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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 ..... P. Prathik, C.A. For The Respondent : Shri P.K. Sreehari, Addl. CIT(DR) ORDER This appeal by the assessee is directed against the order dated 30.01.2015 passed by the CIT(Appeals)-14, Large Taxpayers Unit, Bangalore and pertains to assessment year 2011-12. 2. The assessee is an educational society and it obtained registration under the provisions of section 12A of the I. T. Act vide registration dated 27.5.2009. For the year under consideration, 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 ₹ 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 ₹ 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 ₹ 38,75,370 towards acquisition of fixed assets. The total expenditure incurred by the assessee with reference to gross amount received sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... doubt, speaks of the ambit of the expression income , but it has no application in this context inasmuch as the provisions of section 11(1)(a) uses the expression such income , which in turn refers to gross income. In this regard, he filed detailed written submissions which are reproduced below for the sake of convenience:- 9. It is also stated by the learned Commissioner that there is nothing in the Circular to indicate that even revenue expenditure should be added back in the case of charitable or religious trusts running educational institutions or hospitals. Effectively, it is stated that revenue expenditure incurred by educational institutions does not constitute applications thereof towards the purposes of the Trust as clarified by the Circular, a view which runs counter to the ratio of the decision of the Calcutta High Court in CIT vs. Birla Janahit Trust (208 ITR 372) where their Lordships held as follows: In our view, therefore, the expenditure on salaries and miscellaneous expenses for the purpose of carrying out the objects and purposes of the trust must be considered as application for charitable purposes. However, in this case the quantum of the expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unning purely on donations and will therefore not apply 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 expenses, if at all, that has to be considered in computing the permissible accumulation. 11. The Hon ble Lucknow Bench of the Income-tax Appellate Tribunal in the case of Krishi Utpadan Mandi Samithi [131 ITD 335] while dealing with an appellant who was in receipt of income other than donations, and which had to incur administrative expenses for its functioning, has held in unequivocal terms th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing outgoings and depreciation. Shri V. H. Patil further submitted that the Kerala High Court (see [1997] 228 ITR 620), in the same case, has referred to the Board s Circular dated June 19, 1968, on the same subject and observed that income for the purposes of section 11(1), should be understood in its commercial sense. It was held by the Kerala High Court that 25 per cent of gross amount of ₹ 2,57,376 should be accumulated, and this finding has been confirmed by the hon ble Supreme Court. Shri V. H. Patil also contended that all out-goings including expenditure incurred by a public charitable trust must be considered to be in the nature of application of income for the objects and purposes of the trust. It is, therefore, contended that 25 per cent of the gross income as reflected in the account of the assessee-trust should be allowed to be accumulated under section 11(1). 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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