2021 (2) TMI 583 - AT - Income Tax

Exemption u/s 11 - Disallow statutory allowance of 15% u/s 11(1)(a) of the I.T.Act on the ground that there was no surplus left after deducting the application of income - HELD THAT - It is settled law that 15% allowance u/s 11(1)(a) of the I.T.Act has to be allowed on the gross receipts. The Tribunal in assessee s own case for assessment year 2011- 2012 2015 (11) TMI 1295 - ITAT BANGALORE had decided the identical issue in favour of the assessee. In view of the co-ordinate Bench order of the Tribunal in assessee s own case, we hold that accumulation u/s 11(1)(a) of the I.T.Act should be allowed as claimed by the assessee. - Decided in favour of assessee.

Summary

Issues:
- Allowability of 15% deduction u/s 11(1)(a) of the Income Tax Act.
- Interpretation of statutory allowance for accumulation of income for charitable purposes.

Analysis:
1. Allowability of 15% deduction u/s 11(1)(a) of the Income Tax Act:
- The appellant contested the disallowance of 15% of total income u/s 11(1)(a) by the lower authorities, claiming it should be allowed before deduction of actual application of income for trust objects. The AO disallowed excess expenditure carry forward, citing provisions of sections 11 and 13 of the Income Tax Act, which allow accumulation under sec.11(1)(a) and 11(2) only when there is a surplus. The CIT(A) upheld this view.
- The Tribunal referred to a previous order in the appellant's case for AY 2011-2012, where it was decided that 15% accumulation should be calculated on gross receipts, not net receipts after expenditure deductions. Citing a Special Bench decision, it clarified that the income for accumulation purposes should be the income derived by the trust from property, excluding amounts expended for trust purposes.
- Based on these precedents, the Tribunal held that 15% allowance u/s 11(1)(a) should be allowed on gross receipts before considering deductions for application of income. Consequently, the appellant's appeal was allowed.

2. Interpretation of statutory allowance for accumulation of income for charitable purposes:
- The Tribunal emphasized that the accumulation for charitable purposes should be calculated on the income derived by the trust from property, excluding amounts applied for trust purposes. It referenced a Supreme Court decision that clarified the interpretation of s. 11(1)(a) of the Act, emphasizing that the income to be accumulated should not include amounts expended for trust purposes.
- The Tribunal highlighted that the statutory provision sets apart 25% of the income from the source of property for accumulation, and this 25% should be considered as income of the trust under s. 11(1). Any expenditure in the form of application of income should not be included in the calculation of income for accumulation purposes.
- By following these legal principles and precedents, the Tribunal concluded that the appellant was entitled to the benefit of 15% accumulation u/s 11(1)(a) on gross receipts, as claimed. The decision was made in favor of the appellant, aligning with established legal interpretations and judgments.

In conclusion, the Tribunal allowed the appeal of the assessee concerning the allowability of 15% deduction u/s 11(1)(a) of the Income Tax Act, based on the interpretation that such deduction should be calculated on gross receipts before considering deductions for application of income. The judgment reaffirmed the legal principles regarding the statutory allowance for accumulation of income for charitable purposes, emphasizing the exclusion of amounts expended for trust purposes from the calculation of income for accumulation.