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TMI Blog2021 (12) TMI 874X X X X Extracts X X X X X X X X Extracts X X X X ..... t without prejudice to Ground No. (1) - the CIT(A) erred in upholding the decision of the AO whereby a certain part of income claimed by the appellant as 'applied' for charitable purposes was identified & considered as "Administration & Establishment Expenses" despite: (i) the absence of any specific 'in-principle' provisions in the Income-tax Act 1961 (as applicable to assesses to whom provisions of Section 11 to 13 apply) for such identification & consideration and (ii) the absence of any machinery provision - to ascertain the nature of expenses to be identified & considered as "Administration & Establishment Expenses" and as a consequence the manner of computing the income to be accumulated indefinitely u/s. 11 (1)(a) - as adopted by the AO - fails." 2. Briefly stated facts are that the assessee is a public charitable trust formed with the object of giving donations to needy persons towards medical aid, education for under privileged children, distribution of clothes etc. It is also registered u/s. 12A of the Income Tax Act, 1961 (hereinafter referred to as the "Act"). The assessee submitted its return of income for the AY 2013-14 showing the total income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is the net income, after deducting these expenses, is available in the hands of the assessee trust for charitable activity. These expenses are directly related to earning income and are deductible from gross receipt as expenses under normal commercial principle. These are expenses attributable to earning income and not application of income u/s. 11. All applications are undoubtedly expenses but all expenses are not application of income. It is now crystal clear that income available for application u/s. 11 is to be computed in normal commercial manner. The administrative and establishment expenses which are allowable under normal commercial principle but cannot be a part of application of income u/s. 11 as these are not directly and proximately related to the proclaimed objective of the trust. 4.5 In view of above administrative & establishment expenses being attributable to earning income - are deductible from gross receipt to determine the net income available for application - for charitable purposes for the purpose of calculation of allowable accumulation of 15% under section 11(1)(a) of the Act. 4.6 Vide the notice u/s. 142(1) dated 10.06.2015 (Item no. 14) the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the extent of 15% of the income after revenue expenditure. In other words income to be set apart u/s. 11(1)(a) of 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. Since in the case of the Assessee, the gross receipts after revenue expenditure was nil, the AO denied the benefit of accumulation to the Assessee. 17. On appeal by the Assessee, the CIT(A) allowed the claim of the Assessee. Aggrieved by the order of the CIT(A), the Revenue has raised the aforesaid ground of appeal before the Tribunal. 18. The issue to be decided is therefore as to whether for the purpose of computing accumulation of income of 15% under Sec. 11(1)((a) of the Act, one has to take the gross receipts or gross receipts after expenditure for charitable purpose i.e., 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urposes, 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 the income from such properties. In other words, the very language of the statutory provision under consideration sets apart 25 per cent of the income from the source of property with reference to the extent to which such income is applied for such purposes, charitable or religious. In other words, for the purpose of s. 11(1)(a) of the Act, the income in terms of relevance would be the income of the trust from and out of which 25 per cent is set apart in accordance with the spirit of the statutory provision." This means that, when it is established that trust is entitled to full benefit of exemption under s. 11(1), the said trust is to get the benefit of twenty-five per cent and this twenty-five per cent has to be understood as income of the trust under the relevant head of s. 11(1). In other words, income that is not to be included for the purpose of computing the total income would be the amount expended for purposes of tru ..... X X X X Extracts X X X X X X X X Extracts X X X X
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