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TMI Blog2015 (12) TMI 106X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 as Society under the Karnataka Societies Act, 1960. Its main activity revolves around running and management of the Nirmala Hospital at Bhadravathi having 150 beds, a nursing school and related activities. The return of income for AY 2011-12 was filed on 30.09.2011 declaring a taxable income of nil . The only substantive issue disputed in this appeal is the restriction of accumulation of income u/s 11(1)(a) of the Act,1961 to ₹ 21,43,711/- by the AO as against ₹ 45,71,247/- claimed by the assessee. 3. The Assessing Officer computed the accumulation at 15% of the net income of the Society 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 at 15% of gross re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tood 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 of the exemption u/s 11(1). (emphasis added) 3.3 The appropriations or applications referred supra actually mean the debit entries appearing below the line i.e. the Income and Expenditure Appropriation account rather than above the line i.e Income and Expenditure Account. The circular, therefore, does not indicate that even revenue expenditure has to be added back in the case of charitable or religious trusts which are running hospitals, educational institutions or any other activities for which they cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t at ₹ 21,17,878/- as against a sum of ₹ 01,37,985/- 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 above and other grounds that may be urged at the time of hearing of the assessee, your assessee humbly prays that the appeal may be allowed and justice rendered and the assessee may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs . 12. We find that the issue is covered by the Co-ordinate Bench decision in the case of Jyothy Charitable Trust in ITA No.662/Bang/2015. The relevant extract is reproduced below; 15. The third issue that arises for consideration in this appeal is as to whether 15% accumulation for application in future has to be calculated on gross receipts or net receipts after deduction of revenue expenditure. The Assessee claimed accumulation of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 cent thereout. It is unclear on what basis the Revenue contended that it was entitled to accumulate only twenty five per cent of ₹ 87,010. For the aforesaid reasons, the civi l appeal is dismissed. It is clear from the above that deduction of twenty-five per cent was held to be allowable not on total income as computed under the IT Act. Any amount or expenditure, which was application of income, is not to be considered for determining twenty five per cent to be accumulated. Their Lordships, as noted earlier, affirmed the decision of Kerala High Court in (1997) 141 CTR (Ker) 502 : (1997) 228 ITR 620 (Ker) (supra) wherein it is held as under: At the outset, the statutory language of s. u(i)(a) of the IT Act, 1961, rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lated. 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 Hon'ble Madhya Pradesh High Court in Parsi Zorastrian Anjuman Trust vs. CIT (supra). No reason whatsoever has been given by the Revenue authorities for deducting ₹ 2,17,126 in this case for purposes of s. I1(1)(a). The decision cited on behalf of the Revenue did not take into account the decision of the Supreme Court referred to above. The circular of CBDT has also been considered by the Hon'ble Kerala High Court in its decision referred to above. Accordingly, the question referred to is answered in the affirmative and in favour of the assessee. 18. The aforesaid decision clearly supports the plea of the Assessee. Following the same, we hold that the accumulation u/s 11(1)(a) of the Act, should be allowed as claim ..... X X X X Extracts X X X X X X X X Extracts X X X X
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