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TMI Blog2020 (1) TMI 501X X X X Extracts X X X X X X X X Extracts X X X X ..... ct says that the following income shall not be included in the total income .... " provided "income derived from property held by trust wholly for charitable trust or religious purpose, to the extent to which such income is applied to such purpose in India "it clearly means that income of the trust would be taxable unless it is applied for charitable purpose. But there is one relaxation and mentioned in the same section 11(1)(a) of the Act. A part of income can be accumulated or set apart without being applied to the extent of is not in excess of 15% of the income from such property". This accumulation will take place only when application is less than income and is allowed to the extent of 15% of income. 4.2 Examination of the computation reveals that assessee has claimed different administrative and establishment expenses that are included in the claimed application for achieving the stated objectives of the organization. Further accumulation was claimed u/s. 11(1)(a). This accumulation is calculated@ 15% of gross receipt of Rs. 52,70,353 /- by the assessee. The prime issue in this regard is whether the accumulation of 15% is to be allowed on gross receipt or on income availabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deducting administrative and establishment expenses from the gross receipt". 4. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A), who was pleased to affirm the order of AO, so the assessee filed this appeal before this Tribunal. 5. I have heard rival submissions and have considered the material available on record. It is noted that assessee is enjoying registration u/s. 12A of the Income-tax Act, 1961 (hereinafter referred to as the "Act"). It is noted that the issue that arises for consideration is as to whether 15% accumulation for application in future has to be calculated on gross receipt or net receipt after deduction of revenue expenditure. The assessee claimed accumulation of income for application for charitable purpose at 15% of the gross receipts. The AO was of the view that accumulation will be allowed only to the extent of 15% of the income after revenue expenditure. In other words, income to be set apart u/s. 11(1) of the Income-tax Act, 1961 (hereinafter referred to as the "Act") has to be computed at 15% of the net income i.e. gross receipts minus revenue expenditure and not on the gross receipts as claimed by the assessee. The Ld. CIT(A) upheld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er conditions. While calculating the aforesaid 25 per cent, the important question 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 Court in the case of CIT vs. Programme for Community Organization (supra). In the decision, their Lordships, after taking note of provisions of s. 11(1)(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 Rs. 2,57,376, would constitute its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cumulation is the income derived by the trust 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 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 before it was applied is directed to be taken and the same in the present case is Rs. 3,42,174. Twenty five per cent of the above income is to be allowed as a deduction. Similar vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 4,76,250/- shown by assessee as application of income for purchase of blankets as bogus without following the principle of Natural Justice viz. denying cross-examination of person whose statements were recorded by AO behind the back of assessee and against the Ld. CIT(A)'s observation that assessee trust's activities are not covered u/s. 2(15) of the Act without giving any opportunity to assessee, which action is also against principle of Natural Justice. 9. First of all, it is noted that the assessee is enjoying sec. 12A registration which is granted by the competent authority after satisfying himself that the assessee was engaged in charitable activities as contemplated u/s. 2(15) of the Act and the registration granted has not been withdrawn or revoked as on date. And so, as long as it enjoys sec. 12A registration, the assessee's income is exempt u/s. 11 subject to the Act. However, the Ld. CIT(A) while exercising his First Appellate jurisdiction emanating from the order of AO wherein AO has not raised any adverse view against the assessee in respect to its activities u/s. 2(15) of the Act, the Ld. CIT(A) ought not to have suo motto made the observation that assessee trust' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement. 11. Coming to the appeal for AY 2014-15 it is noted that certain grounds of appeal which are similar to the issues raised in the appeal for AY 2013-14 and since have been answered, the result will be followed "Mutatis Mutandis" for AY 2014-15. 12. Coming to the only issue which has not been adjudicated it is noted that assessee's claim for application of Rs. 7 lakh paid to Lohia Matri Seva Sadan has not been allowed by AO and Ld. CIT(A). The submission of assessee before Ld. CIT(A) is as under: "Kanehialall Lohia Trust is a Charitable Religious Trust registered U/s 12A of the Income Tax Act vide Certificate no 638-T/WB. VI of 1974-75 dated 10.04.1974 photocopy of which was filed before you on 30th January, 2019. That the objects of the Trust as per Trust Deed was as under and already filed before you. i) For Seva and worship of the settlor's household deity SRI SRI RADHA KRISHNA JIU. ii) For promoting education both formal and informal and for needy children and adults. iii) For providing marriage expenses of the girls of the needy poor families; iv) For undertaking, assisting in undertaking, projects like digging of the wells, providing drinking water facilities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Aggrieved, the assessee is in appeal before this Tribunal. 14. I note that assessee is a charitable religious trust registered u/s. 12A of the Act which was granted certificate of registration dated 10.04.1974. The assessee in this year has donated Rs. 7 lacs to Lohia Matri Seva Sadan Maternity Charitable Organisation, which is established for taking care of the pregnant women/ladies, which claim was not allowed by the AO/Ld. CIT(A). The object of the trust I note as under: i) For Seva and worship of the settlor's household deity SRI SRI RADHA KRISHNA JIU. ii) For promoting education both formal and informal and for needy children and adults. iii) For providing marriage expenses of the girls of the needy poor families; iv) For undertaking, assisting in undertaking, projects like digging of the wells, providing drinking water facilities, fodder for cattle, grains and fertilizers for farming, agricultural tools etc; v) For construction of Dharamshala and Temples; vi) For giving sadabrat to the poor and for giving donations to relief fund: vii) For establishing, take over, run, maintain, assist and support hospitals, charitable dispensaries, maternity homes, sanato ..... 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