Tribunal allows appeal for establishment expenses & accumulation income under Income Tax Act

The Tribunal partly allowed the appeal, directing the AO to permit the claimed Administrative & Establishment expenses as application of income under section 11(1)(a) of the Income Tax Act. Additionally, the accumulation income was allowed at 15% of the gross receipt as claimed by the assessee. The judgment was pronounced on 21st October 2020.

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Issues:
1. Allowability of exemption u/s. 11(1)(a) of Income Tax Act
2. Treatment of Administrative and Establishment expenses as application of income for charitable purposes

Issue 1: Allowability of exemption u/s. 11(1)(a) of Income Tax Act

The appeal by the assessee trust was against the order of Ld. CIT(A)-25, Kolkata for assessment year 2012-13. The AO disallowed a certain amount claimed by the assessee as Administrative & Establishment expenses, which were included in the application of income u/s. 11 of the Act. The Tribunal noted that the issue of including administrative and establishment expenses as application of Fund had been settled by the Hon'ble jurisdictional High Court in a previous case. The expenses in question were deemed necessary for the trust's operations and achieving its objectives, thus they were allowed as application of income u/s. 11(1)(a) of the Act. Therefore, the AO was directed to allow the claimed expenses as application of income.

Issue 2: Treatment of Administrative and Establishment expenses as application of income for charitable purposes

Regarding the second issue, the appeal by the assessee challenged the calculation of exemption u/s. 11(1)(a) of the Act. The assessee argued that the accumulation should be computed on total receipt as per account, not as calculated by the AO. The Tribunal referred to a decision by a coordinate bench in a similar case, where it was held that accumulation of income for application for charitable purposes under section 11(1)(a) of the Act should be allowed at 15% of the gross receipts. Relying on this precedent, the Tribunal directed the AO to allow accumulation income u/s. 11(1)(a) of the Act at 15% of the gross receipt as claimed by the assessee. Consequently, the ground raised by the assessee on this issue was allowed.

In conclusion, the Tribunal partly allowed the appeal of the assessee, directing the AO to allow the claimed Administrative & Establishment expenses as application of income and to permit accumulation income u/s. 11(1)(a) of the Act at 15% of the gross receipt. The judgment was pronounced on 21st October, 2020.

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