IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "E"
Before Shri N.V. Vasudevan (JM) & T.R. Sood (AM)
I.T.A.No. 279/Mum/07 (Assessment year : 2003-04)
Somaiya Vidyaviyar ADIT(E)-I(2) Fazalbhoy Building Piramal Chambers 45-47 M.G. Road Vs. Lal Baug, Lower Parel Fort, Mumbai-400 013. Mumbai-400 001.
PAN/GIR No. : AAATS2056G
Assessee by : Shri Vipul Joshi
Department by : Shri Naveen Gupta
PER N.V. VASUDEVAN, JM :-
This is an appeal by the assessee against the order dated 3.11.2006 of learned CIT(A)-XXXII, Mumbai relating to A.Y. 2003-04.
2. Grounds of appeal of the assessee read as follows :- 1) The learned CIT(A) erred in confirming the action of the Assessing Officer of restricting deduction for accumulation under section 11(1)(a) to Rs 74,80,230/- being 15% of Rs. 4,98,68,204/-. Your appellants submit that the permitted accumulation ought to be worked out on the gross income. Your appellants submit that the permitted accumulation u/s. 11(1)(a) works out to Rs. 4,99,17,862/- being 15% of Rs. 33,27,85,745/- and that the same ought to have been allowed to them.
Without prejudice to the above, your appellants submit that the accumulation as permitted by the Assessing Officer requires to be increased substantially.
2) Your appellant further reserve the rights to add, amend or alter the aforesaid grounds of appeal as they may think fit by themselves or by their representative.
3. The assessee is a Trust. It runs various educational institutions. Gross total receipts of all the institutions run by the assessee was Rs. 33,27,85,745/-. The Assessing Officer computed gross total income at Rs. 4,98,68,204/-. While giving deduction u/s. 11, the Assessing Officer allowed 15% of the gross total income as computed by him. The assessee claimed that deduction u/s. 11 at 15% should be allowed on the gross total receipts of all the institutions of Rs. 33,27,85,745/-.
4. On the above issue, assessee submitted before learned CIT(A) that Section 11(1)(a) of the Income Tax Act, 1961 permits accumulation to the extent of 15% of the Income derived from property held under trusts. That income for this purpose has to be considered as gross income that is without considering the amounts applied for the charitable objects. It would mean, therefore, that 15% in the assessee's case would be of the gross revenue. It was submitted that expenses on running of various institutions, administrative expenses etc. would be application of income for the purposes of the objects of the trust. It was submitted that the the Assessing Officer should have been granted Rs. 4,98,68,204/- being 15% of Rs. 33,27,85,745/- instead of Rs. 74,82,030/- which is 15% of Rs. 4,98,08,204/-. In support of its contention, the Assessee placed reliance on the following judicial pronouncements :-
(i) CIT Vs. Programme for Community Organization, 248 ITR 1 (SC)
(ii) CIT Vs. Programme for Community Organization, 228 ITR 620 (Kerala)
(iii) Circular No. 5P (LXX-6) of 1968 dated 17.8.1968 on scope of term 'income' used in section 11(1)(a)."
5. Learned CIT(A), however, rejected the claim of the assessee holding as follows :-
"I have carefully considered the assessment order passed by the Assessing Officer, written submission filed by the appellant and other material available on record on this issue. I am unable to accept the contention of the appellant on this issue since I do not find any merit in the same. It is seen that against the gross 3
income/receipts of Rs. 33,27,85,745/-, the appellant has incurred various kind of expenses including administrative expenses and after reducing these expenses from the gross income/receipts of the trust, the Assessing Officer has correctly allowed deduction @ 15% of the surplus as worked out by him in the assessment order. Further, the case laws relied upon by the appellant does not come to its aid as the facts of the appellant's case are different. Besides, Board Circular dated 17.8.2006 relied upon by the appellant is also not applicable to its case since the facts of the appellant's case are different. In view of the above discussion, the stand of the Assessing Officer in allowing deduction u/s. 11 @ 15% of the surplus as worked out by him is upheld and the appeal filed by the appellant on this ground of appeal is rejected."
6. Aggrieved by the order of learned CIT(A), the assessee has filed the present appeal before the Tribunal.
7. Learned counsel for the assessee reiterated the stand as was taken before the learned CIT(A). Learned DR relied on the order of learned CIT(A).
8. We have considered the rival submissions. It would be necessary to refer to provisions of section 11(1)(a) of the Act :-
11. (1) (a) 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 fifteen per cent. of the income from such property."
Finance Act, 2002 w.e.f. 1-4-2003 reduced the percentage of accumulation that is permitted to 15% from 25%. The Hon'ble Kerala High Court had to deal with an identical issue in the case of CIT Vs. Programme for Community Organisation 228 ITR 620 (Ker). The facts of the case before the Hon'ble Kerala High Court was that the assessee was an association of persons duly registered under section 12A of the Income tax Act, 1961. The total income determined by the AO was Rs.87,010/-. The exemption u/s.11(1)(a) towards accumulation was 4
available at 25% of income as per the law as it existed prior to 1.4.2003. The total receipts were Rs. 2,57,376. The Income-tax Officer granted exemption at 25 per cent. of the total income determined by him--Rs. 87,010 granting exemption of Rs. 21,752. The Assessee contended that it is not the total income determined which should be the basis of grant of 25 per cent exemption, but it is the income of the trust with reference to the provisions of section 11(1)(a) of the Income-tax Act, 1961, that would be the amount for grant of 25 per cent thereof as exemption. In other words it was contended that the 25 per cent of the income of the trust Rs. 64,344 (25% of Rs.2,57,376 being the total receipts) and not Rs. 21,752 (25% of the total income of Rs.,87,010/- determined by the AO) should be allowed as accumulation u/s.11(1)(a) of the Act. On the above facts the Hon'ble Kerala High Court held as follows:
"At the outset, the statutory language of section 11(1)(a) of the Income-tax 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 section 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."
The Court then referred to Circular No.5P(LXX-6) dated 17.8.1968 and held as follows:
"Reading of the circular dated June 19, 1968, it would be a condition by way of a clarification. The circular relates to the subject in the context. It contains instructions regarding "income" required to be applied for charitable purposes. Even the Board of Revenue has understood that it would be incorrect to assign to the word "income" used in section 11(1)(a) of the Act, the same situation of understanding as is available from the expression 5
"total income" which is used in section 2(45) of the Act. It is specified that in the case of a business undertaking held under a trust, its income disclosed by the account will be eligible for exemption under section 11(1) and the permitted accumulation of 25 per cent will also be calculated with reference to this income." (underlining by us for emphasis)
The Court examined part of the above said Circular which reads as follows:
"Where the trust derives income from house property, interest on securities, capital gains, or other sources, the word 'income' should be understood in its commercial sense, i.e., book income, after adding back any appropriations or applications thereof towards the purposes of the trust or otherwise, and also after adding back any debits made for capital expenditure incurred for the purposes of the trust or otherwise. . . . The amounts spent or applied for the purposes of the trust from out of the income computed in the aforesaid manner, should be not less than 75 per cent. of the latter, if the trust is to get the full benefit of the exemption under section 11(1). "
The Hon'ble Court observed as follows:
"As seen from the above, when the trust derives income, it say that the word "income" should be understood in its commercial sense, i.e., book income. In other words, the Department requires its officer to understand the income of the trust with reference to the book income, after adding back the items stated therein. It is thereafter that we see that whatever may be the position, the amount spent or applied for the purposes, it is clarified, should not be less than 75 per cent of the latter if the trust is to get the full benefit of the exemption under section 11(1). In our judgment, the statutory provision makes it abundantly clear that in regard to a trust which is entitled to get the full benefit of exemption of section 11(1) of the Act, its income with reference to the head under consideration would have to be understood only at 75 per cent thereof, leaving 25 per cent. altogether at that stage itself. In this sense of the situation, the Central Board of Revenue also has understood the situation in the context of the statutory language of section 11(1)(a) of the Act and not otherwise. This means that when the situation is established that the trust is entitled to the full benefit of exemption under section 11(1), the said trust is to get the benefit of 25 per cent and this 25 per cent has to be understood as that of the income of the trust under the relevant head of section 11(1)(a) of the Act." (underlining by us for emphasis)
9. The above decision of Hon'ble Kerala High Court has been confirmed by Hon'ble Supreme Court in the case of CIT Vs. Programme for Community Organization, 248 ITR 1(SC). In the light of the decisions referred to above, we are of the view that the claim made by the assessee should be accepted and the Assessing Officer is directed to allow deduction u/s. 11 at 15% of the gross total receipts as claimed by the assessee.
10. In the result, appeal by the assessee is allowed.
Order has been pronounced on 31st Day of March, 2010.
Sd/- Sd/- (T.R. SOOD) (N.V. VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated : 31st March, 2010
Copy to : 1. The Assessee
2. The Respondent
3. The CIT(A)-concerned.
4. The CIT, concerned.
5. The DR concerned, Mumbai
6. Guard File
ASSTT. REGISTRAR, ITAT, MUMBAI