Anjaneya Swamy Mattu Someshwara Swamy Devalaya Samithi Vs ITO (ITAT Bangalore)
Bangalore ITAT: Charitable Trust Cannot Be Taxed on Gross Receipts—Even If Section 11 Exemption Fails, Only Net Income After Admissible Expenditure Can Be Taxed
The Bangalore ITAT restored the assessment of a charitable trust to the AO, making the important observation that even if the trust is ultimately found ineligible for exemption under Section 11, its entire gross receipts cannot automatically be treated as taxable income; only net taxable income after admissible expenditure/application is to be computed in accordance with law.
The CPC, while processing the return under Section 143(1), had treated the trust’s entire gross receipts of ₹19,82,647 as taxable income, without allowing deduction for application/expenditure or considering exemption under Section 11. The assessee’s application seeking condonation of a 645-day delay in filing Form 10A was stated to be pending.
The first appeal itself was dismissed by the Addl./JCIT(A) because of a 44-day delay. The assessee explained that the trust was managed by persons from a rural background who were unfamiliar with email facilities and depended upon an accountant and tax professional. The email account had been created for e-filing purposes and was not regularly accessed. The assessee became aware of the demand when it received communication regarding adjustment of refund against the outstanding demand.
The ITAT accepted the explanation as plausible and constituting sufficient cause, condoned the 44-day delay and admitted the appeal for adjudication.
On merits, the Tribunal observed that the eligibility for Section 11 exemption, the outcome of the pending Form 10A condonation application, the nature of receipts including corpus donations, and the actual application/expenditure incurred by the trust required proper factual verification. These matters had not been examined either by CPC or by the first appellate authority.
Accordingly, the entire matter was restored to the AO. The Tribunal specifically directed that if the assessee is ultimately found not eligible for exemption under Section 11, only the net taxable income should be computed after allowing admissible deductions towards expenditure/application. Reasonable opportunity of hearing was also directed to be given.
Key principle
Denial of Section 11 exemption does not by itself justify taxation of the entire gross receipts of a charitable trust. Even where exemption is unavailable, taxable income has to be determined on a net basis after allowing expenditure/application that is otherwise admissible under law.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This appeal at the instance of the assessee is directed against the order of the ld. Addl./JCIT(A)-1, Ahmedabad dated 01.01.2026 vide DIN & Order No. ITBA/APL/S/250/2025-26/1084327558(1) passed u/s. 250 of the Income Tax Act, 1961 (in short “the Act”) for the assessment year 2023-24.
2. The assessee has raised the following grounds of appeal:-
1. The order of the authorities below in so far as it is against the appellant is opposed to law, equity and weight of evidence, probabilities, facts and circumstances of the case.
2. The appellant denies itself liable to be assessed to total income of Rs.19,82,650/- for the assessment year 2023-24 on the facts and circumstances of the case.
3. The learned CIT(A) is not justified in dismissing the appeal on delay of 44 days, on the facts and circumstances of the case.
4. The (earned CIT has failed to appreciate that there existed sufficient cause for the delay in filing the appeal and ought to have condoned the delay, on the facts and circumstances of the case.
5. The intimation passed under section 143(1) of the Act is without jurisdiction on the facts and circumstances of the case.
6. The learned Assessing Officer has erred in law in making adjustments under section 143(1), surpassing limited scope to carry out prima facie adjustments and arithmetical corrections and consequently the adjustments made are required to be deleted.
7. Without prejudice, tax is to be levied only on net income & not on gross receipts, on the facts and circumstances of the case.
8. It is a settled proposition of law that ‘consent cannot confer Jurisdiction’ on the facts and circumstances of the case.
9. The appellant denies the liability to pay interest under section 234 of the Act in view of the fact that there is no liability to additional tax as determined by the learned assessing officer. Without prejudice the rater period and on what quantum the interest has been levied is not discernible from the order and hence deserves to be cancelled on the facts and circumstances of the case.
10. The appellant craves [eave to add, alter, delete or substitute any of the grounds urged above.
11. In view of the above and other grounds that may be urged at the time of the hearing of the- appeal the appellant prays_ that the appeal may allowed and appropriate relief be granted in the interest on justice and equity.
3. At the outset, the ld. A.R. of the assessee drew our attention to the order of ld. Addl/JCIT(A) and submitted that the ld. Addl/JCIT(A) dismissed the appeal of the assessee by not condoning the short delay of 44 days solely on the ground that the explanation offered by the assessee though couched in sympathetic terms falls significantly short of the statutory threshold of “Sufficient cause” required u/s. 249(3) of the Act. Before us, the ld. A.R. of the assessee also drew our attention to an application for condonation of delay which is also reproduced by ld. Addl/JCIT(A) in his order and vehemently submitted that the assessee Trust being managed by persons who are from rural background and also do not have working of e-mail facility and completely relies on an accountant and services of a professional for its tax compliances. It is further submitted that the e-mail was newly created for the purpose of registration on the e-filing portal and thereafter it was not used and the credentials are also not available due to efflux of time. The assessee received an e-mail on 08/01/2025 wherein it was proposed that the refund will be adjusted against the outstanding demand and thereafter the assessee approached its professional for further course of action which result in a delay of 44 days in filing the appeal before the ld. Addl/JCIT(A).
3.1 Having heard the ld. Council for the assessee as well as ld.D.R., it is perceived that the explanation offered by the assessee is plausible and sufficient cause has been demonstrated by the assessee which prevented them in filing the appeal within the prescribed period before the ld. Addl/JCIT(A). Accordingly, we are inclined to condone the short delay of 44 days before the ld. Addl/JCIT(A) and admit the appeal for adjudication.
4. Now having condone the delay, we take note of the fact that the CPC while passing the intimation u/s. 143(1) of the Act on 29/10/2024 for the AY 2023-24 had treated the entire gross receipts of the assessee amounting to Rs.19,82,647/- as taxable income neither allowing any deduction for application/ expenditures nor considering the claim of exemption u/s. 11 of the Act. The contention of the ld. AR of the assessee is that the assessee trust had filed application for condonation of delay u/s. 12A of the Act in filing the Form No.10A belatedly by 645 days which is still pending for disposal. Further, it is submitted that the assessee being a charitable trust, only the net income after allowing deduction towards application and expenditures can be brought to tax as per the provisions of the law.
4.1 In our considered view these aspects require proper verification of the facts including the eligibility of the assessee for claiming exemption u/s. 11 of the Act after taking into consideration the outcome of the condonation application filed by the assessee on 06/04/2026 vide transaction Id. FOS008865414596, the nature of receipts including corpus donations, and the application/ expenditures incurred by the assessee in accordance with the law. In our considered opinion, these aspects have not been examined either by the CPC or by ld. Addl/JCIT(A), since the first appeal itself was dismissed by not condoning the delay.
5. Accordingly, in the interest of justice, equity and fair play, we deem it fit and proper to remit the entire issue in dispute to the file of the AO to decide a fresh in accordance with law. The AO is directed to verify the claim of the assessee u/s. 11 of the Act by considering the outcome of the condonation application filed by the assessee on 06/04/2026 vide transaction Id. FOS008865414596, the nature of receipts including corpus donations, and the application/ expenditures in accordance with the law. We further direct the AO that in case the assessee is found not to be eligible for exemption u/s. 11 of the Act, then only the net taxable income to be computed in accordance with the provisions of the Act after allowing admissible deduction towards the expenditures/ applications. Needless to say, reasonable opportunity of being heard must be granted to the assessee. The assessee is also directed to co-operate in the proceeding and furnish all the necessary details in support of its claim. It is ordered accordingly.
6. In the result, the appeal filed by the assessee is partly allowed for statistical purposes
Order pronounced in the open court on 10th Aug, 2026
