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TMI Blog2011 (2) TMI 805X X X X Extracts X X X X X X X X Extracts X X X X ..... determining tax liability of the appellant and computation of income at Rs.12,66,569. (3) Because in any case, such a disallowance could not have been made, while giving effect to the order dt. 18th May, 2009 passed by the learned CIT(A)-II, Kanpur. (4) Because wholly without prejudice to the aforesaid, computation of income at Rs.12,66,569 is wholly erroneous. (5) Because the order appealed against is contrary to the facts, law and principles of natural justice." 3. The facts related to this case, in brief, are that a notice under section 148 was issued on 9th Oct., 2007 to the assessee as no return of income was filed. In compliance to the said notice, the assessee furnished the return of income on 29th Oct., 2007 declaring nil income after claiming exemption of its entire income under section 11 of the IT Act. The assessment was framed on 23rd Dec., 2008 at an income of Rs. 31,54,410. The AO considered that an amount of Rs. 50,56,130 remitted to Mandi Parishad was not applied for charitable purposes. Further the amount claimed accumulated under section 11(2) i.e., Rs. 12,66,569 was treated as deemed income of the assessee. Being aggrieved with the assessment order of the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the gross income of the assessee was at Rs. 1,07,76,416 out of which an amount of Rs. 95,09,847 was utilized. As such, the application of the income was more than 85 per cent as required under section 11(1)(a) of the IT Act and the assessee fulfilled the conditions laid down in the said section. Therefore, the provisions of section 11(2) of the IT Act were not applicable. He, therefore, submitted that the learned CIT(A) was not justified in confirming the arbitrary action of the AO. Reliance was placed on the following case laws : (i) Addl. CIT v. A.L.N. Rao Charitable Trust [1995] 216 ITR 697 (SC); (ii) S.RM.M.CT.M. Tiruppani Trust v. CIT [1998] 230 ITR 636 (SC); (iii) CIT v. Programme for Community Organisation [2001] 248 ITR 1 (SC). 6. In his rival submissions the learned Departmental Representative strongly supported the orders of the authorities below. 7. We have considered the rival submissions and carefully gone through the material available on the record. In the present case, it is an admitted fact that the total income of the assessee was at Rs. 1,07,76,416 out of which the assessee applied the income for charitable purposes to the extent of Rs. 95,09,847 which was m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are referred to in section 12 shall be deemed to be part of the income; (2) if, in the previous year, the income applied to charitable or religious purposes in India falls short of eighty-five per cent of the income derived during that year from property held under trust, or, as the case may be, held under trust in part, by any amount- (i) for the reason that the whole or any part of the income has not been received during that year, or (ii) for any other reason, then- (a) in the case referred to in sub-clause (i), so much of the income applied to such purposes in India during the previous year in which the income is received or during the previous year immediately following as does not exceed the said amount, and (b) in the case referred to in sub-clause (ii), so much of the income applied to such purposes in India during the previous year immediately following the previous year in which the income was derived as does not exceed the said amount, may, at the option of the person in receipt of the income [such option to be exercised in writing before the expiry of the time allowed under sub- section (1) of section 139 for furnishing the return of income] be deemed to be incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, shall not be treated as application of income for charitable or religious purposes, either during the period of accumulation or thereafter." 7.1 From the above provisions it is crystal clear that as per the provisions contained in clause (a) of sub- section (1) of section 11 of the IT Act, the income shall not be included in the total income if the assessee has set apart for application of such income for charitable or religious purposes to the extent of 85 per cent and remaining amount i.e., to the extent of 15 per cent can be accumulated or set apart. In the present case, the assessee applied the income of Rs. 95,09,847 out of total income of Rs. 1,07,76,416. As such, the income applied was about 88 per cent i.e., more than 85 per cent and the income accumulated or set apart at Rs. 12,65,569 was about 12 per cent i.e., less than 15 per cent. As such, the assessee was entitled to set apart the aforesaid income. Now we have to analyze the provisions contained in section 11(2) of the IT Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come (or Rs. 10,000, whichever is higher) would be exempted from income-tax. If more than 25 per cent (or Rs. 10,000) is to be exempted then the assessee has to comply with the conditions prescribed under section 11(2) of the Act. section 11(2) does not in any manner restrict the operation of section 11(1). The accumulated income which is exempt under section 11(1)(a) need not be invested in Government securities. It is only in respect of any additional accumulated income beyond 25 per cent that, if the assessee wants exemption of this additional accumulated income also, the assessee is required to invest the additional accumulated income in the manner laid down in section 11(2) after following the procedure laid down therein." 7.3 The ratio laid down in the aforesaid case is squarely applicable to the facts of the present case because the assessee has fulfilled the conditions laid down in section 11(1)(a) of the IT Act. The provisions contained in section 11(2) do not in any manner restrict the operation of section 11(1) of the IT Act and the accumulated income, which was less than 15 per cent of the total income, was also exempt because the restriction provided in section 11(2) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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