M/S SOCIETY OF SISTERS OF HOLY CROSS,BANGALORE vs. DDIT, BANGALORE

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ITA 970/BANG/2015Status: DisposedITAT Bangalore05 August 2016AY 2011-125 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal, following a coordinate bench decision which relied on Supreme Court and High Court judgments, held that the accumulation under Section 11(1)(a) should be allowed as claimed by the assessee based on gross receipts.

What were the facts?

The assessee, a charitable institution, claimed a deduction for accumulation of income under Section 11(1)(a) of the Income-tax Act based on gross receipts. The Assessing Officer restricted this accumulation to 15% of net receipts after deducting revenue expenditure.

What were the issues?

Whether the accumulation of income for charitable purposes under Section 11(1)(a) should be calculated on gross receipts or net receipts after deducting revenue expenditure.

Which sections of the Income-tax Act were involved?

Section 11(1)(a)

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(3)Show list

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Income Tax Appellate Tribunal, BANGALORE BENCH A, BANGALORE

Before: SMT. ASHA VIJAYARAGHAVANS & SHRI. S. JAYARAMAN

For Appellant: Shri. Narendra Sharma, Advocate
For Respondent: Smt. Priscilla Singsit, CIT - I

PER S. JAYARAMAN, ACCOUNTANT MEMBER :

1.

This is an appeal filed by the assessee against the order of CIT(A) – 14, LPU, Bengaluru, for the assessment year 2011-12.

2.

The assessee is a public religious cum public charitable institution, registered as a society originally under the Mysore Registration Act, 1960 and subsequently under the Karnataka Societies Act, 1960. It carries on various activities involving relief of ITA.970/Bang/2015 Page - 2 the poor, rural health projects and multi-varied charitable activities, spread over the remote villages of Karnataka, Andhra Pradesh, Kerala, Goa and Orissa. Members are involved in social work, health and education. Assessee has Holy Cross Hospital in Chikmagalur, Nidadavole, Kamagere and Holy Cross Health Centre at Belur, Holy Cross School of Nursing at Kamagere, etc., Assessee claimed Rs.2,04,21,421/- i.e., 15% of the gross receipts of Rs.13,61,42,808/- as a deduction u/s.11(1)(a) of the Income-tax Act, 1961 (‘the Act’ in short). In the assessment made, AO interalia held that in case of educational institutions, assessee has to bear the revenue expenditure for earning the income and income in true sense would be gross receipts minus revenue expenditure and on such view he restricted the accumulation u/s.11(1)(a) of the Act, to Rs.96,83,607/- .

3.

On appeal the CIT (A) in her order inter alia held that to the extent the assessee receives donation, the accumulation from such receipts are to be treated in terms of Hon’ble Apex Court’s decision in the case of CIT v. Programme for Community Organisation [248 ITR 1]. With regard to the approved activities for which it charges a consideration or fee for the service provided by an approved hospital run by it in Chickmagalur district, Chamarajnagar, Hassan, West ITA.970/Bang/2015 Page - 3 Godavari and the School of Nursing and various community colleges etc., even if receipts are fixed at non-commercial rates (subject to verification and recording clearly by the AO_, it could be earned only through incurring operational expenses relating to salary, medicine purchase, academic material, maintenance etc., for these activities.

Therefore she directed the AO to allow 15% deduction in terms of net receipts.

4.

Against that order assessee preferred appeal before the Tribunal. Its effective grounds of appeal is extracted here under :

“2, The learned CIT (A) is not justified in upholding, in principle, the action of the learned A.O. in computing the accumulation of income u/s.11(1)(a) of the Act, at 15% of the net income from property held under trust after deducting revenue expenditure incurred by the appellant as against a sum of Rs.2,04,21,421/- claimed by the appellant on the basis of the gross income from property held under trust under the facts and in the circumstances of the appellant’s case.”

5.

Before us Ld. Counsel for the assessee strongly assailing the order of the lower authorities, relied on the decision of the coordinate bench of the Tribunal in the case of The Jyothi Seva Society of Bangalore v. DCIT (Ex) [ITA.366/Bang/2015, dt.30.09.2015].

6.

Per contra the Ld. DR strongly supported the order of the lower authorities.

ITA.970/Bang/2015 Page - 4

7.

We have perused the orders and heard the rival contentions.

Coordinate bench of the Tribunal in its order in the case of The Jyothi Seva Society of Bangalore (supra), took cognisance of the Special Bench decision of the Mumbai Tribunal in the case of Bai Sonabai Hirji Agiary Trust v. ITO [93 ITD 0070], which relied on the decision of Hon’ble Supreme Court in the case of Programme for Community Organisation (supra), Hon’ble Kerala High Court decision in141 CTR (Ker) 502, and 228 ITR 620, Hon’ble Madhya Pradesh High Court decision in Parsi Zorastrian Anjuman Trust v. CIT, and held that the income available to the assessee before it was applied, was required to be excluded for purpose of taking the amount to be accummulated.

Relying on the above High Court and Special Bench decisions, the coordinate bench in The Jyothi Seva Society of Bangalore (supra) held that the accumulation u/s.11(1)(a) of the Act, should be allowed as claimed by the assessee. Following the decision of the coordinate bench of the Tribunal, we set aside the order of CIT (A).

8.

In the result, appeal of the assessee is allowed.

Order pronounced in the open court on ___ day of August, 2016.

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