Juothy Charitable Trust, Bangalore V. DCIT, Bangalore

ITA 662/BANG/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95186 (ITAT-BANGALORE)
• Duration Of Justice: 3 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 30-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUNIL KUMAR AGARWALA JT
• Assessee Lawyers: BABU PRASAD
• Keywords: Capital asset; Depreciation; Charitable institution; Cost of acquisition; Benefit of exemption; Revenue expenditure; Capital expenditure
• Section: 143(3); 12A; 32; 2; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ITA NO.662/BANG/2015 ASSESSMENT YEAR : 2011-12 JYOTHY CHARITABLE TRUST, NO.31, PAMPAMAHAKAVI ROAD, SHANKARAPURAM, BANGALORE 560 004. PAN: AAATJ 2585R VS. THE DEPUTY COMMISSIONER OF INCOME TAX (EXEMPTIONS), CIRCLE 17(1), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI BABU PRASAD, ADVOCATE RESPONDENT BY : SHRI SUNIL KUMAR AGARWALA, JT. CIT(DR) DATE OF HEARING : 10.08.2015 DATE OF PRONOUNCEMENT : 14.08.2015 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER D ATED 18.03.2015 OF THE CIT(APPEALS), LTU, BANGALORE RELATING TO ASS ESSMENT YEAR 2011-12. 2. THE ASSESSEE IS A CHARITABLE TRUST WITH OBJECTS TO PROVIDE EDUCATION BY RUNNING SEVERAL EDUCATIONAL INSTITUTIONS. IN TH E COURSE OF ASSESSMENT ITA NO.662/BANG/2015 PAGE 2 OF 13 U/S. 143(3) OF THE ACT FOR AY 2011-2012 THE AO NOTI CED FROM THE DETAILS OF DEPRECIATION CLAIMED, THAT THE DEPRECIATION WAS CLA IMED ON ASSETS, THE COST OF ACQUISITION OF THE SAID ASSETS HAD BEEN CLAIMED BY THE ASSESSEE AS CAPITAL EXPENDITURE TOWARDS APPLICATION OF FUNDS TO WARDS THE OBJECTS OF THE TRUST AND ALLOWED AS SUCH. ACCORDING TO THE AO, ALL OWING SUCH A CLAIM WOULD AMOUNT TO ALLOWING DOUBLE DEDUCTION. ON THE F ACTS OF THE PRESENT CASE, HE WAS OF THE VIEW THAT THE DECISION OF THE H ONBLE SUPREME COURT IN THE CASE OF ESCORTS LIMITED & ANOTHER VS. UNION OF INDIA 199 IT R 43 IS SQUARELY APPLICABLE, WHEREIN IT HAS BEEN CATEGORICA LLY HELD THAT WHEN DEDUCTION U/S 35(2)(IV) IS ALLOWED IN RESPECT OF CA PITAL EXPENDITURE ON SCIENTIFIC RESEARCH, NO DEPRECIATION IS ALLOWABLE U /S 32 ON THE SAME ASSET. 3. THE ASSESSEE POINTED OUT THAT HON'BLE HIGH COUR T OF KARNATAKA IN THE CASE OF ALL SAINTS CHURCH, 148 ITR 786 (KAR) AND SOCIETY OF SISTERS OF ST. ANN, 146 ITR 28 (KAR) HAS TAKEN THE VIEW THAT WHERE CAPITAL EXPENDITURE ON ACQUISITION OF DEPRECIABLE ASSET IS CONSIDERED AS APPLICATION OF INCOME FOR CHARITABLE PURPOSE, ALLOWING DEPRECIA TION ON THE VERY SAME CAPITAL ASSET WOULD NOT AMOUNT TO DOUBLE ALLOWANCE. THE ASSESSEE ALSO POINTED OUT THAT THE DECISION OF ESCORTS LTD. (SUPRA) WILL NOT BE APPLICABLE AS IT WAS RENDERED ON A DIFFERENT SET OF FACTS. 4. THE AO HOWEVER, HELD THAT ALLOWANCE OF DEPRECIA TION WHEN THE COST HAS ALREADY BEEN RECOVERED BY WAY OF EXEMPTION AS A PPLICATION OF INCOME AMOUNTS TO DOUBLE DEDUCTION AND DOUBLE BENEFIT ON T HE SAME ASSET. THE ITA NO.662/BANG/2015 PAGE 3 OF 13 AO REFERRED TO THE DECISION OF THE OF HON'BLE HIGH COURT OF KERALA IN THE CASE OF DDIT(E) V. LISSIE MEDICAL INSTITUTIONS, 348 ITR 344 (KER) WHEREIN IT WAS HELD THAT ALLOWING DEPRECIATION OF A DEPRECIABL E ASSET WHEN THE COST OF ACQUISITION OF DEPRECIABLE ASSET WAS ALLOWED AS APP LICATION OF INCOME FOR CHARITABLE PURPOSE AMOUNTS TO DOUBLE DEPRECIATION A ND THEREFORE DEPRECIATION CANNOT BE ALLOWED. THE AO ALSO DISTING UISHED THE CASES CITED BY THE ASSESSEE. 5. ON APPEAL BY THE ASSESSEE, THE CIT(A), CONFIRMED THE ORDER OF THE AO. 6. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSES SEE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. THE RELEVA NT GROUND OF APPEAL RAISED BY THE ASSESSEE IS GROUND NO.2 RELATING TO D ISALLOWANCE OF DEPRECIATION. 7. WE HAVE HEARD THE SUBMISSIONS OF THE LD. DR, WH O RELIED ON THE ORDER OF AO. WE HAVE CONSIDERED THE ORDER OF THE A O. IDENTICAL ISSUE CAME UP FOR CONSIDERATION BEFORE ITAT BANGALORE BEN CH IN THE CASE OF DDIT(E) V. CUTCHI MEMON UNION (2013) 60 SOT 260 BAN GALORE ITAT , WHEREIN SIMILAR ISSUE HAS BEEN DEALT WITH BY THIS T RIBUNAL. IN THE AFORESAID CASE, THE ASSESSEE CLAIMED DEPRECIATION AND THE AO DENIED DEPRECIATION ON THE GROUND THAT AT THE TIME OF ACQUIRING THE REL EVANT CAPITAL ASSET, COST OF ACQUISITION WAS CONSIDERED AS APPLICATION OF INCOME IN THE YEAR OF ITS ACQUISITION. THE AO TOOK THE VIEW THAT ALLOWING DE PRECIATION WOULD AMOUNT ITA NO.662/BANG/2015 PAGE 4 OF 13 TO ALLOWING DOUBLE DEDUCTION AND PLACED RELIANCE ON THE DECISION OF HON'BLE SUPREME COURT IN ESCORTS LTD. (SUPRA) . THE CIT(A), HOWEVER, ALLOWED THE CLAIM OF ASSESSEE. ON FURTHER APPEAL BY THE REVENU E, THE TRIBUNAL HELD AS FOLLOWS:- 20. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IF DEPRECIATION IS NOT ALLOWED AS A NECESSARY DEDUCTIO N FOR COMPUTING INCOME OF CHARITABLE INSTITUTIONS, THEN T HERE IS NO WAY TO PRESERVE THE CORPUS OF THE TRUST FOR DERIVING TH E INCOME AS IT IS NOTHING BUT A DECREASE IN THE VALUE OF PROPERTY THR OUGH WEAR, DETERIORATION, OR OBSOLESCENCE. SINCE INCOME FOR TH E PURPOSES OF SECTION 11(1) HAS TO BE COMPUTED IN NORMAL COMMERCI AL MANNER, THE AMOUNT OF DEPRECIATION DEBITED IN THE BOOKS IS DEDUCTIBLE WHILE COMPUTING SUCH INCOME. IT WAS SO HELD BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SOCIETY OF SISTERS OF ST. ANNE 146 ITR 28 (KAR). IT WAS HELD IN CIT VS. TINY TOTS EDUCATION SOCIETY (2011) 330 ITR 21 (P&H) , FOLLOWING CIT VS. MARKET COMMITTEE, PIPLI (2011) 330 ITR 16 (P&H) : (2011) 238 CTR (P&H) 103 THAT DEPRECIATION CAN BE CLAIMED BY A CHARITABLE INSTITUTION IN DETERMINING PERCENTAGE OF FUNDS APPL IED FOR THE PURPOSE OF CHARITABLE OBJECTS. CLAIM FOR DEPRECIATI ON WILL NOT AMOUNT TO DOUBLE BENEFIT. THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF ESCORTS LTD. 199 ITR 43 (SC) HAVE BEEN REFERRED TO AND DISTINGUISHED BY THE HONBLE COURT IN THE AFORESAID DECISIONS. 21. THE ISSUE RAISED BY THE REVENUE IN THE GROUND OF APPEAL IS THUS NO LONGER RES INTEGRA AND HAS BEEN DECIDED BY THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V. MARKET COMMITTEE, PIPLI, 330 ITR 16 (P&H) . THE HONBLE PUNJAB & HARYANA HIGH COURT AFTER CONSIDERING SEVER AL DECISIONS ON THAT ISSUE AND ALSO THE DECISION OF TH E HONBLE SUPREME COURT IN THE CASE OF ESCORTS LTD. (SUPRA) , CAME TO THE CONCLUSION THAT DEPRECIATION IS ALLOWABLE ON CAPITA L ASSETS ON THE INCOME OF THE CHARITABLE TRUST FOR DETERMINING THE QUANTUM OF FUNDS WHICH HAVE TO BE APPLIED FOR THE PURPOSE OF T RUSTS IN TERMS OF SECTION 11 OF THE ACT. THE HONBLE PUNJAB & HA RYANA HIGH COURT MADE A REFERENCE TO THE DECISION OF THE HONB LE SUPREME COURT IN THE CASE OF ESCORTS LTD. (SUPRA) AND OBSERVED THAT THE HONBLE SUPREME COURT WAS DEALING WITH A CASE OF TW O DEDUCTIONS UNDER DIFFERENT PROVISIONS OF THE ACT, O NE U/S. 32 FOR DEPRECIATION AND THE OTHER ON ACCOUNT OF EXPENDITUR E OF A CAPITAL ITA NO.662/BANG/2015 PAGE 5 OF 13 NATURE INCURRED ON SCIENTIFIC RESEARCH U/S. 35(1)(I V) OF THE ACT. THE HONBLE COURT THEREAFTER HELD THAT A TRUST CLAI MING DEPRECIATION CANNOT BE EQUATED WITH A CLAIM FOR DOU BLE DEDUCTION. THE HONBLE PUNJAB & HARYANA HIGH COURT HAS ALSO MADE A REFERENCE TO THE DECISION OF THE HON'BLE KAR NATAKA HIGH COURT IN THE CASE OF CIT V. SOCIETY OF SISTERS OF ANNE, 146 ITR 28 (KAR), WHEREIN IT WAS HELD THAT U/S. 11(1) OF THE ACT, INC OME HAS TO BE COMPUTED IN NORMAL COMMERCIAL MANNER AND THE AMOUNT OF DEPRECIATION DEBITED IN THE BOOKS IS DEDU CTIBLE WHILE COMPUTING SUCH INCOME. IN VIEW OF THE AFORESAID DE CISION ON THE ISSUE, WE ARE OF THE VIEW THAT THE ORDER OF THE CIT(A) ON THE ABOVE ISSUE DOES NOT CALL FOR ANY INTERFERENCE. 22. CONSEQUENTLY, GROUND NO.5 RAISED BY THE REVENU E IS DISMISSED. 8. WE MAY ALSO ADD THAT THE LEGAL POSITION HAS SIN CE BEEN AMENDED BY A PROSPECTIVE AMENDMENT BY THE FINANCE (NO.2) AC T, 2014 W.E.F. 1.4.2015 BY INSERTION OF SUB-SECTION (6) TO SECTION 11 OF THE ACT, WHICH READS AS UNDER:- (6) IN THIS SECTION WHERE ANY INCOME IS REQUIRED TO BE APPLIED OR ACCUMULATED OR SET APART FOR APPLICATION, THEN, FOR SUCH PURPOSES THE INCOME SHALL BE DETERMINED WITHOUT ANY DEDUCTION OR ALLOWANCE BY WAY OF DEPRECIATION OR OTHERWISE IN RESPECT OF ANY ASSET, ACQUISITION OF WHICH HAS BEEN CLAIMED AS AN APPLICATION OF INCOME UNDER THIS SECTION IN THE SAM E OR ANY OTHER PREVIOUS YEAR. 9. AS ALREADY STATED, THE AFORESAID AMENDMENT IS P ROSPECTIVE AND WILL APPLY ONLY FROM A.Y. 2015-16. IN VIEW OF THE ABOVE LEGAL POSITION, WE ARE OF THE VIEW THAT THE ORDER OF THE CIT(A) HAS TO BE REV ERSED. CONSEQUENTLY GROUND NO.2 RAISED BY THE ASSESSEE IS ALLOWED. ITA NO.662/BANG/2015 PAGE 6 OF 13 10. THE SECOND ISSUE THAT ARISES FOR CONSIDERATION IN THIS APPEAL WHICH IS PROJECTED BY THE REVENUE IN GROUNDS OF APPEAL, I S AS TO WHETHER THE CIT(APPEALS) WAS JUSTIFIED IN HOLDING THAT ASSESSEE , A TRUST, IS ENTITLED TO CARRY FORWARD EXPENDITURE INCURRED IN EXCESS OF ITS INCOME FOR SETTING OFF AGAINST INCOME OF THE SUCCEEDING YEARS? THE ASSESS EE IS A TRUST REGISTERED U/S. 12A OF THE ACT. FOR THE A.Y. 2011- 12, THE ASSESSEE FILED A RETURN OF INCOME CLAIMING CARRY FORWARD OF EXCESS A PPLICATION OF INCOME FROM EARLIER YEARS TO THE TUNE OF RS.2,09,46,593/-. THE ASSESSEE SOUGHT TO CARRY FORWARD THE EXCESS APPLICATION FOR SETTING OF F AS APPLICATION OF INCOME IN THE SUBSEQUENT ASSESSMENT YEARS. ACCORDING TO T HE AO THERE WAS NO PROVISION IN THE ACT FOR CARRY FORWARD OF EXCESS EX PENDITURE OF EARLIER YEAR TO BE ADJUSTED AGAINST INCOME OF THE SUBSEQUENT YEA R AND HE THEREFORE DENIED THE CLAIM OF THE ASSESSEE. 11. ON APPEAL BY THE ASSESSEE, THE CIT(A) CONFIRME D THE ORDER OF THE AO. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE HAS RAISED GROUND NO.3 BEFORE THE TRIBUNAL. 12. THE LEARNED DR REITERATED THE STAND OF THE AO T HAT THERE IS NO PROVISION IN THE ACT TO ALLOW CARRY FORWARD OF EXCE SS APPLICATION OF INCOME FOR SET OFF AS APPLICATION OF INCOME IN SUBSEQUENT YEARS. THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF THE ITAT IN ASSESSEES OWN CASE FOR AY 2010-11 IN ITA NO.522/BANG/2014 ORDER DATED 11.6 .2015 WHEREIN THE ITA NO.662/BANG/2015 PAGE 7 OF 13 TRIBUNAL ACCEPTED THE CLAIM OF THE ASSESSEE ON IDEN TICAL ISSUE ON IDENTICAL FACTS. 13. WE HAVE CONSIDERED HIS SUBMISSION. SECTION 11 (1)(A) DOES NOT CONTAIN ANY WORDS OF LIMITATION TO THE EFFECT THAT THE INCOME SHOULD HAVE BEEN APPLIED FOR CHARITABLE OR RELIGIOUS PURPOSE ON LY IN THE YEAR IN WHICH THE INCOME HAS ARISEN. THE APPLICATION FOR CHARITAB LE PURPOSES AS CONTEMPLATED IN SECTION 11(1)(A) TAKES PLACE IN THE YEAR IN WHICH THE INCOME IS ADJUSTED TO MEET THE EXPENSES INCURRED FO R CHARITABLE OR RELIGIOUS PURPOSES. HENCE, EVEN IF THE EXPENSES FOR SUCH PURP OSES HAVE BEEN INCURRED IN THE EARLIER YEARS AND THE SAID EXPENSES ARE ADJUSTED AGAINST THE INCOME OF A SUBSEQUENT YEAR, THE INCOME OF SUCH SUB SEQUENT YEAR CAN BE SAID TO BE APPLIED FOR CHARITABLE OR RELIGIOUS PURP OSES IN THE YEAR IN WHICH SUCH ADJUSTMENT TAKES PLACE. IN OTHER WORDS, THE SE T-OFF OF EXCESS OF EXPENDITURE INCURRED OVER THE INCOME OF EARLIER YEA RS AGAINST THE INCOME OF A LATER YEAR WILL AMOUNT TO APPLICATION OF INCOME O F SUCH LATER YEAR. THE ABOVE IS THE POSITION OF LAW AS HELD IN THE CASE OF CIT VS. MAHARANA OF MEWAR CHARITABLE FOUNDATION 164 ITR 439 (RAJ) CIT V S. SHRI PLOT SWETAMBER MURTI PUJAK JAIN MANDAL 211 ITR 293 (GUJ. ). IN CIT VS. INSTITUTE OF BANKING PERSONNEL SELECTION 264 ITR 110 (BOM) IT WAS HELD THAT IN CASE OF CHARITABLE TRUST WHOSE INCOME IS EXEMPT UNDER S. 11, EXCESS OF EXPENDITURE IN THE EARLIER YEARS CAN BE ADJUSTED AG AINST INCOME OF SUBSEQUENT YEARS AND SUCH ADJUSTMENT WOULD BE APPLI CATION OF INCOME FOR SUBSEQUENT YEARS AND THAT DEPRECIATION IS ALLOWABLE ON THE ASSETS THE COST ITA NO.662/BANG/2015 PAGE 8 OF 13 OF WHICH HAS BEEN FULLY ALLOWED AS APPLICATION OF I NCOME UNDER S. 11 IN PAST YEARS. IN GOVINDU NAICKER ESTATE VS. ADIT 248 ITR 368 (MAD), THE HONBLE MADRAS HIGH COURT HELD THAT THE INCOME OF T HE TRUST HAS TO BE ARRIVED AT HAVING DUE REGARD TO THE COMMERCIAL PRIN CIPLES, THAT S. 11 IS A BENEVOLENT PROVISION, AND THAT THE EXPENDITURE INCU RRED ON RELIGIOUS OR CHARITABLE PURPOSES IN EARLIER YEAR OR YEARS CAN BE ADJUSTED AGAINST THE INCOME OF THE SUBSEQUENT YEAR. THE PRINCIPLE THAT T HE LOSS INCURRED UNDER ONE HEAD CAN ONLY BE SET OFF AGAINST THE INCOME FRO M THE SAME HEAD IS NOT OF ANY RELEVANCE, IF THE EXPENDITURE INCURRED WAS F OR RELIGIOUS OR CHARITABLE PURPOSES, AND THE EXPENDITURE ADJUSTED AGAINST THE INCOME OF THE TRUST IN A SUBSEQUENT YEAR, WOULD NOT AMOUNT TO AN INCIDENCE O F LOSS OF AN EARLIER YEAR BEING SET OFF AGAINST THE PROFIT OF A SUBSEQUE NT YEAR. THE OBJECT OF THE RELIGIOUS AND CHARITABLE TRUST CAN ONLY BE ACHIEVED BY INCURRING EXPENDITURE AND IN ORDER TO INCUR THAT EXPENDITURE, THE TRUST S HOULD HAVE AN INCOME. SO LONG AS THE EXPENDITURE INCURRED IS ON RELIGIOUS OR CHARITABLE PURPOSES, IT IS THE EXPENDITURE PROPERLY INCURRED BY THE TRUST, AND THE INCOME FROM OUT OF WHICH THAT EXPENDITURE IS INCURRED, WOULD NOT BE LI ABLE TO TAX. THE EXPENDITURE, IF INCURRED IN AN EARLIER YEAR IS ADJU STED AGAINST THE INCOME OF A LATER YEAR, IT HAS TO BE HELD THAT THE TRUST HAD INCURRED EXPENDITURE ON RELIGIOUS AND CHARITABLE PURPOSES FROM THE INCOME O F THE SUBSEQUENT YEAR, EVEN THOUGH THE ACTUAL EXPENDITURE WAS IN THE EARLI ER YEARS, IF IN THE BOOKS OF ACCOUNT OF THE TRUST SUCH EARLIER EXPENDITURE HA D BEEN SET OFF AGAINST THE INCOME OF THE SUBSEQUENT YEAR. THE EXPENDITURE THAT CAN BE SO ADJUSTED ITA NO.662/BANG/2015 PAGE 9 OF 13 CAN ONLY BE EXPENDITURE ON RELIGIOUS AND CHARITABLE PURPOSES AND NO OTHER. THE HIGH COURT RELIED ON THE DECISION IN THE CASE O F CIT VS. SOCIETY OF SISTERS OF ST. ANNE 146 ITR 28 (KAR.). 14. WE ARE THEREFORE OF THE VIEW THAT THERE IS MER IT IN GROUND NO.3 RAISED BY THE ASSESSEE. ACCORDINGLY, THE SAME IS AL LOWED. 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 R EVENUE EXPENDITURE. THE ASSESSEE CLAIMED ACCUMULATION OF INCOME FOR APPLICA TION FOR CHARITABLE PURPOSE AT 15% OF THE GROSS RECEIPTS. THE AO WAS O F 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 S ET 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 RECE IPTS AS CLAIMED BY THE ASSESSEE. SINCE IN THE CASE OF THE ASSESSEE, THE G ROSS RECEIPTS AFTER REVENUE EXPENDITURE WAS NIL, THE AO DENIED THE BENE FIT OF ACCUMULATION TO THE ASSESSEE. 16. ON APPEAL BY THE ASSESSEE, THE CIT(A) CONFIRME D THE ORDER OF THE AO. HENCE GROUND NO.4 RAISED BY THE ASSESSEE BEFOR E THE TRIBUNAL. 17. THE ISSUE TO BE DECIDED IS THEREFORE AS TO WHE THER FOR THE PURPOSE OF COMPUTING ACCUMULATION OF INCOME OF 15% UNDER SE C.11(1)((A) OF THE ITA NO.662/BANG/2015 PAGE 10 OF 13 ACT, ONE HAS TO TAKE THE GROSS RECEIPTS OR GROSS RE CEIPTS AFTER EXPENDITURE FOR CHARITABLE PURPOSE I.E., THE NET RECEIPTS. THI S IS ISSUE IS NO LONGER RES INTEGRA AND HAS BEEN DECIDED BY THE SPECIAL BENCH M UMBAI 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 PE R 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 APA RT UP TO 25 PER CENT OF ITS INCOME, WHICH WAS SUBJECT TO FULFILLMENT OF OTH ER CONDITIONS. WHILE CALCULATING THE AFORESAID 25 PER CENT, THE IMPORTAN T QUESTION WHICH AROSE WAS AS TO WHETHER FOR THIS PURPOSE, THE GROSS INCOM E EARNED BY THE ASSESSEE IS RELEVANT OR THE INCOME AS COMPUTED IN A CCORDANCE WITH THE PROVISIONS OF IT ACT. IN OTHER WORDS, WHETHER OUTGO INGS FROM OUT OF GROSS INCOME WHICH ARE IN THE NATURE OF APPLICATION OF IN COME, SHOULD BE FIRST DEDUCTED FROM THE GROSS INCOME AND 25 PER CENT OF O NLY THE REMAINING AMOUNT SHOULD BE ALLOWED TO BE ACCUMULATED OR SET A PART. THE SPECIAL BENCH OF THE ITAT ON THE ISSUE HELD AS FOLLOWS:- 9. COMING TO THE MERITS OF THE ISSUE, WE ARE OF THE VI EW THAT THE SAME IS CLEARLY COVERED BY THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF CIT VS. PROGRAMME FOR COMMUNIT Y ORGANIZATION (SUPRA). IN THE DECISION, THEIR LORDSH IPS, AFTER TAKING NOTE OF PROVISIONS OF S. 11(1)(A), HAVE HELD AS UND ER : 'HAVING REGARD TO THE PLAIN LANGUAGE OF THE ABOVE PROVISION, IT IS CLEAR THAT A CHARITABLE OR RELIGIO US TRUST IS ENTITLED TO ACCUMULATE TWENTY-FIVE PER CENT OF ITS INCOME ITA NO.662/BANG/2015 PAGE 11 OF 13 DERIVED FROM PROPERTY HELD UNDER TRUST. FOR THE PRE SENT PURPOSES, THE DONATIONS THE ASSESSEE RECEIVED, IN T HE SUM OF RS. 2,57,376, WOULD CONSTITUTE ITS PROPERTY AND IT IS ENTITLED TO ACCUMULATE TWENTY-FIVE PER CENT THEREOU T. 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 COM PUTED UNDER THE IT ACT. ANY AMOUNT OR EXPENDITURE, WHICH WAS AP PLICATION OF INCOME, IS NOT TO BE CONSIDERED FOR DETERMINING TWE NTY FIVE PER CENT TO BE ACCUMULATED. THEIR LORDSHIPS, AS NOTED E ARLIER, AFFIRMED THE DECISION OF KERALA HIGH COURT IN (1997 ) 141 CTR (KER) 502 : (1997) 228 ITR 620 (KER) (SUPRA) WHEREI N 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 F OR CHARITABLE OR RELIGIOUS PURPOSES, AND THE INCOME IS EXPECTED TO HAVE RELATION TO THE EXTENT TO WHICH SU CH 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 OTH ER 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 PU RPOSE OF S. 11(1)(A) OF THE ACT, THE INCOME IN TERMS OF RELE VANCE WOULD BE THE INCOME OF THE TRUST FROM AND OUT OF WH ICH 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-FIV E PER CENT HAS TO BE UNDERSTOOD AS INCOME OF THE TRUST UNDER THE R ELEVANT 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 ITA NO.662/BANG/2015 PAGE 12 OF 13 EXPENDED FOR PURPOSES OF TRUST IN INDIA. THEIR LORD SHIPS IN THE ABOVE CASE HAVE EMPHASIZED ON THE CLEAR AND UNAMBIG UOUS LANGUAGE OF S. 11(1)(A) AND DECIDED THE MATTER ON T HE BASIS OF THE SAME. IT HAS BEEN HELD THAT AS PER THE STATUTORY LA NGUAGE OF THE ABOVE SECTION THE INCOME WHICH IS TO BE TAKEN FOR P URPOSE OF ACCUMULATION IS THE INCOME DERIVED BY THE TRUST FRO M PROPERTY. IF BOTH THE DECISIONS ARE CAREFULLY READ, IT BECOME S EVIDENT THAT ANY EXPENDITURE WHICH IS IN THE SHAPE OF APPLICATIO N OF INCOME IS NOT TO BE TAKEN INTO ACCOUNT. HAVING FOUND THAT TRU ST 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 INCOM E' AS COMPUTED UNDER THE IT ACT. THEIR LORDSHIPS IN THE D ECIDED CASE REJECTED THE CONTENTION OF THE REVENUE THAT THE SUM OF RS 1,70,369 WHICH WAS SPENT AND APPLIED BY THE ASSESSE E FOR CHARITABLE PURPOSES WAS REQUIRED TO BE EXCLUDED FOR PURPOSE OF TAKING AMOUNT TO BE ACCUMULATED. HAVING REGARD TO THE CLEAR PRONOUNCEMENT OF THEIR L ORDSHIPS OF THE SUPREME COURT, IT IS DIFFICULT TO ACCEPT THAT O UTGOINGS WHICH ARE IN THE NATURE OF APPLICATION OF INCOME ARE TO B E EXCLUDED. THE INCOME AVAILABLE TO THE ASSESSEE BEFORE IT WAS APPL IED 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 A LLOWED AS A DEDUCTION. SIMILAR VIEW HAS ALSO BEEN TAKEN BY THE HONBLE MADHYA PRADESH HIGH COURT IN PARSI ZORASTRIAN ANJUM AN TRUST VS. CIT (SUPRA). NO REASON WHATSOEVER HAS BEEN GIVE N BY THE REVENUE AUTHORITIES FOR DEDUCTING RS. 2,17,126 IN T HIS CASE FOR PURPOSES OF S. 11(1)(A). THE DECISION CITED ON BEHA LF OF THE REVENUE DID NOT TAKE INTO ACCOUNT THE DECISION OF T HE SUPREME COURT REFERRED TO ABOVE. THE CIRCULAR OF CBDT HAS A LSO BEEN CONSIDERED BY THE HONBLE KERALA HIGH COURT IN ITS DECISION REFERRED TO ABOVE. ACCORDINGLY THE QUESTION REFERRE D TO IS ANSWERED IN THE AFFIRMATIVE AND IN FAVOUR OF THE AS SESSEE. 18. THE AFORESAID DECISION CLEARLY SUPPORTS THE PL EA OF THE ASSESSEE. FOLLOWING THE SAME, WE HOLD THAT THE ACCUMULATION U /S.11(1)(A) OF THE ACT ITA NO.662/BANG/2015 PAGE 13 OF 13 SHOULD BE ALLOWED AS CLAIMED BY THE ASSESSEE. GROU ND NO.4 RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED. 19. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS AL LOWED. PRONOUNCED IN THE OPEN COURT ON THIS 14 TH DAY OF AUGUST, 2015. SD/- SD/- ( ABRAHAM P. GEORGE ) ( N.V. VASU DEVAN ) ACCOUNTANT MEMBER JUDICIAL M EMBER BANGALORE, DATED, THE 14 TH AUGUST, 2015. /D S/ COPY TO: 1. APPELLANT 2. RESPONDENTS 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR / SENIOR PRIVATE SECRETARY ITAT, BANGALORE.