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Income Tax Appellate Tribunal, BANGALORE BENCH ‘B’
Before: SMT. ASHA VIJAYARAGHAVAN & SHRI INTURI RAMA RAO
PER INTURI RAMA RAO, ACCOUNTANT MEMBER
The appeal is filed by the assessee directed against the order of Commissioner of Income-tax (Appeals) – 14, LTU, Bangalore dated 12/3/2015 for the assessment year 2011-12.
The assessee raised the following grounds of appeal :
“(1) The orders of the authorities below in so far as they are against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.
(2) The learned CIT(A) is not justified in upholding, in principle, the action of the learned AO 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.51,52,825/- 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.
(3) For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.
The brief facts of the case are that the assessee society vide return of income for the assessment year 2011-012 on 9/3/2012 declared nil income. Against the said return of income, the assessment was completed u/s 143(3) of the Act vide order dated 20/12/2013 by the learned Dy. Director of Income-tax (Exemption), Circle - 17(2) declaring Nil income. While doing so, the learned AO made the computation of total income as under :
I. Computation of Net surplus of the trust Amount (Rs.) a. Gross receipts from activities 2,68,18,291 b. Income from school & hospital 75,33,873 Revenue Expenditure as claimed 48,13,575 27,20,299 II. Net Surplus 2,95,38,590 Less: Revenue expenditure (excl. 1,82,33,039 depreciation & school expenses) Less: Expenditure attributable to 38,51,441 utilization of income accumulated u/s 11(2) for the AY 2010-11 III. Net surplus available for 51,52,825 application IV. Application for objects of trust a. Capital Expenditure 100,04,167 b. Corpus donations c. Repayment of loan V. Balance Nil VI. Accumulation u/s11(1)(a) to the 44,30,789 extent of 15% of Net surplus (para IV) limited by actual balance as per amount available in the hands of the trust (para VI) VII. Amount accumulated u/s 11(2) 7,22,037 (Form No.10 filed)
VIII. Balance taxable income Nil IX. Tax thereon Nil Tax deducted source Nil X. Balance payable refundable
From the above computation, it is clear that vide column No.6, the learned AO observed that only 15% of net surplus is allowed to be accumulation under the provision of sec. 11(1)(a) of the Income-tax Act.
The assessee society being aggrieved by this observation filed an appeal before the learned CIT(A), who vide impugned order dismissed the appeal by giving the following finding:
“3.7 I find from the AO’s treatment that the different kinds of receipts available to the appellant through donations and gifts, sale of scrap material, grants received from KHPT etc., apart from income from the hospital and the educational institutions run by the appellant, has not been appreciated and the principle of 15% accumulation on net educational income has been applied without proper mind application. To the extent the appellant receives donations, the accumulation from such receipts are to be treated in terms of the Hon’ble Supreme Court’s decision in case of Programme for Community
Organization (Supra). The receipts from the hospital and the educational institutions, even if fixed at non commercial rates (subject to verification and recording clearly by the AO) could be earned only through the incurring of operational expenses relating to salary, medicine purchase, academic material, maintenance etc. for these activities. Therefore, the application of income and accumulation are both to be reckoned from the net income available for these purposes. The AO is, therefore, directed to separate the receipts from donation, and the consideration charging activities and treat the accumulation in the former in terms of gross receipt and in the latter in terms of net receipts. In view of this discussion, the grounds raised are partly accepted.”
Hence, the assessee society is before us with the present appeal.
The learned counsel for the assessee relied on the order of the Co-ordinate Bench of this Tribunal in the case of M/s The Capuchin Friar Services Society to which one of us i.e Hon’ble JM is author of the order, wherein following the earlier decision of the Coordinate bench in the case of Jyothy Charitable Trust in held that for the purpose of recognizing 15% income to be accumulated only gross receipt of income to be considered.
On the other hand, the learned Sr. DR placed reliance on the orders of the lower authorities.
We have heard rival submission and perused the material on record. A perusal of the computation of total income done by the AO vide para 8 of the asst. order shows that there was net surplus of Rs.51,52,825/- before the income being applied for charitable purpose. After applying the said income to the capital expenditure of Rs.100,04,167 lakhs there remains no income. Therefore, the question of accumulated income for the future years does not arise.
The issue in appeal is purely academic in nature does not require any adjudication. Hence, the appeal filed by the assessee society is dismissed.
In the result, appeal of the assessee is dismissed.
Order pronounced in the open court on 13th Nov, 2015.