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TMI Blog2016 (5) TMI 253X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act. Therefore, we are of the opinion that the A.O. was not correct in denying exemption under sec. 11 and assessed income under the head profits and gains of business of profession. - Decided against revenue Applicability of provisions of sec. 40(a)(ia) and 43B when income computed under sec. 11, 12 & 13 of the Act - Held that:- If any expenditure is disallowed by invoking the provisions of section 40(a)(ia) and 43B, it leads to a situation where assessee income available for application is enhanced without being any real income for application for charitable purpose, which leads to an absurd situation where the trusts/societies enjoying exemption u/s 11 have to pay taxes. This is because, the assessee claiming exemption u/s 11, shall apply 85% of income for the purpose of objects of the Trust. The legislature in its wisdom has kept separate provisions which are independent from any other provisions of the Act for computation of income of trusts claiming exemption u/s 11 of the Act. Therefore, we are of the opinion that, when income is computed under sec. 11 of the Act, the provisions of sec. 40(a)(ia) & 43B are not applicable. Hence, the A.O. was not correct in disallowing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f TDS and sec. 43B for unpaid liabilities. 3. Aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before CIT(A), the assessee submitted that the assessee is a Society, registered under sec. 12A of the Income tax Act, 1961 with the main object of imparting education. The assessee further submitted that the A.O. has never doubted the objects and genuineness of its activities and also not made out any case of violations of section 13(1)(c) or 13(1)(d) of the Act, so as to deny the benefit of exemption under sec. 11, which is evident from the assessment order, wherein the A.O. himself made observations about the genuineness of the activities of the society. The only point on which, the A.O. came to the conclusion that the activity of society is akin to any commercial activity, is increase in receipts of society. It was further submitted that unless, prove the objects are not genuine and the activities are not in accordance with the objects of the trust, exemption cannot be denied. The A.O. without pointing out any violations referred to in section 13(1) (c) or 13(1)(d), simply assessed the income under the head income from business and disallowed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m business and disallowed the expenditures, by invoking sec. 40(a)(ia) and 43B which is not correct. In support of his arguments, the A.R. relied upon the judgments of ITAT, Mumbai Bench decision in the case of Mahatma Gandhi Seva Mandir vs. DDIT (2012) 52 SOT 26. 6. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The A.O. denied the benefit of exemption under sec. 11 and computed the income under the head profits and gains of business or profession. The A.O. was of the opinion that though, its objects are charitable in nature and activities are genuine, the activities carried out by the assessee are akin to any commercial activity and hence, computed the income under the head profits and gains of business or profession. It was the contention of assessee that the A.O. has never doubted the objects and genuineness of its activities and also not made out any case of violations of section 13(1)(c) or 13(1)(d) of the Act, so as to deny the benefit of exemption under sec. 11, which is evident from the assessment order, wherein the A.O. himself made observations about the genuineness of the activities of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fits and gains of business or profession, which states that the income referred to in sec. 28 shall be computed in accordance with the provisions of sec. 28 to 43D. Therefore, the provisions of sec. 40(a)(ia) and 43B are relevant, if income is computed under the head profits and gains of business or profession. In the present case on hand, the income of the assessee is eligible for exemption under sec. 11 of the Act by virtue of registration under sec. 12A. The income of any trust/society, enjoying exemption u/s 11, is exempt from tax, subject to certain conditions. If, such conditions are fulfilled, the whole income of such trust is exempt from tax. The concept of computation of income under section 11 is real income concept, which is computed on the principles of real income generated from property held under trust and not notional income like under other provisions of the Act. Section 11(1)(a) provides for application of income for charitable purpose, therefore, the question of application of income arise only when income is available for application. If any expenditure is disallowed by invoking the provisions of section 40(a)(ia) and 43B, it leads to a situation where assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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