AI Drafter 
TaxTMI 
TaxTMI 
2025 (2) TMI 325
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....ue consideration of undisputed/undisputable facts that jurisdictional notice under section 143(2), for initiating the assessment related proceedings had been issued without there being any of expression of opinion by the Assessing Officer, a mandatory requirement, should have held that assessment order dated 19.12.2017 itself, was void ab-initio. (2) On a due consideration of the facts and circumstances of the case, NFAC/ld. CIT(A) should have quashed the reassessment order dated 19.12.2017, on the grounds that Accumulation of 15% was to be computed on the basis of gross receipts and not net income. (3) In any case, the NFAC/ld. CIT(A) has erred in law and on facts, in upholding the validity of method adopted by the ld. Assessing Officer, in computing 'accumulation' under section II, as the same was not based on methodology as laid down in Act; (4) the authorities below have erred in law and on facts in holding/upholding that (i) loans aggregating Rs. 22,00,00,000/ - as had been received by the appellant under ADIP Scheme, from Banks, were applied for Charitable Purposes and were taken as part of "Receipt" when the same had been raised; ....
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....granted registration u/s 12AA of the Act vide order dated 05.12.2008. During assessment proceedings, the Assessing Officer considered the computation of income submitted by the assessee and he noticed that the assessee has computed claim of deduction u/s 11(1) of the Act on the total sales receipts, grants received from the Government and other income earned by the assessee in the form of interest etc. He found that the above method of computation was not correct and observed that the assessee is required to compute deduction on the income derived from its properties and grants etc. The Assessing Officer reproduced income and expenditure for the year ended on 31.03.2015 as under :- S. No. Particulars Note No. For year ended 31.03.15 For year ended 31.03.14 Continuing operations A Income (i) Revenue from Operations 14 16270.26 16,507.62 (ii) Less : Discount 14 55.66 55.24 (iii) Revenue from Operations 16,214.60 16,452.38 (iv) Other income 15 1,070.79 772.22 Total Revenue 17,285.39 17.224.60 B ....
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....above, the AO observed that it is clear the assessee has also considered in its income the loan amounts of ADIP and ADIP-SSA Schemes. From the above chart, assessee has received loan of Rs. 9 crores in ADIP Scheme and Rs. 13 crores in ADIP-SSA Scheme. The assessee has received total loan of Rs. 22 crores from the above schemes. The AO observed that in Note 6.4 of Notes forming part of financial statements, it is noted that "in accordance to ADIP Scheme of Government of India, a loan of Rs. 22 crores was taken by the corporation and receipts of such loan which was repaid from the ADIP Funds released in the Financial Year 2015-16 was considered as receipts against the receivable grant-in-aid to be released by Ministry and has been disclosed as liability accordingly." The AO observed that the assessee has itself clarified that this amount of Rs. 22 crores was loan and not the grant which can be included in the income for the purpose of claim of deduction of 15%. 9. Further he observed that from the plain reading of section 11(1) of the Act that the assessee should compute 15% on entire turnover of the activities as carried out by it but the same is needed to be recomputed on the in....
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.... Balance income for application (as shown above) 89,72,78,698 Balance income for taxation 13,60,20,175 11. With the above charts, he observed that the assessee has short application of Rs. 13,60,20,175/- and he treated the above difference as taxable income of the assessee for the current year. Accordingly he rejected the computation proposed by the assessee and proceeded to make the addition of Rs. 13,60,20,175/-. 12. Aggrieved, assessee preferred an appeal before the NFAC, Delhi and filed grounds of appeal and detailed submissions which is reproduced by the ld. CIT(A) in his order at para 6.1. After considering the detailed submissions, ld. CIT (A) sustained the additions made by the AO with the following observations :- "I have perused the penalty order and other relevant orders, grounds of appeal and submissions filed by the appellant. I find from the assessment order that the AO has computed the 15% amount eligible for deduction i.e. allowable accumulation Rs. 15,83,43,300/- whereas the appellant has computed the same at Rs. 40,02,92,460/-. I find that the AO has computed the allowable accumulation amount on the profit a....
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....said clauses include Orthosis, Prosthesis, Orthotic Components, Prosthetic Components, Rehabilitation Aids, Associated Special Tools and Orthotic and Prosthetic Supplies. 3. Looking to such objects, the appellant was granted license, to be registered under section 25 of the Companies Act 1956, vide notification issued by the Government of India, Ministry of Finance late Department of Company Affairs & Insurance No. G.5.R. 71 dated 1st January, 1966. 4. As per the mandate of the said notification, income and property of the company, wheresoever derived, shall be applied solely for the promotion of the objects as set forth in its Memorandum of Association and that no portion thereof shall be paid or transferred directly or indirectly to its members (100% share holding in the company is that of the Central Government). It filed its return under section 139(1), in time, showing income at Rs. NIL, after claiming exemption under section 11 of the Act, on the strength of the registration u/ s. 12AA granted by the Ld. Commissioner of Income-tax-II, Kanpur vide certificate dated OS.12.2008 w.e.f. 30.11.1972 in pursuance of an order dated1S.09.2008 passed by the Hon'ble....
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....of the corporation will check the patient and will prepare prescription etc. as required limbs to be fitted to the patients. Posthetist and Orthotist Medical Officer will take the measurement of patients on paper or plaster cast as the case with prescribed tools and prepare the sketch of limb to be prepared for patient and will prepare/fabricate assistive device and a date will be given to patients for trial purpose for fabricated device to be fitted to patient. On the prescribed date provided by Posthetist and Orthotist medical officer in the limb fitting centre of ALIMCO to the patients the effort to fit prepared device and necessary correction, if any required in prepared device as per patient will also be done on the basis of trial and as per his movement on the parallel bar platform. If minor correction is required in the prepared assistive device then medical officer will do otherwise he will be provided next date for device to be fitted. As per norms the patient will move for registration and complete the required informations etc. for free cost appliances on the basis of income group:- i) Patient ID and proof of address; ii) Inco....
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....ic limb feels, looks and works like a natural limb. The use of these aids is made is cases where the disability in the patients may have been due to an accident or amputation or any other natural or unnatural cause. (b) ORTHOTIC AIDS: These aids are provided to the patients as a device to support or control a part of the body. These aids include a range of products like splints, braces and special footwear to aid movement, correct deformity and relieve discomfort. (c) HEARING AIDS: These aids are provided as a measure of comprehensive rehabilitation service to the patients who have hearing difficulties and/or associated physical disorders. These aids assist them in improving their communication skills and to maintain work and make social contacts. These include: Helping with hearing aids. Auditory training. Counselling individuals with hearing impairments Advice about environmental aids Lip reading instructions Tinnitus management. Further 'aids' would include matters relating to Balance Rehabilitation. Cochlea Implants, working with people with hearing disabilities or Dual Sensory Loss. ....
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..... Such a fitment called for a need of a Prosthetic and Orthotic Technician who is trained in this profession. In India, the training 'of the Bio- Technicians was being done by All India Institute of Physical Medicine and Rehabilitation, Bombay along with some other institutions. With a large number Of trained Prosthetic and Orthotic technicians (POTs) required, it became essential to enlarge the training facilities in the field of Bio-Engineering to fit them as Development, Design and Research Engineers and also some highly specialized Orthopaedic Surgeons. 9. To substantiate the claim that ALIMCO has been carrying on philanthropic activities in the field of providing 'relief to the poor' medical relief and 'education', the following points may also be usefully mentioned: (a) By its order no. ST-I/-64611X-ll (23)-76 - U. P. Act XV/48 - Order - 78 dated 28th February, 1978, the Governor of State of Uttar Pradesh was pleased to pass an order that with effect from March 01, 1978, no tax under the Sales Tax Act would be payable on the sale of Artificial Limbs and Rehabilitation aids by the Artificial Limbs Manufacturing Corporation of India, Kanpur....
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....education) have been set up. From a brief resume of objects and activities carried out by the ALIMCO, it is evident that the same are in the categories of (i) 'Rehabilitation' (means Medical Relief) (ii) 'Relief to Poors' and (iii) 'education'. The manufacture of limbs and accessories is inextricably connected and intertwined with 'medical relief', 'education', and 'relief to the poors. In fact, these objectives cannot be achieved, unless appellant carries out 'manufacturing'. ASSESSMENT IN THE CASE OF THE APPELLANT (AY 2015-16 under appeal) 11. The assessment made by the Addl. CIT (Exemption) Range, Ghaziabad and affirmed by ld. CIT (Appeal) in the instant case, is erroneous being- (i) not in accordance with the specific provisions of law as contained in section 11(1)(a) of the Act; and (ii) due to incorrect and arithmetical infirmities in the working made for application of income. 12.1 As regards (i) of para 11 above, while passing assessment order for AY 2015- 16 the Assessing Officer in para 6.1 of the assessment order after reproducing the Income and Expenditure Account o....
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....ness of charitable-trust would qualify as income for computing statutorily allowed accumulation of 15% in terms of section 11(1)(a) of the Income Tax Act. In view of the above the addition made by the AO is confirmed and the grounds of appeal raised by the appellant are dismissed." 12.4 In relation to aforesaid finding of CIT(A) and decision of Hon'ble ITAT, Ahmedabad (at page 133-139 of PB) relied upon, it is submitted that we have no quarrel or dispute with the ratio of said decision. Because in the said case, running of pharmacy store was business incidental to charity as defined in section 11(4A) of the Act. It was under such circumstances that accumulation of income of such incidental business was to be computed on the profit and gain of the business only. Whereas, in the instant case, manufacturing activity as well as the expenditure incurred on facility of limb fitting centres having orthotist and prosthetist medical officers having good knowledge of fitting of limbs and training to patients is an integrated process and cannot be said to' be business incidental to charity. Therefore, the decision relied upon by the ld. CIT(A) has no application in the facts ....
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....purposes, the donations, the assessee received, in the sum of Rs. 2,57,376, would constitute its property and it is entitled to accumulate twenty-five per cent thereout. It is unclear on what basis the revenue contended that it was entitled to accumulate only twenty-five per cent of Rs. 87,010." 12.7 Further, reliance is placed on the decision dated 27.11.2015 of IT AT, Bangalore in the case of Society of the Servants of the Holy Spirit vs. DCIT (Exemption) [ITA No.975/Bang/2015] wherein after relying upon para 10 & 11 of the judgment of Hon'ble Apex Court in the case of ACIT vs. A.L.N. Rao Charitable Trust [1995] 216 ITR 697 (SC) it was held in para 7 as under: "07. Accordingly we are of the opinion that assessee's claim for accumulation under section 11(1)(a) of the Act, could not have been restricted and was eligible for accumulation of 15% of gross receipt from all streams of its income. Ordered accordingly." 12.8 Further, reliance is placed upon the decision dated 22.09.2004 of Hon'ble Special bench of IT AT Mumbai in the case of Bai Sonabai Hirji Agiary Trust vs. ITO [2005] 93 ITD 70 (Mum)(SB). In this case relying upon the decision of K....
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....ection 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% 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 section 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 section 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 trust in India. Their Lordships in the above case have emphasized on the clear and unambiguous language of section 11(1)(a) and decided the matter on the basis of the same. It has been held that as per the statutory language of the above section the income which is to be taken for purpose of accumulation 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 exe....
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....e case of Mary Immaculate Society and in its order in ITA Nos. 240 & 2411Bang/2015 dated 23.06.2015 held that the assessee is to be allowed accumulation of income for application for charitable purposes u/s. 11 (1)(a) of the Act at 15% of gross receipts following the decision of the ITAT Special Bench in the case of Bai Sonabai Hirji Agiary Trust v lTG, 93 ITD 0070 (SB). In its order (supra), the co-ordinate bench has held as under at paras 15 and 16 thereof:- "15. 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. 11 (1) of the IT Act, as it prevailed at that point of time, the assessee had to apply 75 per cent of its income for the objects and purpose....
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....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. It 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 trust in India. Their Lordships in the above case have emphasized on the clear and unambiguous....
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.... is to be allowed at 15% of gross receipts, as claimed by the assessee. Consequently, grounds raised by the Revenue are dismissed." 12.10 Similar view has been taken by the Hon'ble ITAT Calcutta in its decision dated 10.01.2020 in the case of Kanehialall Lohia Trust vs. ITO (Exemption) [2020] 185 ITD 498 (Kolkata - Trib.) in this case also after referring to the decision of Kerala High Court which was upheld by the Hon'ble Supreme Court in the case of CIT vs. Programme for Community Organization it was held that 15 per cent accumulation for application in future has to be calculated on gross receipt and not on net receipt after deduction of revenue expenditure. 12.11 Finally, the reliance is placed upon the decision dated 12.01.2022 of Hon'ble IT AT, Ahmedabad in the case of ACIT (Exemption) vs. Vyakti Vikas Kendra India [ITA No. 687/Ahdj2019] wherein after referring to the decision of Hon'ble Apex Court in the case of Escorts Ltd. 199 ITR 43 (SC), CIT vs. Programme for Community Organization 248 ITR 1 (SC), Kanehialall Lohia Trust vs. ITO (Exemption) (supra) and ITAT Pune bench in the case of Maharishi Karve Stree Shikshan Samstha Karvenagar VS. I....
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....eme. The assessee has received total of Rs. 22 crores as loan in these schemes. In Note 6.4 of Notes Forming part of financial statements, the assessee has written that "in accordance to the ADIP Scheme of Government of India, a loan for Rs. 2200.00 Lacs was taken by the corporation and receipt of such loan, which has been repaid from the ADIP funds released in the financial year 2015-16, has been considered as receipts against the receivable Grant-in-aid to be released by Ministry and has been disclosed as liability accordingly. ". Thus it is clear that the assessee has itself clarified that this amount of Rs. 22 crores was loan and not the grant, which can be included in the income for the purpose of claim of deduction of 15%. This approach can not be justified in the accounting, since a grant before its receipt can not be claimed as grant and thus can not increase the income of the assessee. Hence this loan amount is excluded from the total receipts of the assessee." 13.2 It is undisputed fact on record that appellant raised loan of Rs. 22 crores, as permitted under ADIP Scheme framed by the Government, and the loan raised was specifically recouped by the Gover....
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....the year 20,50,00,000 20,50,00,000 Total 20,74,70,000 20,74,70,000 Deduct : Closing Balance 1,95,97,000 1,95,97,000 Application 18,78,73,000 18,78,73,000 Application of loan 13,00,00,000 B Capital Application (i) Addition in Fixed assets 1,93,98,269 1,93,98,269 (ii) Addition in SWIP 47,04,254 47,04,254 Total Application 76,12,58,523 99,41,25,521 Balance Income (for Application (As shown in table in para 6.3) 89,72,78,698 89,72,78,698 Balance Income for taxation 1360,20,175 (9,68,46,823) i.e. Nil 13.5 Accordingly, even on removing the infirmity in the working made by the Assessing Officer, there is no income liable for taxation during the year under appeal. ASSESSMENT IN THE CASE OF THE APPELLANT (AY 2016-17 under appeal) ....
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....on i.e. allowable accumulation at Rs. 24,67,64,1001- whereas the appellant has computed the same at Rs. 50,92,72,1101-. I find that the AO has computed the allowable accumulation amount on the profit and gains derived from the incidental business of the charitable trust whereas the appellant has computed the same on the gross receipts of the trust. I find that the approach adopted by the AO is as per the provisions of section 11(1)(a) of the IT Act and is found to be correct. In this regard I find that Hon'ble ITAT Ahmadabad in the very recent decision dated 13/02/2023 in the case of Shree Bhartimaiya Memorial Foundation Vs ACIT (ITA No. 369/Ahd/2020) for AY 2016-17 held that only profit and gains derived from the incidental business of charitable-trust would qualify as income for computing statutorily allowed accumulation of 15% in terms of section 11(1)(a) of the Income Tax Act. In view of the above the addition made by the AO is confirmed and the grounds of appeal raised by the appellant are dismissed." 15.4 In relation to aforesaid finding of CIT(A) and decision of Hon'ble ITAT, Ahmedabad (at page 121-127 of PB) relied upon, it is submitted that we have no quar....
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....ointed out that the Assessing Officer in para 7.2 at page 5-6 of the assessment order after reproducing the working of gross receipts, as per appellant, observed that Rs. 2163 lacs (21.63 crores) being loan amount of ADIP and ADIP-SSA schemes be reduced from the gross receipts. The relevant observation reads as under: "From the above it is clear that the assessee has also considered in its income the loaf). amounts of ADIP and ADIP-SSA schemes. From above it is seen that the assessee has received loan of Rs. 5.5 crores in ADIP Scheme and Rs. 16.13 crores in ADIP-SSA scheme. The assessee has received total Rs. 21.63 crores as loan in these schemes. In Note 6.4 of Notes Forming part of financial statements, the assessee has written that "in accordance to the ADIP Scheme of Government of India, a loan for Rs. 2163.16 lacs was taken by the corporation and receipt of such loan, which has been repaid from the ADIP funds released in the financial year 2016-17, has been considered as receipts against the receivable Grant-in-aid to be released by Ministry and has been disclosed as liability accordingly. ". Thus it is clear that the assessee has itself clarified that this amount of ....
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.... Interest transferred Wrongly taken Nil 39,36,000 Total 87,34,32,000 87,73,68,000 Deduct : Closing Balance 8,78,80,000 8,78,80,000 Application 78,55,52,000 78,94,88,000 Application of loan 5,50,00,000 (ii) ADIP-SSA Scheme Opening Balance 1,95,97,000 1,95,97,000 Grant received during the year 20,45,00,000 20,45,00,000 Total 22,40,97,000 22,40,97,000 Deduct : Closing Balance 2,89,12,000 2,89,12,000 Application 19,51,85,000 19,51,85,000 Application of loan 16,12,13,000 B Capital Application (i) Addition in Fixed assets 66,97,000 66,97,000 (ii) Addition in CWIP ....
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.... record. We observed from the record that the assessee a GOI undertaking established with the sole purpose of making the artificial limbs and its accessories to needy persons in particular to the disable persons at reasonable cost. In this process, it has established the charitable institution u/s 25 of the erstwhile Companies Act, 1956 and also grants substantial amounts as grants and also grants loans to modernize the facilities. With this back ground we observed that the assessee has achieved manufacturing of artificial limbs and accessories to the extent of Rs. 162.15 crores and other income of Rs. 10.71 crores. As per the chart submitted by the assessee, the majority of the artificial limbs are sold under SSA scheme. For this main purpose of the institution, the assessee has incurred material consumptions and installed new fixed assets. The main issue raised by the AO with regard to application of revenue for the purpose of availing deduction u/s 11(1) of the Act, as per which the assessee is allowed to accumulate 15% of the income of the trust or its total income determined for the purpose of Income Tax. The AO has considered the net income generated by the assessee ie., tota....
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....anufactured the artificial limbs from the property held in the trust. One cannot deny the above facts on record. It is relevant to point out that the main purpose of existence of the institution is to serve the disabled persons by providing the limbs at affordable purpose. Without this purpose, there is no existence of this institution and also it operates as nodal agency on behalf of the GOI. Therefore in our considered view, the revenue generated out of the manufacturing activities has to be treated as eligible income for the purpose of accumulation u/s 11(1) of the Act. It cannot be considered as gross income. 19. Further, what is relevant is the income available for the purpose of applying the same for the purpose of charitable purpose. We intend to explain the above aspect by an example: Let's say the institution has earned Rs. 1000 from the property in the trust and also undertakes certain additional services to generate income for the trust, wherein it generate gross sales of Rs. 2000 and incurs expenditures of Rs. 1500. The eligible income for the purpose of section 11(1) of the Act is: Income from the property Rs. 1000 Net income from the additional services: G....
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.... 11(1)(a) of the Act. 4.3.2 The assessee claimed accumulation of income for application for charitable purposes u/s, 11(1)(a) of the Act at 15% of gross receipts for the year under consideration. The Assessing Officer ('AO') however, was of the view that accumulation will be allowed only to the extent of 15% of the net receipts i.e.; gross receipts less revenue expenditure and not on the gross receipts as claimed by the assessee. On appeal, the Id. CIT(A) allowed the assessee's claim that it is to be allowed accumulation of income for application for charitable purposes to the extent of 15% of gross receipts u/s. 11(1)(a) of the Act and not 15% of net receipts as held by the AO. 4.3.3 The issue to be decided by us is as to whether for the purpose of accumulation of income for application for charitable purposes u/s. 11(1)(a) of the Act is to be allowed at 15% of gross receipts or net receipts i.e.; gross receipts less Revenue expenditure. We find that the issue in question was considered and adjudicated by a co-ordinate bench of the Tribunal in the case of Mary Immaculate Society and in its order in ITA Nos. 240 & 241/Bang/2015 dated 23.06.2015 held th....
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....ved, in the sum of Rs. 2,57,346/- would constitute its property and it is entitled to accumulate twenty-five per cent thereout. It is unclear on what basis the Revenue contended that it was entitled to accumulate only twenty five per cent of Rs. 87,010. For the aforesaid reasons, the civil appeal is dismissed. It is clear from the above that deduction of twenty-five per cent was held to be allowable not on total income as computed under the IT Act. Any amount or expenditure, which was application of income, is not to be considered for determining twenty five per cent to be accumulated. Their Lordships, as noted earlier affirmed the decision of Kerala High Court in (1997) 141 CTR (Ker) 502: (1997) 228 ITR 620 (Ker) (supra) wherein it is held as under: At the outset, the statutory language of s. 11(1)(a) of the IT Act, 1961, relates to the income derived by the trust from property. The trust is required to be wholly for charitable or religious purposes, 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 ....
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....ty five per cent of the above income is to be allowed as a deduction. Similar view has also been taken by the Hon'ble Madhya Pradesh High Court in Parsi Zorastrian Anjuman Trust vs. CIT (supra). No reason whatsoever has been given by the Revenue authorities for deducting Rs. 2,17,126 in this case for purposes of s. 11(1)(a). The decision cited on behalf of the Revenue did not take into account the decision of the Supreme Court referred to above. The circular of CBDT has also been considered by the Hon'ble Kerala High Court in its decision referred to above. Accordingly the question referred to is answered in the affirmative and in favour of the assessee." 16. The aforesaid decision clearly supports the plea of the Assessee. Following the same, we hold that the accumulation u/s. 11(1)(a) of the Act should be allowed as claimed by the Assessee." 4.3.4 Respectfully following the decision of the co-ordinate bench in the case of Mary Immaculate Society (supra), we hold and direct the AO that the accumulation u/s. 11(1)(a) of the Act is to be allowed at 15% of gross receipts, as claimed by the assessee. Consequently, grounds raised by the Revenue are dismissed."....