total expenses of ₹ 11,27,264/- (establishment expenses), however, AO estimated the expenses at ₹ 13,56,000/- which is per-se arbitrary and erroneous and ld. CIT(A) erred in confirming it. So direct the AO to allow the establishment expenses claimed by the assessee to the tune of ₹ 11,27,264/- as application of income u/s. 11(1)(a) of the Act. Order being pronounced after ninety (90) days of hearing - HELD THAT - Taking note of the extraordinary situation in the light of the COVID-19 pandemic and lockdown, the period of lockdown days need to be excluded. For coming to such a conclusion, rely upon the decision of the Co-ordinate Bench of the Mumbai Tribunal in the case of DCIT vs. JSW Limited 2020 (5) TMI 359 - ITAT MUMBAI .
Issues Involved:
1. Treatment of corpus donation as normal donation. 2. Reduction of establishment expenses from gross income for computation of allowable accumulation of income under section 11(1)(a). 3. Lowering down of the amount of application of income under section 11(1)(a). 4. Non-allowance of establishment expenses as application of income under section 11(1)(a). Detailed Analysis: 1. Treatment of Corpus Donation as Normal Donation: The assessee trust received ?7,95,000 as corpus donations. The AO treated the entire amount as normal donations despite the assessee providing covering letters from donors confirming the corpus nature. Out of 11 donors summoned, 10 appeared, and 8 confirmed the corpus nature. Two donors stated their donations were normal. The CIT(A) partially upheld the AO's decision, treating ?2,95,000 as normal donations. The Tribunal found the AO's adverse inference against all donors incorrect and restricted the addition to ?60,000, giving the assessee relief of ?1,95,000. 2. Reduction of Establishment Expenses from Gross Income for Computation of Allowable Accumulation of Income under Section 11(1)(a): The assessee computed the allowable accumulation at 15% of gross income, totaling ?4,60,983. The AO calculated it based on net income after deducting establishment expenses, allowing only ?3,76,833. The CIT(A) upheld this. The Tribunal, relying on the decision in Green Wood High Trust Vs. ACIT (Exemption), held that accumulation under section 11(1)(a) should be 15% of gross receipts. The AO was directed to allow ?4,60,983 as claimed by the assessee. 3. Lowering Down of the Amount of Application of Income under Section 11(1)(a): - Excess Application of Income from Earlier Years: The AO did not allow ?10,03,387 as application of income. The Tribunal cited the Supreme Court's decision in CIT-Exemptions Vs. Subros Educational Society, which permits carrying forward and setting off excess application of income. The Tribunal directed the AO to allow this amount. - Tax Deducted at Source: The AO did not allow ?4,98,795 as application of income. The Tribunal referred to the Calcutta High Court's decision in CIT Vs. Jay Shree Charity Trust, which states that tax deducted at source should be considered as application of income. The AO was directed to allow this amount, bringing the total application of income to ?31,59,664. 4. Non-Allowance of Establishment Expenses as Application of Income under Section 11(1)(a): The AO estimated establishment expenses at ?13,56,000, which the CIT(A) confirmed. The Tribunal, referencing the Calcutta High Court's decision in Birla Janhit Trust, held that establishment expenses incurred for carrying out the trust's objectives should be considered as application of income. The AO was directed to allow the claimed amount of ?11,27,264 as application of income. Conclusion: The Tribunal partly allowed the appeal, providing significant relief to the assessee by correcting the treatment of corpus donations, ensuring proper calculation of allowable accumulation, recognizing excess application from earlier years, and allowing establishment expenses as application of income. The order was pronounced considering the COVID-19 pandemic and lockdown delays.
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