TaxTMI 
TaxTMI 
2025 (3) TMI 1078
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....ssessing Officer (AO) disallowed the donation made by the assessee to another trust on the ground that the recipient trust was not registered under section 12A of the Act. As per the provisions of section 11 of the Act, a charitable trust is entitled to exemption on income applied for charitable purposes. However, Explanation 2 to Section 11(1) specifies that donations made to another charitable trust shall be treated as an application of income only if the recipient trust is also registered under Section 12A of the Act. In this case, since the recipient trust was not registered, the AO concluded that the donation could not be considered an application of income under section 11 of the Act and added it back to the total income of the assessee. 4. Before the ld. CIT(A), the assessee contended that the payments were not in the nature of donations but allowable expenses under section 11 of the Act. The assessee also submitted that the definition of "income" under section 11 differs from that of "total income" under section 2(45) of the Act. Under section 11 of the Act, the capital expenses may be considered as application of income. However, the ld. CIT(A) observed that the payment....
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....lifies for exemption under section 11 of the Act. In the absence of such proof, the AO was justified in making the disallowance. Accordingly, we concur with the decision of the lower authorities. The assessee has neither substantiated that the payments were made for charitable purposes nor demonstrated that the recipient entity fulfilled the requirements of section 12A of the Act. Accordingly, the ground of appeal of the assessee is dismissed. 9. The issue raised by the assessee in Ground No. 2(iii) is that the Ld. CIT(A) erred in confirming the addition of Rs. 39,99,359.00 by treating certain expenses as not allowable as an application of income. 9.1 During the assessment proceedings, the Ld. AO observed that the assessee had claimed certain expenses as an application of income, which, as per the AO, are not allowable as an application of income under section 11 of the Act. the details of such expenses stand as under: S. No. Particulars Amount 1 Interest On TDS 803723.00 2 Penalty -ESI and Professional Tax 1669730.00 3 Gifts 100750.00 4 DKA Statue Expenses 181075.00 5 Input Tax Credit Write off 12444081,00 To....
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....dgment of Hon'ble High Court of Andhra Pradesh in the case of CIT Vs. Trustee of H.E.H. the Nizam's Supplemental Religious Endowment Trust reported in 127 ITR 378 wherein it was held as under: Undoubtedly, sub-section (4) of section 11 specifically lays the mode of determination of the income of the business undertaking of a trust. A similar provision is not to be found with regard to the other income of the trust. By an inferential process, it could be said that that mode of determination by the ITO was only restricted to the income of the business undertaking. It was equally relevant to note that even the Tribunal held that it was only the books of the trust that were to be looked into for the purpose of arriving at the income of the trust. Impliedly excepting the income with regard to the business undertaking as would be assessed by the ITO, the income that has to be computed with regard to a trust is one based on the accounts of the trust. Thus, giving the full effect of sub-section (4) of section 11 under which the power to determine the income by the ITO is limited only to business undertakings of a trust, the income of the trust to be determined could be based o....
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....t of the tax for that year and they relate to the preceding assessment years. But it can nevertheless be said that those payments are outgoings in that particular year and are only incidental to the carrying out of the purposes of the trust. It is difficult to say that on account of the income-tax or wealth tax, a provision should have been made in the relevant assessment year. In any view of the matter, the payments made in a particular year, irrespective of the fact that they relate to the assessment of the previous years, are yet outgoings and constitute expenditure. Such payments could not be excluded from exemption and are thus to be excluded from the income of the trust." 14.2 Therefore, in view of above it clear that any incidental expenses incurred in carrying out the activity of charitable purpose, it should be excluded from the income of a trust. Now we need to determine that such expenses are of incidental nature of the trust or not. Interest on TDS (Rs. 8,03,723.00) 14.3 The interest on TDS liability arises due to a delay in remittance of taxes deducted at source. It is well established that interest on statutory dues is compensatory in nature rather than penal....
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....enses incurred by the assessee are incidental to the carrying out of its charitable objectives and qualify as an application of income under section 11 of the Act. Therefore, we direct the AO to delete the disallowance of Rs. 39,99,359.00 only. 15. In the result, the appeal filed by the assessee is partly allowed. Now Coming to ITA No. 1076/Bang/2024 for the AY 2021-22 16. The first issue raised by the assessee in ground No. 2 is that the Ld. CIT(A) erred in confirming the addition of Rs. 71,98,657/- by treating certain expenses as not allowable as an application of income. 17. At the outset, we note that in identical facts and circumstances, we have already decided the issue in the own case of assessee in ground No. 2(iii) of its appeal bearing ITA No. 1075/Bang/2024 vide paragraph No. 14 of this order favouring assessee. At the time of hearing, both the ld. AR and DR agreed that similar view can also be adopted for the year under consideration. Accordingly, following the same reasoning, the ground of appeal of the assessee is hereby allowed. 18. The issue raised by the assessee in ground No. 3 is that the Ld. CIT(A) erred in disallowing the accumulation of income o....
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....med that there was no remaining balance available for application from the accumulation of earlier years, and thus, the total balance in bank account including the FDR should be treated as an investment as per the provisions of section 11(5) of the Act so as to allow the deduction under section 11(2) of the Act. The assessee in support of its claim relied on the judgment of the Hon'ble Tribunal of the Cochin Bench in the case of Dharamodhyam Co. vs. ITO reported in 59 taxmann.com 467, wherein it was held that, in order to claim a deduction under section 11(2) of the Act, it is not necessary that the deposit be made from the current year's income; it would be sufficient compliance if existing fixed deposits are earmarked for this purpose. 19.2 However, the Ld. CIT(A) rejected the assessee's contention, observing that the bank balance of Rs. 160,88,73,365, as stated in the financial statements, had already been granted deduction in earlier years. Claiming the same during the year under consideration would amount to a double deduction. Thus, the assessee failed to produce any evidence to prove that Rs. 54,61,28,031 was invested during the year under consideration. Thus the ld. ....
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....ction 139 for furnishing the return of income for the previous year. 23.3 It is clear that there are three conditions. The authorities below have not doubted the condition of furnishing the documents i.e. intimation in form 10A in respect of accumulation or setting a-part of the income for the purpose for which the income is accumulated. 23.4 In light of the above discussion, the controversy arises for our adjudication as to whether the assessee has made the investment in the manner provided under the provisions of section 11(5) of the Act to claim the benefit of the application of income as provided under section 11(2) of the Act. In the present case, the investment in the mode specified under section 11(5) of the Act was demonstrated by the assessee based on the financial statements. Based on the financial statements, we note certain facts as detailed below: * Opening balance of the FD as of 1st April 2020: Rs. 58,55,73,290.95 * Closing balance of the FD as of 31st March 2021: Rs. 97,39,70,207.85 * The average increase in the year in dispute in FD stands at Rs. 38,83,96,916.92 only. 23.5 At this juncture, it is important to note that the assess....
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....nsideration. Thus, effectively, it transpires that the amount of FD made by the assessee in the year under consideration stands at Rs. 50,37,69,297.92 only, whereas the amount of FD claimed to have been made by the assessee under section 11(2) of the Act stands at Rs. 54,61,28,031.00, which is short by Rs. 4,23,58,733.08 23.8 Nevertheless, there was an increase in the current bank account of the assessee by Rs. 34,74,68,786.36 as tabulated below: S. No. Particulars Balance as on 31-03-2021 Balance as on 31-03-2020 Increase amount 1 Fixed Deposits with Banks as per Financial statement Page No. 26 of paper book 97,39,70,207.87 58,55,73,290.95 38,83,96,917.32 2 Balance of cash and Bank as per Financial statement, page No. 26 of paper book 164,05,02,279.23 90,56,37,617.35 3 Less FDRs 97,39,70,207.87 58,55,73,290.95 4 Less cash Balance 3,16,28,914.16 3,26,29,956.56 5 Net Bank Balance 63,49,03,157.20 28,74,34,369.84 34,74,68,787.36 23.9 Thus, the question arises whether such an increase in the bank balance maintained with the scheduled bank can be treated as an investment ....
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....ment made in the year in dispute. In this regard, we note that the ITAT Cochin Bench in the case of Dharmodayam Co Vs ITO reported in 59 taxmann.com 467 held that existing FDRs, which is free from any lien constitutes sufficient compliance for accumulated the income under section 11(2) of the Act. The relevant extraction of the judgment is reproduced as under: 12. In the instant case, there is no dispute that the assessee has passed a resolution for accumulation of income duly specifying the purpose of accumulation. Out of the sum of Rs. 31.35 lakhs claimed u/s 11(2) of the Act as accumulation of income, a sum of Rs. 20.00 lakhs was found to have been deposited in bank fixed deposits during the year under consideration. For the remaining amount, the assessee has earmarked the fixed deposits already available with it towards the income accumulated u/s 11(2) of the Act. Considering the objective of the provision of sec. 11(2)(b), in our view, what is required to be seen is whether the income accumulated has been deposited or invested in the forms prescribed u/s 11(5) of the Act, i.e., there should be corresponding investment, which could be identified with the income accumul....