Case Law Details
Brief Facts of the Case and Question of law
Brief Facts: The Assessee society was formed on 7.12.1968 and registered with the Registrar of firms and Societies on 17.12.1968. The Society was registered under section 12AA of the Income Tax Act vide order dated 4.3.1976. The Society is also approved under section 10(23C) by the Chief Commissioner of Income Tax.
The gross receipts declared by the assessee were Rs. 9,85,33,522/-.
As per section 11(1)(b) of IT Act 1961 ,85% amount required to be applied towards charitable purpose amount were Rs. 8,37,53,494/-
Amount actually applied by the assessee Rs 7,39,11,839/- . The Assessing Officer further noted that an amount of Rs.60,14,398/- was debited to the Profit & Loss Account on account of depreciation. The assessee vide his reply submitted that the short fall had been computed wrongly by the assessee in as much as the amount of depreciation amounting to Rs.60,14,3987- although debited to the Profit & Loss Account had not been taken in the computation. Therefore, the short fall in application of income would amount to Rs.98, 41,655/- and not Rs. 1, 58, 56,053/-as computed by the department
Question Raised:
- Can charitable Institution claim deduction of 15% of gross receipts without satisfying any condition
- Can the depreciation be allowed which was subsequently claimed during the course of assessment proceedings?
Contention of the Assessee:
The assessee was not satisfied as the assessing officer did not allow the depreciation which was subsequently claimed during the course of assessment proceedings. The assessee in Cross Objection has challenged the order of the learned CIT (Appeals) in upholding the disallowance of claim of Rs.2, 57, 90,420/- made by the trust in respect of excess utilization made in the earlier years.
The assessee submitted that even if there were two views on this issue, as the final verdict of the Apex Court is not there. The view of the Jurisdictional High Court is to be considered. With regard to the short fall in application of income, the assessee submitted that there was excess utilization of income during the earlier years which had been adjusted against the short fall in the utilization during current year.
Contention of Revenue:
The Assessing Officer was not satisfied with the assessee’s submissions. With regard to the issue of depreciation, the the total income not applied towards the objects of the trust was worked out at Rs.2, 46, 21, 6837- as under:-
i) Total income i.e. receipts of the trust Rs.9,85,33,522/-
ii) Income applied towards objects of the trust Rs.7,39,11,839/-
iii) Amount of income not applied towards Objects of the trust/set apart Rs.2,46,21,683/-
iv) 85% of the total income of the trust Rs.8,37,53,500/-
Held by Apex court:
After hearing the rival contentions, we do not find any merit in this ground of appeal of the Revenue. The learned CIT (Appeals) on proper appreciation of facts in the light of the provisions of section 11 of the Act and the judgment of the Hon’ble Supreme Court in the case of A.L.N. Rao Charitable Trust rightly decided the issue in favour of the assessee.
On ground No.2 of the Departmental appeal, the Revenue challenged the order of the learned CIT (Appeals) in allowing claim of depreciation, which was subsequently claimed during the course of assessment proceedings.
This exemption of 15% is not dependent on any other condition except that the trust or society should be registered u/s 12AA of the Income Tax Act. It is apparent from the reading of the provisions that section 11 (1)(a) was almost identical during the AY 69-70 and during AY 2010-11. As regards the provisions of section 11(2) are concerned, even the amended sub section (2) operates qua the balance of 85 per cent, of the total income of the previous year which has not got the benefit of tax exemption under sub-section (l)(a) of section 11. Section 11(2), as amended, does not operate to whittle down or to cut across the exemption provisions contained in section 11(1)(a)so far as such accumulated income of the previous year is concerned.
(Compiled by our Team Member Shruti Juneja)
