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TMI Blog2015 (9) TMI 542X X X X Extracts X X X X X X X X Extracts X X X X ..... n, it filed its return of income wherein NIL income was declared after giving effect to provisions of section 11 of the Act. 3. The case was taken up for scrutiny. The Assessing Officer noticed that the assessee received gross amount of Rs. 2,96,29,585 in the form of tuition fees from students, interest on deposits and miscellaneous income. Out of the said receipts, a sum of Rs. 2,39,10,198 was applied towards objects of the society in the form of salaries to teachers and staff and other administrative expenses, excluding depreciation. The assessee has also applied a sum of Rs. 38,75,370 towards acquisition of fixed assets. The total expenditure incurred by the assessee with reference to gross amount received shows that the assessee societ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in 240 ITR 1 (SC), the AO was of the view that the said case law is applicable only in respect of amount received in the form of donations and not the amount received by carrying on the activity such as imparting education. As per the computation of the AO, the balance amount works out to Rs. 57,19,387, out of which the assessee has incurred capital expenditure of Rs. 38,75,380 and, to the extent of 15%, which works out to Rs. 8,57,908 the assessee is entitled to accumulate/set apart for application for charitable purposes u/s. 11(1)(a) and the balance was treated as taxable income. 5. In appeal filed by the assessee, the ld. CIT(Appeals) has adopted the same view and thus, the assessee is in appeal before the Tribunal. 6. At the time of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that the Tribunal was right in holding that the assessee will be entitled to the benefit of the expenditure made on salaries and miscellaneous expenses for the purpose of carrying out the objects and purposes of the trust only; but any expenditure incurred for earning the income from dividend will not qualify as amounts spent for carrying out the objects and purposes of the trust." The said decision was cited during the course of the appellate proceedings, but the learned Commissioner has refused to accept the same alleging that though the decision was rendered in favour of the assessee, the reason given by the bench was that the said expenses had been earned not only for the dividend income earned but also for the other purposes of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly to an educational institution which accepted fees and had to incur expenses to earn such fees. It is submitted that there is nothing in the aforesaid decision of the Hon'ble Supreme Court to suggest that it is applicable only to a Trust or institution running purely on donations, and not in the case of any other charitable institution in receipt of any other income. The learned Commissioner has reiterated the view of the assessing officer that whereas it is well settled that no expenditure is required to be incurred in order to earn donations, running of an educational institution requires the administrative expenses to be incurred in order to earn the income, and therefore it is only the net surplus available after deduction of all expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent that any expenditure which is in the shape of application of income is not to be taken into account. Having found that the trust is entitled to exemption under section 11(1), we are to go to the stage of income before application thereof and take into account 25 per cent, of such income. Their Lordships have pointed that the same has to be taken on "commercial" basis and not "total income" as computed under the Income-tax Act. Their Lordships in the decided case rejected the contention of the Revenue that the sum of Rs. 1,70,369 which was spent and applied by the assessee for charitable purposes was required to be excluded for the purpose of taking amount to be accumulated. Having regard to the clear pronouncement of their Lordships of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ................. "Having regard to the clear pronouncement of their Lordships of the Supreme Court it is difficult to accept that outgoings which are in the nature of application of income are to be excluded. The income available to the assessee before it was applied is directed to be taken and the same in the present case is Rs. 3,42,174. Twenty-five per cent of the above income is to be allowed as a deduction. Similar view has also been taken by the hon'ble Madhya Pradesh High Court in Parsi Zorastrian Anjuman Trust Mhow v. CIT [1987] 163 ITR 832. No reason whatsoever has been given by the revenue authorities for deducting Rs. 2,17,126 in this case for purposes of section 11(1)(a). The decision cited on behalf of the Revenue did not tak ..... X X X X Extracts X X X X X X X X Extracts X X X X
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