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TMI Blog2015 (12) TMI 105X X X X Extracts X X X X X X X X Extracts X X X X ..... l. CIT(DR) ORDER PER SMT ASHA VIJAYARAGHAVAN, JM: This appeal by the assessee is directed against the order of the CIT(Appeals)-14, LTU, Bangalore relating to assessment year 2011-12. 2. The assessee is a public religious cum public charitable institution registered under the Karnataka Societies Act, 1960 and also registered u/s. 12A of the Income Tax Act. It is engaged in educational activities through running of St. Francis School and Seva Jyoti School in Mysore. It filed its return of income for AY 2011-12 on 29.09.2011 declaring a taxable income of nil . 3. The only issue involved in this appeal is the calculation of the deduction of 15% u/s. 11(1)(a) of the Act on net receipts by the AO as against the calculation on gross receipts by the assessee. 4. The Assessing Officer computed the accumulation at 15% of the net income of the assessee trust holding that the gross receipts of an educational institution will not be available fully for application to charitable purposes in India since the expenditure for running the educational activities, which are necessary for earning such income, would have to be factored in. The assessee s claim of accumulation a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... han the regular provisions of the Income Tax Act. The circular, therefore, held that it would be incorrect to assign to the word income used in section 11(1)(a) the same meaning as has been specifically assigned to the expression Total Income under section 2(45). The said circular contains the following mention which appears to have confused the matter for some Where the trust derives income from house property interest on securities, capital gains, or other sources, the word income should be understood in its commercial sense, i.e., book income, after adding back any appropriations or applications thereof towards the purposes of the trust or otherwise, and also after adding back any debits made for capital expenditure incurred for the purposes of the trust or otherwise. It should be noted, in this connection, that the amounts so added back will become chargeable to tax u/s 11(3) to the extent that they represent outgoings for purposes other than those of the trust. The amounts spent or applied for the purposes of the trust from out of the income, computed in the aforesaid manner, should be not less than 75 percent of the latter, if the trust is to get the full benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity, weight of evidence, probabilities, facts and circumstances of the case. 2. The ld.CIT(A) is not justified in holding that the computation of the income accumulated u/s 11(1)(a) of the Act, at 15% of the income from property held under trust requires to be computed on the net income from charitable activities after reducing revenue expenditure and thereby reducing the claim of accumulation u/s 11(1)(a) of the Act to ₹ 37,45,409/- as against a sum of ₹ 41,41,899/- claimed by the assessee in its return of income filed for the year under appeal under the facts and in the circumstances of the assessee s case. 3. the ld.CIT(A) is not justified in upholding the computation of the amount accumulated u/s 11(2) of the Act at ₹ 24,54,554/- as against a sum of ₹ 20,58,064/- computed by the assessee after reckoning 15% of the accumulation in terms of section 11(1)(a)d of the Act on the net surplus after deducting revenue expenditure incurred by the assessee, instead of computing the same at 15% of the gross income from property held under trust, as done by the assessee under the facts and in the circumstances of the assessee s case. 4. For the abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion which arose was as to whether for this purpose, the gross income earned by the assessee is relevant or the income as computed in accordance with the provisions of IT Act. In other words, whether outgoings from out of gross income which are in the nature of application of income, should be first deducted from the gross income and 25 per cent of only the remaining amount should be allowed to be accumulated or set apart. The Special Bench of the ITAT on the issue held as follows:- 9. Coming to the merits of the issue, we are of the view that the same is clearly covered by the decision of the Hon'ble Supreme Cour t in the case of CIT vs. Programme for Community Organization (supra). In the decision, their Lordships, after taking note of provisions of sec. 11(l)(a), have held as under: Having regard to the plain language of the above provision, it is clear that a charitable or religious trust is entitled to accumulate twenty-five per cent of its income derived from property held under trust. For the present purposes, the donations the assessee received, in the sum of ₹ 2,57,376, would constitute its property and it is entitled to accumulate twenty-five per ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust from property. If both the decisions are carefully read, it becomes evident that any expenditure which is in the shape of application of income is not to be taken into account. Having found that trust is entitled to exemption under s. 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 IT Act. Their Lordships in the decided case rejected the contention of the Revenue that the sum of ₹ 1,70,369 which was spent and applied by the assessee for charitable purposes was required to be excluded for purpose of taking amount to be accumulated. 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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