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TMI Blog2015 (12) TMI 448X X X X Extracts X X X X X X X X Extracts X X X X ..... n the nature of running of schools and pre-university colleges. 3. The only issue disputed in this appeal is the calculation of the deduction of 15% u/s. 11(1)(a) on net receipts by the Assessing Officer compared to the calculation on gross receipts by the assessee. 4. The AO computed the accumulation at 15% of the net income of the 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 at 15% of gross receipt has not been followed since the AO held that this method is applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and legal issues. 8. The CIT(Appeals) also observed as follows:- "3.7 I find from the appellant's Income and Expenditure Account that different kinds of receipts are available to it which include sources directly related to its educational activity such as admission fees, tutition fees, management fees, school development fees etc. while other sources from bank interest, voluntary contribution, donation, are also reflected therein. The principle of 15% of net income is to be applied only to receipts from activities for which a consideration has been charged and not to the entire gross receipts of the appellant. To the extent the appellant receives donations, the accumulation from such receipts are to be treated in terms of the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt's case. 3. The Learned CIT[A] is not justified in upholding the computation of the amount accumulated u/s.11[2] of the Act at Rs. 33,61,725/- as against a sum of Rs.NiL computed by the appellant after reckoning 15% of the accumulation in terms of section 11[1][a] of the Act, on the net surplus after deducting revenue expenditure incurred by the appellant, instead of computing the same at 15% of the gross income from property held under trust, as done by the appellant under the facts and in the circumstances of the appellant's case. 4. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., the net receipts. This is issue is no longer res integra and has been decided by the Special Bench Mumbai in the case of Bai Sonabai Hirji Agiary Trust Vs. ITO 93 ITD 0070 (SB). The facts in the aforesaid case were that the assessee was a public charitable trust enjoying exemption under s. 11 of the IT Act. As per the requirement of s. 11(1) of the IT Act, as it prevailed at that point of time, the assessee had to apply 75 per cent of its income for the objects and purposes of the trust and the assessee was permitted to accumulate or set apart up to 25 per cent of its income, which was subject to fulfillment of other conditions. While calculating the aforesaid 25 per cent, the important question which arose was as to whether for this pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure, 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. 11(i)(a) of the IT Act, 1961, relates to the income derived by the trust from property. The trust is required to be wholly for charitable or religious purposes, and the income is expected to have relation to the extent to which such income is applied to such purposes in India. It is thereafter the statutory provision proceeds further that such income is not to be understood to be in excess of 25 per cent of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 Rs. 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 befor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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