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TMI Blog2016 (1) TMI 1492X X X X Extracts X X X X X X X X Extracts X X X X ..... f the act to invest the 15% accumulated income in the modes specified as per section 11(5) of the Act. Section 11(2) of the Act is for giving relief to unapplied income which is short of 85% with a condition of keeping such surplus in the specified mode as per section 11(5) of the Act. This is to be done after giving notice to the AO by the assessee in Form No.10 of the Income Tax Rules. In the instant case, if the 15% of the gross total income is set apart u/s 11(1)(a) of the Act, it comes to Rs. 2,03,50,121/- (15% of Rs. 13,56,67,475/-). After incurring of capital expenditure, the surplus was only Rs. 92,71,940/-. Therefore, there is no need to file Form 10 before the AO nor for any investment as mentioned u/s 11(5) of the Act, since the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the Income and Expenditure Account. Circular No.5-P(LXX - 6) of 1968 issued on 19.06.1968 categorically stated that the "income" mentioned in section 11(1)(a) is not the "total amount of income computed in the manner laid down in this Act". Also the Supreme Court of India in Addl. CIT Vs. ALN Rao Charitable Trust (1995) 216 ITR 697 discussed the matter elaborately and ordered that the accumulation is on gross income and not on net income. 3 The brief facts of the case are as follows: The assessee is a religious Trust. It is established for religious retreat functions. The assessee Trust was registered u/s 12AA of the Act and as such assessee's income was entitled to exemption u/s 11 of the I T Act, 1961. The audited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the AO nor having invested the above sum of Rs. 25,70,582/- in the mode specified in section11(5) of the I T Act, the same was not entitled to exemption. The relevant findings of the CIT(A) in passing 263 order read as under: "5. I have gone through the submissions made by the assessee during the course of hearing of the 263 proceedings and also the facts pointed out by the Authorized Representative. However, I find that the reply furnished by the assessee is not acceptable. As already stated, it is a fact that there is a short application of income of Rs.25,70,582/- during the previous year relevant to the assessment year under consideration. According to the provisions of section 11(2) of Income Tax Act, if there is any shortfal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ker) ii) CIT vs Programme for Community Organization((2001) 166 CIT 401 (SC) iii) S. RM M CT.M Tiruppani Trust vs CIT (1998) 145 CTR 176(SC) iv) ACIT & Another vs ALN Rao Charitable Trust (1995) 216 ITR 697(SC) 9 The ld DR present was duly heard. 10 We have heard the rival submissions and perused the material on record. The solitary issue that arises for our consideration is whether 15% of the accumulation permitted u/s 11(1)(a) of the Act is to be calculated on the gross income or on the net income. On a plain reading of section 11(1)(a) of the Act, it can be seen that 85% of the income of the trust to be applied for charitable/religious purposes and upto15% is permitted for accumulation in order to avail full exemption. There is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aking into consideration all the facts and the circumstances, the situation needs no disturbances of any kind. For the above reasons, we answer question no.1 to the effect that the assessee is entitled to exemption of 25% on Rs. 2,57,376/- and not on Rs. 87,010/-" (here Rs. 2,57,376 is the gross income and Rs. 87,010/- is the surplus after application. iii) CIT vs Programme for Community Organization reported in 248 ITR 1/166 CTR 401 (SC) The revenue went on appeal before the Supreme Court against the judgment of the Hon'ble Kerala High Court mentioned above. The Hon'ble Supreme Court confirmed the view of the Hon'ble High Court and held (166 CTR 401 (at page 401): "having regard to the plain language of the above provisions, it is c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) and invest the amount accumulated in Govt securities as per section11(2) (b). The restriction specified in cl.(a) of sub section(1) is clearly the restriction of 25% of the accumulated income (or Rs 10,000/-, whichever is higher) being exempt. If more than 25% (or Rs.10,000), is tobe exempted then the assessee has to comply with the conditions prescribed u/s 11(2)." v. CIT & Another vs ALN Rao Charitable Trust 216 ITR 697: In this case, the Hon'ble Supreme Court observed that ( at page 703): " a mere look at section11(1)(a) as it stood at the relevant time clearly shows that out of the total income accruing to a trust in the previous year from property held by it wholly for charitable or religious purposes, to the extent the income ..... X X X X Extracts X X X X X X X X Extracts X X X X
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