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Income Tax Appellate Tribunal, “I” BENCH, MUMBAI
These two appeal by the assessee are arising out of the different order of Commissioner of Income Tax (Appeals)-1, Mumbai, [in short CIT(A)] in appeal No. CIT(A)-I/IT/E-II (1)/93 & 94/2013-14 dated 24.06.2016 & 24-06-2016. The Assessments were framed by the Income Tax Officer (Exemption), Ward II(1), Mumbai (in short ITO(E) / AO) for the assessment years 2010, 2011-12 vide different orders dated 06-01-2014 & 31.12.2013 under section 143(3) read with section 147 of the Income Tax Act, 1961 (hereinafter ‘the Act’).
2. The only issue in these two appeals of assessee is as regards to the order of CIT(A) confirming the action of the AO in disallowing the claim of accumulation or setting apart at 15% of the gross income. For & 5323/Mum/2016 this assessee has raised exactly identical worded grounds for AY 2010- 11 and 2011-12. The grounds raised in AY 2010-11 reads as under: -
“1. On the facts and in the circumstances of the case, and in law, the learned CIT (Appeals) erred in confirming the disallowance regarding the claim of Accumulation or setting apart ol' Its. 66,24.580/- being 15% of gross income.
On the facts and in the circumstances of the case and in law, the learned CIT (Appeals) erred in not considering the various case laws relied upon by your appellant.
3. On the facts and in the circumstances of the case and in law, the learned CIT (Appeals) erred in not set aside the reassessment order passed and treated as null and void as originally there was no assessment order passed and hence there cannot be a notice for re-assessment of Income.”
Briefly stated facts are that the assessee is a public charitable trust registered with DIT (Exemption) Mumbai under section 12A of the Act. The assessee filed its return of income for AY 2010-11 along with income and expenditure account, balance sheet, audit report in form No. 10B and other annexure and claimed the deficit of ₹ 1,02,75,595/-. During the assessment year the assessee has declared an income at ₹ 4,41,63,870/- and applied towards the object of the trust an amount of ₹ 4,78,14,884/- and as a result there was a deficit of ₹ 36,51,014/-. The assessee claimed before the AO and before CIT(A) that it has claimed accumulation under section 11(1)a of the Act for an amount of ₹ 66,24,580/- being 15% of the gross receipt of ₹ 4,41,63,870/- and claimed the same to be carried forward and set off against the income of the subsequent year as the entire income has been spent on the object of & 5323/Mum/2016 the Trust. The assessee claimed total deficit for the relevant assessment was at ₹ 1,02,75,595/- to be carried forward and set off against the income of subsequent years. The AO after considering the submissions of the assessee noted that the claim of assessee trust cannot be accepted as it has an income of ₹ 4,41,63,870/- against which its claiming application of income amounting to ₹ 4,78,14,884/- which is more than its income. According to AO there is no income left which can be accumulated. The AO held that the accumulation to the extent of ₹ 66,24,580/- cannot be allowed and for this he observed in Para 5.5 as under: -
“5.5 In the assessee’ case there is no income remaining after applying it towards the object of the trust. The assessee has income of Rs. 4,41,63,870/- and has spent Rs.4,78,14,884/- towards the object of the trust. Hence there is no income unspent. Accumulation under section 11(1)(a) can be made only if something remained unspent but if the entire income has already been spent, the same is fully exempt from tax, then there is nothing left to be accumulated. This view has taken by the Hon'ble Tribunal in its order Mum/2005 dated 30-04-2013 for AY 2001-02 in the case of Dawat Institute of Dawoodi Bohra Community. In view of the same accumulation under section 11(1)(a) to the extent of Rs. 66,24,580/- cannot be allowed as the entire income has already been spent by the assessee.”
Aggrieved, assessee preferred the appeal before CIT(A). the CIT(A) confirmed the action of the Assessing Officer. & 5323/Mum/2016 4. We have heard the rival contentions and gone through the facts and circumstances of the case. The admitted facts are that the assessee has applied its income towards charitable purposes an amount of ₹ 4,78,14,884/- as against the assessee’ income of ₹ 4,41,63,870/- thereby leaving the deficit of ₹ 36,51,014/-. The assessee claimed accumulation under section 11(1)a of the Act of ₹ 66,24,580/- being 15% of the gross income of ₹ 4,41,63,870/-. The assessee claimed the same to be carried forward and set off of this accumulation against the income of the subsequent years as the entire income has been spent on the object of the trust. We have gone through the provisions of section 11(1)(a) which reads as under: -
“(a) 3 income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of twenty- five per cent of the income from such property.”
From the plain reading of section 11(1)(a) of the Act it is clear that in case of wholly charitable religious Trust, if the income is to be accumulated for application to the Trust purposes in India, it may be accumulated to the extent of 15% of the income of the Trust. The income contemplated by this provision is the real income and not the income as assessed or as assessable. In view of this provision, we are of the view that if the accounts of the assessee trust are properly maintained according to the principle of accountancy, the accumulation shall be up to 15% of the gross income as per accounts and not appearing as assessment order. We find that even CBDT has recognized this position & 5323/Mum/2016 in view of statutory language of section 11(1)(a) of the Act and also circular issued No. 5-P dated 19-06-1968, wherein it is held that the assessee is entitled to exemption at the rate of 25% (now after amendment 15%) on the gross receipts and not on the total income as determined by the AO under the Act. We also find that the issue is confirmed by Hon’ble Supreme Court in CIT Vs. Programme for Community Organisation (2001) 248 ITR 1 (SC), wherein it is held that as the assessee trust has received donation in aggregate a sum of ₹ 2,57,376 and it has applied throughout for its charitable purposes the amount of Rs. 1,70,369/- levying a balance of Rs. 87,010/- and on this the Hon’ble Supreme Court said as per section 11(1)(a) that the assessee trust was entitled to accumulate 25% of the gross income of Rs. 2,57,376/- and not merely 25% of the balance of Rs. 87,000/-.
We are of the view that even though the entire income has been applied on the object of the Trust as application of income and there is no income left to be accumulated rather there is deficit even though assessee is entitled for accumulation or setting apart under section 11(1)(a) of the Act at the rate of 15% of the gross income. We are of the view that exemption available under section 11(1)(a) i.e. 15% of income is invested and not subject to any condition. According to us, there is no bar in law and there is no specific provision in the act which says that such deduction of 15% for accumulation will not be allowed in case of deficit but such 15% accumulation is allowable irrespective of whether 15% of income have been applied or not. Similar is the position in the case of ACIT vs. A.L.N. Rao Charitable Trust (1995) 216 ITR 697 (SC) here the meaning of applied in this context means that the income is actually applied for the charitable or religious purposes of the trust but the word applied need not necessarily imply spent. Even if the income is irretrievably earmarked and allocated for the charitable or religious purposes or purposes it may be under section 11 (1)(a) of the Act. A sum & 5323/Mum/2016 of ₹ 66,24,580/- being 15% of the gross income even though the entire income has been applied on the object of the trust as an application of income and there left no income for accumulation. However, as requested by the learned Sr. DR that the facts are not cleared, the same can be verified by the AO but only verification of figures. Accordingly, we set aside the orders of the lower authorities and allow the appeal of the assessee. Consequently, the appeal for AY 2011-12 is exactly identical and hence, taking a consistent view, we allow this appeal also.
In the Result, both the appeals of assessee are allowed.
Order pronounced in the open court on 28-02-2018.