ITI EDUCATION COMMITTEE,BANGALORE vs. INCOME-TAX OFFICER(EXEMPTION), BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH, BENGALURU BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER and SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER

ITA No.425/Bang/2017 (Assessment year: 2012-13)

M/s.ITI Education Committee, Vidyamandir, Dooravaninagar, Bengaluru. PAN : AAAAI0748L … Appellant Vs. The Income-tax Officer (Exemptions), Ward - 1, Bengaluru … Respondent Appellant by : Shri H Sambhu Sharma, C.A Respondent by : Shri Pradeep Kumar, ACIT(DR)

Date of hearing : 27/11/2017 Date of pronouncement : 31/01/2018

O R D E R Per INTURI RAMA RAO, AM : This is an appeal by the assessee-trust directed against the order of Commissioner of Income-tax (Appeals)-14, Bangalore, dated 25/11/2016 for the assessment year 2012-13.

ITA No.425/Bang/2017 Page 2 of 16 institutions, in spite of the appellant is existing for charitable (education) purposes and complying with all the applicable provisions of section 11 of the Act. 3. The learned Commissioner Of Income Tax (Appeals) is erred in fact and in law in confirming the action of the Assessing Officer in coming to conclusion that the Appellant has earned unreasonable profit and thereby it is existing for purposes of profit; and hence ineligible to claim exemption under section 11, in spite the Appellant got only reasonable surplus. 4. The learned Commissioner Of Income Tax (Appeals) is erred in fact and in law in confirming the action of the Assessing Officer in coming to conclusion that only 15% of net educational income (gross educational income less expenditure towards educational purpose) is to be taken into consideration for accumulation under section 11(1)(a); as against Appellant's contention for accumulation is that of 15% of gross educational income.” 5. The learned Commissioner Of Income Tax (Appeals) is erred in fact and in law in confirming the action of the Assessing Officer in denying the alternate exemption under section 10(23C)(vi) in spite the appellant fulfilled all provisions of section 10(23C)(vi) including carry forward surplus for future years for educational purpose in accordance with the third proviso to section 10(23C) of the Act. 6. For these and other grounds of appeal which may be taken at the time of hearing, it is prayed that the order of Commissioner Of Income Tax (Appeals) in so far as it relates to the above grounds, the additions made in the order of assessment of Rs 1,37,93,610/- is deleted and the surplus generated by the Appellant be exempted under the Act. 7. Each of the above grounds is without prejudice to one another and the appellant craves leave of the Honorable Commissioner to add, delete, amend or otherwise modify one or more of the above grounds either before or at the time of hearing of this appeal.”

ITA No.425/Bang/2017 Page 3 of 16 as 'the Act' for short] at total income of Rs.1,37,93,610/-. While doing so, the ld. Assessing Officer had denied the exemption claimed under the provisions of clause (vi) of sub section (23C) of sec. 10 of the Act on the ground that the appellant was existing only for the purpose of making profit. The facts set out by the Assessing Officer in paragraphs 19 to 23 of the assessment order, while denying the exemption u/s 10(23C), are reproduced below:-

“19. On, going through the facts of the case and the submissions made, the following facts emerge:- a) Whenever an educational institution makes huge/large profit/surplus year after year, it ceases to exist for educational purpose and becomes profit making organization, even though it may plough such profits back into purchase of assets for the institution/organization. Such activity can better be termed as activity for profit. b) The purpose for which the trust/institution is established must be accomplished by carrying out such activity which are charity in nature as per the deed/MOA of the trust. c) In the instant case, the pre-dominant object of the activity is making profit, whereas its objects are primarily for serving the charitable purpose. Here, the purpose of the assessee is submerged by profit making motive in the guise of charitable trust. If the profit/surplus arises as a result of incidental, it can be accepted that the assessee is not engaged in profit making. d) Having regard to the facts and circumstances, of the case, one can come to the conclusion that the dominant object of the assessee is profit making, as can be seen that the assessee is making systematic profit year after year. 20. As observed by the Hon'ble courts, in the cases referred, the crucial condition is that surplus should result only incidentally and should not be aimed for. If substantial profits are earned in year if (it) would be the duty of the institution to lower its fees for the subsequent year so that such profits are not intentionally generated. If profits continue year after year, then it cannot be said that the surplus are due to incidental. 21. The Hon'ble Supreme Court's order in the case of Queen's Educational Society Vs. Commissioner of Income Tax (CA No.5167 of 2008-SC), the Hon'ble S.C. while dismissing the appeal of the appellant, i.e. Queen's Educational Society has stated there is no merit in the case warranting admission

ITA No.425/Bang/2017 Page 4 of 16 of applicant's appeal. It also observed that the assessee's activities should be carried out in accordance with the conditions. 22. In view of the above, I am of the considered opinion that the assessee trust/institution is not in existence wholly and exclusively for the purpose of education and the educational institutions are being used for the purpose of generating huge amount of surplus as against the ruling given by the Hon'ble Supreme Court in the case of P.A. Inamdar (supra) and also the decision of the Hon'ble High Court of Karnataka in the case of Visvesvaraya Technological University (supra).Accordingly, assessee cannot be considered as engaged in the charitable activities in the nature of education as envisaged in section 2(15) of Income Tax Act. In view of this, exemption claimed u/s. 11 & 12 for the AN 2012-13 is disallowed and the net surplus generated is considered for taxation in the status of AOP. 23. The assessee has exercised its option for claiming deduction under Sec.10(23C)(vi) of the Act, vide its letter dated 18-02-2015. It is important to mention here that, as per the provisions of the section 19 3CJ(vi) of the I.T Act,1961 " any university or other educational institution existing solely for educational purpose and not for the purposes of profit", other than those mentioned in sub clause (iliab) or sub clause (iliad) and which may be approved by the prescribed authority ". As section 2(15) is invoked in this case, and in view of this, exemption claimed u/s. 11 & 12 for the A.Y 2012-13 is disallowed and the net surplus generated is considered for taxation in the status of AOP.”

Further, the Assessing Officer had not allowed carry forward of excess income over expenditure on the gross income but on the net income.

5.1 The ld AR submitted that the assessee is existing solely for the education purpose, as no part of the surplus income generated is utilized wholly for education purpose. He further submitted that the Assessing Officer had come to wrong conclusion that the appellant was making

ITA No.425/Bang/2017 Page 5 of 16 huge profits without appreciating the fact that after deduction of the depreciation from the surplus generated, the profits would only 18% of the gross receipts. He further submitted that the decision of the Hon’ble Karnataka High Court in the case of Visvesvaraya Technological University Vs. ACIT (2014) 362 ITR 279 (Kar) relied upon by the Assessing Officer came to be over-ruled by the Hon’ble Apex Court in the case of Visvesvaraya Technological University Vs. ACIT (384 ITR 37). He further submitted that carry forward of excess income over expenditure should be calculated on the gross receipts not on the net receipts and reliance was placed on the decision of the co-ordinate bench of the Tribunal in the following cases:- i. DCIT, Bangalore Vs. M/s Peoples Education Society (9-6-2017) ii. The Capuchin Friar Services Society Vs. DCIT (9-10-2015) iii. Jyothy Charitable Trust Vs. DCIT (14-8-2015) 5.2 On the other hand, ld DR placed reliance on the orders of the lower authorities.

5.3 We heard rival submissions and perused the material on record. The only issue in the grounds of appeal is whether the Assessing Officer was justified in denying the exemption under clause (vi) of section 10(23C) of the Act on the ground that the appellant was not existing only for education purpose. The relevant provisions of the Act are extracted below:- “10 (23C) any income received by any person on behalf of— (vi) any university or other educational institution3 existing3 solely3 for educational purposes and not for purposes of profit, other than those mentioned in sub-clause (iiiab) or sub-clause (iiiad) and which may be approved4 by the prescribed authority5; or (via) .............................. Provided that the fund or trust or institution 8[or any university or other educational institution9 or any hospital or other medical institution] referred to in sub-clause (iv) or sub-clause (v) 8[or sub-clause (vi) or sub- clause (via)] shall make an application in the prescribed form10 and manner to the prescribed authority11 for the purpose of grant of the exemption, or continuance thereof, under sub-clause (iv) or sub-clause (v) 12[or sub-clause (vi) or sub-clause (via)] :

ITA No.425/Bang/2017 Page 6 of 16 13[Provided further that the prescribed authority, before approving any fund or trust or institution or any university or other educational institution or any hospital or other medical institution, under sub-clause (iv) or sub- clause (v) or sub-clause (vi) or sub-clause (via), may call for such documents (including audited annual accounts) or information from the fund or trust or institution or any university or other educational institution or any hospital or other medical institution, as the case may be, as it thinks necessary in order to satisfy itself about the genuineness of the activities of such fund or trust or institution or any university or other educational institution or any hospital or other medical institution, as the case may be, and the prescribed authority may also make such inquiries as it deems necessary in this behalf:] Provided also that the fund or trust or institution 14[or any university or other educational institution15 or any hospital or other medical institution] referred to in sub-clause (iv) or sub-clause (v) 14[or sub-clause (vi) or sub- clause (via)]— 16[(a) applies its income, or accumulates it for application, wholly and exclusively to the objects for which it is established and in a case where more than fifteen per cent of its income is accumulated on or after the 1st day of April, 2002, the period of the accumulation of the amount exceeding fifteen per cent of its income shall in no case exceed five years; and] 17[(b) does not invest or deposit its funds, other than— (i) any assets held by the fund, trust or institution 18[or any university or other educational institution19 or any hospital or other medical institution] where such assets form part of the corpus of the fund, trust or institution 20[or any university or other educational institution or any hospital or other medical institution] as on the 1st day of June, 1973; 21[(ia) any asset, being equity shares of a public company, held by any university or other educational institution or any hospital or other medical institution where such assets form part of the corpus of any university or other educational institution or any hospital or other medical institution as on the 1st day of June, 1998;] (ii) any assets (being debentures issued by, or on behalf of, any company or corporation), acquired by the fund, trust or institution 22[or any university or other educational institution23 or any hospital or other medical institution] before the 1st day of March, 1983; (iii) any accretion to the shares, forming part of the corpus mentioned in sub-clause (i) 24[and sub-clause (ia)], by way of bonus shares allotted to the fund, trust or institution 24a[or any university or other educational institution or any hospital or other medical institution] ;

ITA No.425/Bang/2017 Page 7 of 16 (iv) voluntary contributions received and maintained in the form of jewellery, furniture or any other article as the Board may, by notification in the Official Gazette, specify, for any period during the previous year otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11:] Provided also that the exemption under sub-clause (iv) or sub-clause (v) shall not be denied in relation to any funds invested or deposited before the 1st day of April, 1989, otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11 if such funds do not continue to remain so invested or deposited after the 30th day of March, 25[1993] : 26[Provided also that the exemption under sub-clause (vi) or sub-clause (via) shall not be denied in relation to any funds invested or deposited before the 1st day of June, 1998, otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11 if such funds do not continue to remain so invested or deposited after the 30th day of March, 2001:] 27[Provided also that the exemption under sub-clause (iv) or sub-clause (v) 26[or sub-clause (vi) or sub-clause (via)] shall not be denied in relation to voluntary contribution, other than voluntary contribution in cash or voluntary contribution of the nature referred to in clause (b) of the third proviso to this sub-clause, subject to the condition that such voluntary contribution is not held by the trust or institution 28[or any university or other educational institution or any hospital or other medical institution], otherwise than in any one or more of the forms or modes specified in sub- section (5) of section 11, after the expiry of one year from the end of the previous year in which such asset is acquired or the 31st day of March, 1992, whichever is later:] Provided also that nothing contained in sub-clause (iv) or sub-clause (v) 29[or sub-clause (vi) or sub-clause (via)] shall apply in relation to any income of the fund or trust or institution 29[or any university or other educational institution or any hospital or other medical institution], being profits and gains of business, unless the business is incidental to the attainment of its objectives and separate books of account are maintained by it in respect of such business: Provided also that any 30[notification issued by the Central Government under sub-clause (iv) or sub-clause (v), before the date on which the Taxation Laws (Amendment) Bill, 2006 receives the assent of the President*, shall, at any one time31, have effect for such assessment year or years, not exceeding three assessment years] (including an assessment year or years commencing before the date on which such notification is issued) as may be specified in the notification:]

ITA No.425/Bang/2017 Page 8 of 16 32[Provided also that where an application under the first proviso is made on or after the date on which the Taxation Laws (Amendment) Bill, 2006 receives the assent of the President,* every notification under sub-clause (iv) or sub-clause (v) shall be issued or approval under 33[sub-clause (iv) or sub-clause (v) or] sub-clause (vi) or sub-clause (via) shall be granted or an order rejecting the application shall be passed within the period of twelve months from the end of the month in which such application was received: Provided also that where the total income, of the fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via), without giving effect to the provisions of the said sub-clauses, exceeds the maximum amount which is not chargeable to tax in any previous year, such trust or institution or any university or other educational institution or any hospital or other medical institution shall get its accounts audited in respect of that year by an accountant as defined in the Explanation below sub-section (2) of section 288 and furnish along with the return of income for the relevant assessment year, the report of such audit in the prescribed form34 duly signed and verified by such accountant and setting forth such particulars as may be prescribed:] 35[Provided also that any amount of donation received by the fund or institution in terms of clause (d) of sub-section (2) of section 80G 36[in respect of which accounts of income and expenditure have not been rendered to the authority prescribed under clause (v) of sub-section (5C) of that section, in the manner specified in that clause, or] which has been utilised for purposes other than providing relief to the victims of earthquake in Gujarat or which remains unutilised in terms of sub-section (5C) of section 80G and not transferred to the Prime Minister’s National Relief Fund on or before the 31st day of March, 2004 shall be deemed to be the income of the previous year and shall accordingly be charged to tax:] Provided also that where the fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub- clause (via) does not apply its income during the year of receipt and accumulates it, any payment or credit out of such accumulation to any trust or institution registered under section 12AA or to any fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) shall not be treated as application of income to the objects for which such fund or trust or institution or university or educational institution or hospital or other medical institution, as the case may be, is established : Provided also that where the fund or institution referred to in sub-clause (iv) or trust or institution referred to in sub-clause (v) is notified by the

ITA No.425/Bang/2017 Page 9 of 16 Central Government 40[or is approved by the prescribed authority, as the case may be,] or any university or other educational institution referred to in sub-clause (vi) or any hospital or other medical institution referred to in sub-clause (via), is approved by the prescribed authority and subsequently that Government or the prescribed authority is satisfied that— (i) such fund or institution or trust or any university or other educational institution or any hospital or other medical institution has not— (A) applied its income in accordance with the provisions contained in clause (a) of the third proviso; or (B) invested or deposited its funds in accordance with the provisions contained in clause (b) of the third proviso; or (ii) the activities of such fund or institution or trust or any university or other educational institution or any hospital or other medical institution— (A) are not genuine; or (B) are not being carried out in accordance with all or any of the conditions subject to which it was notified or approved, it may, at any time after giving a reasonable opportunity of showing cause against the proposed action to the concerned fund or institution or trust or any university or other educational institution or any hospital or other medical institution, rescind the notification or, by order, withdraw the approval, as the case may be, and forward a copy of the order rescinding the notification or withdrawing the approval to such fund or institution or trust or any university or other educational institution or any hospital or other medical institution and to the Assessing Officer:] 41[Provided also that in case the fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in the first proviso makes an application on or after the 1st day of June, 2006 for the purposes of grant of exemption or continuance thereof, such application shall be 42[made on or before the 30th day of September of the relevant assessment year] from which the exemption is sought :] 43[Provided also that any anonymous donation referred to in section 115BBC on which tax is payable in accordance with the provisions of the said section shall be included in the total income :] 44[Provided also that all pending applications, on which no notification has been issued under sub-clause (iv) or sub-clause (v) before the 1st day of June, 2007, shall stand transferred on that day to the prescribed authority and the prescribed authority may proceed with such applications under those sub-clauses from the stage at which they were on that day:]

ITA No.425/Bang/2017 Page 10 of 16 45[Provided also that the income of a trust or institution referred to in sub- clause (iv) or sub-clause (v) shall be included in its total income of the previous year if the provisions of the first proviso to clause (15) of section 2 become applicable to such trust or institution in the said previous year, whether or not any approval granted or notification issued in respect of such trust or institution has been withdrawn or rescinded;”

ITA No.425/Bang/2017 Page 11 of 16 a long line of decisions of this Court which have been elaborately noticed and extracted in a recent pronouncement i.e. Queen's Educational Society v. CIT [2015] 372 ITR 699/231 Taxman 286/55 taxmann.com 255 (SC). The principles that emanate from the views expressed by this Court are set out in paragraph 11 in Queen's Educational Society (supra), which are extracted below:— '11. Thus, the law common to Section 10(23C)(iiiad) and (vi) may be summed up as follows: (1) Where an educational institution carries on the activity of education primarily for educating persons, the fact that it makes a surplus does not lead to the conclusion that it ceases to exist solely for educational purposes and becomes an institution for the purpose of making profit. (2) The predominant object test must be applied – the purpose of education should not be submerged by a profit making motive. (3) A distinction must be drawn between the making of a surplus and an institution being carried on "for profit". No inference arises that merely because imparting education results in making a profit, it becomes an activity for profit. (4) If after meeting expenditure, a surplus arises incidentally from the activity carried on by the educational institution, it will not be cease to be one existing solely for educational purposes. (5) The ultimate test is whether on an overall view of the matter in the concerned assessment year the object is to make profit as opposed to educating persons.'

ITA No.425/Bang/2017 Page 12 of 16 v. CBDT [(2008) 10 SCC 509]. It is clear that when a surplus is ploughed back for educational purposes, the educational institution exists solely for educational purposes and not for purposes of profit." 8. In the present case, we find that during a short period of a decade i.e. from the year 1999 to 2010 the appellant University had generated a surplus of about Rs.500 crores. There is no doubt that the huge surplus has been collected/accumulated by realizing fees under different heads in consonance with the powers vested in the University under Section 23 of the VTU Act. The difference between the fees collected and the actual expenditure incurred for the purposes for which fees were collected is significant. In fact the expenditure incurred represents only a minuscule part of the fees collected. No remission, rebate or concession in the amount of fees charged under the different heads for the next Academic Year(s) had been granted to the students. The surplus generated is far in excess of what has been held by this Court to be permissible (6 to 15%) in Islamic Academy of Education v. State of Karnataka [2003] 6 SCC 697 (paragraph 156) though the percentage of surplus in Islamic Academy of Education (supra) was in the context of the determination of the reasonable fees to be charged by private educational bodies.”

ITA No.425/Bang/2017 Page 13 of 16 “15. The third issue that arises for consideration in this appeal is as to whether 15% accumulation for application in future has to be calculated on gross receipts or net receipts after deduction of revenue expenditure. The Assessee claimed accumulation of income for application for charitable purpose at 15% of the gross receipts. The AO was of the view that accumulation will be allowed only to the extent of 15% of the income after revenue expenditure. In other words income to be set apart u/s.11(1)(a) of the Act has to be computed at 15% of the net income i.e., gross receipts minus revenue expenditure and not on the gross receipts as claimed by the Assessee. Since in the case of the Assessee, the gross receipts after revenue expenditure was nil, the AO denied the benefit of accumulation to the Assessee. 16. On appeal by the Assessee, the CIT(A) confirmed the order of the AO. Hence ground No.4 raised by the Assessee before the Tribunal. 17. 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 theAct, 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 purposes of the trust and the assessee was permitted to accumulate or set apart up to 25 per cent of its income, which was subject to fulfillment of other conditions. While calculating the aforesaid 25 per cent, the important question which arose was as to whether for this purpose, the gross income earned by the assessee is relevant or the income as computed in accordance with the provisions of IT Act. In other words, whether outgoings from out of gross income which are in the nature of application of income, should be first deducted from the gross income and 25 per cent of only the remaining amount should be allowed to be accumulated or set apart. The Special Bench of the ITAT on the issue held as follows:- “9. Coming to the merits of the issue, we are of the view that the same is clearly covered by the decision of the Hon’ble Supreme Court in the case of CIT vs. Programme for Community Organization (supra). In the decision, their Lordships, after taking note of provisions of s. 11(1)(a), have held as under : "Having regard to the plain language of the above provision, it is clear that a charitable or religious trust is entitled to accumulate twenty-five per cent of its income derived from property held under trust. For the

ITA No.425/Bang/2017 Page 14 of 16 present 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. 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 to be in excess of 25 per cent of the income from such properties. In 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 language of s. 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

ITA No.425/Bang/2017 Page 15 of 16 expenditure which is in the shape of application of income is not to be taken into account. Having found that trust is entitled to exemption under s. 11(1), we are to go to the stage of income before application thereof and take into account 25 per cent of such income. Their Lordships have pointed that the same has to be taken on "commercial" basis and not "total income" as computed under the IT Act. Their Lordships in the decided case rejected the contention of the Revenue that the sum of Rs1,70,369 which was spent and applied by the assessee for charitable purposes was required to be excluded for purpose of taking amount to be accumulated. Having regard to the clear pronouncement of their Lordships of the Supreme Court, it is difficult to accept that outgoings which are in the nature of application of income are to be excluded. The income available to the assessee before it was applied is directed to be taken and the same in the present case is Rs. 3,42,174. Twenty 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.”

Order pronounced in the open court on 31st January, 2018

Sd/- sd/- (SUNIL KUMAR YADAV) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER Place : Bengaluru. D a t e d : 31/01/2018 VMS/EKS

ITA No.425/Bang/2017 Page 16 of 16 Copy to : 1 Appellant 2 Respondent 3 CIT(A) 4 CIT 5 DR, ITAT, Bangalore. 6 Guard file By order

Senior Private Secretary Income-tax Appellate Tribunal Bangalore