2020 (10) TMI 984 - AT - Income Tax

Exemption u/s.11(1)(a) - Disallowance of Administrative Establishment expenses claimed by the assessee - HELD THAT - Assessee enjoys registration under section 12A of the Act and that the AO without assigning any reason has disallowed which was claimed by the assessee as Administrative Establishment expenses which was included in the application of income u/s.11 Whether the administrative and establishment expenses can be included as application of Fund is no longer res integra, since Hon ble jurisdictional High Court in CIT Vs. Birla Janahit Trust 1990 (8) TMI 5 - CALCUTTA HIGH COURT has held that salaries and miscellaneous expenses which are incurred for carrying out the object and purpose of the trust must be considered as application for charitable purpose. Audit fee is necessary expense likewise bank charges, which assessee has to pay to the bank for running of its activities, and the expenses under the head rates and taxes are in the nature of municipal taxes etc. which are necessary for the survival and then only it can run the trust, thereby achieve the objective of the trust, so the expenditure incurred by the assessee trust, needs to be allowed. Therefore, the total expenses incurred as Administrative Establishment expenses are allowable expenses. Allowability of exemption u/s. 11(1)(a) (i.e. 15% accumulation of income is on Gross Receipt or not) - As per assessee, it is entitled to accumulate 15% of its gross receipt in case it is not applied for charitable purpose u/s. 11(1)(a) - HELD THAT - the issue under consideration in respect of accumulation of income allowed u/s. 11(1)(a) of the Act is no longer res integra. For that, we rely on the decision of the coordinate bench of this tribunal (Bangalore bench) in the case of Greenwood High Trust 2018 (1) TMI 1105 - ITAT BANGALORE we direct the AO to allow accumulation income u/s. 11(1)(a) of the Act @ 15% of the gross receipt as claimed by the assessee and consequently ground raised by the assessee is allowed.

Summary

Issues:
1. Allowability of exemption u/s. 11(1)(a) of Income Tax Act
2. Treatment of Administrative and Establishment expenses as application of income for charitable purposes

Issue 1: Allowability of exemption u/s. 11(1)(a) of Income Tax Act

The appeal by the assessee trust was against the order of Ld. CIT(A)-25, Kolkata for assessment year 2012-13. The AO disallowed a certain amount claimed by the assessee as Administrative & Establishment expenses, which were included in the application of income u/s. 11 of the Act. The Tribunal noted that the issue of including administrative and establishment expenses as application of Fund had been settled by the Hon'ble jurisdictional High Court in a previous case. The expenses in question were deemed necessary for the trust's operations and achieving its objectives, thus they were allowed as application of income u/s. 11(1)(a) of the Act. Therefore, the AO was directed to allow the claimed expenses as application of income.

Issue 2: Treatment of Administrative and Establishment expenses as application of income for charitable purposes

Regarding the second issue, the appeal by the assessee challenged the calculation of exemption u/s. 11(1)(a) of the Act. The assessee argued that the accumulation should be computed on total receipt as per account, not as calculated by the AO. The Tribunal referred to a decision by a coordinate bench in a similar case, where it was held that accumulation of income for application for charitable purposes under section 11(1)(a) of the Act should be allowed at 15% of the gross receipts. Relying on this precedent, the Tribunal directed the AO to allow accumulation income u/s. 11(1)(a) of the Act at 15% of the gross receipt as claimed by the assessee. Consequently, the ground raised by the assessee on this issue was allowed.

In conclusion, the Tribunal partly allowed the appeal of the assessee, directing the AO to allow the claimed Administrative & Establishment expenses as application of income and to permit accumulation income u/s. 11(1)(a) of the Act at 15% of the gross receipt. The judgment was pronounced on 21st October, 2020.