2022 (1) TMI 594 - AT - Income Tax

Tribunal rules accumulation of income under Section 11(1)(a) based on gross receipts, dismisses Revenue's appeal.

The Tribunal upheld the CIT(A)'s decision that the accumulation of income under Section 11(1)(a) should be calculated on gross receipts, not net income. ... Exemption u/s 11 - eligible for deemed utilization of the income received as per provisions of section 11(1)(a) on the Gross Income - HELD THAT:- The accumulation of income to the extent of 15% of the income is to be calculated on the gross receipts. We therefore see no reason to interfere in the order passed by the Ld. CIT(A) holding so. The decision referred to by the Ld.DR in the case of Escorts Ltd. [1992 (10) TMI 1 - SUPREME COURT] we find has been dealt with by the Ld.CIT(A) pointing out that it pertained to a different issue relating to deduction u/s 35(2)(iv) of the Act. Ld.DR did not controvert this finding of the Ld.CIT(A) before us. Therefore the case law relied upon by the Ld.DR merits no consideration. - Decided against revenue. Issues Involved:1. Eligibility of deemed utilization of income under Section 11(1)(a) of the Income Tax Act.2. Basis for calculation of exemption under Section 11(1)(a) – Gross Income vs. Net Income.Issue-wise Detailed Analysis:1. Eligibility of Deemed Utilization of Income under Section 11(1)(a):The core issue in the appeal is whether a charitable trust's deemed utilization of income under Section 11(1)(a) should be calculated on the gross income or the net income. The assessee, a charitable trust involved in education and medical relief, claimed an exemption of 15% of its gross income, amounting to Rs. 51,05,58,582. However, the Assessing Officer (AO) calculated this exemption on the net surplus of Rs. 17,33,05,882, thereby reducing the exemption to Rs. 2,59,95,882 and resulting in a taxable income of Rs. 3,27,84,934.2. Basis for Calculation of Exemption under Section 11(1)(a) – Gross Income vs. Net Income:The CIT(A) allowed the assessee's claim for exemption on gross receipts, relying on the ITAT Bangalore Bench's decision in the case of M/s. Society of the Servants of the Holy Spirit Vs. DCIT, which held that the accumulation under Section 11(1)(a) should be on the gross receipts. The CIT(A) referred to the Supreme Court's decision in Addl CIT V.A.L.N. Rao Charitable Trust, which clarified that the exemption applies to the income derived from property held under trust, allowing for accumulation of a specified percentage of this income.The Revenue appealed against this decision, supporting the AO's stance and citing the Supreme Court's decision in Escorts Ltd. The assessee countered by referencing the Supreme Court's decision in CIT vs. Programme for Community Organization, which established that the exemption should be calculated on the gross donations received.Judgment Analysis:The Tribunal reviewed the relevant legal provisions and judicial precedents, including Section 11(1)(a) of the Income Tax Act, which exempts income from property held for charitable purposes to the extent it is applied to such purposes and allows for accumulation of a specified percentage of this income. The Tribunal emphasized that the term 'income' in this context refers to gross income, as established by the Supreme Court in Programme for Community Organization, which held that the exemption applies to the gross donations received, not the net income after application.The Tribunal also considered the ITAT Kolkata Bench's decision in Kanehialall Lohia Trust and the Special Bench's decision in Bai Sonabai Hirji Agiary Trust, both of which supported the calculation of accumulation on gross receipts. The Tribunal concluded that the AO's reliance on Escorts Ltd. was misplaced, as it pertained to a different issue under Section 35(2)(iv) of the Act.Conclusion:The Tribunal upheld the CIT(A)'s decision, affirming that the accumulation of income under Section 11(1)(a) should be calculated on the gross receipts, not the net income. The appeal by the Revenue was dismissed, with the Tribunal finding no reason to interfere with the CIT(A)'s order.Order:The appeal of the Revenue is dismissed. The order was pronounced in the open court on 12-01-2022.