Application of income u/s 11(1)(a) allowable on 15% of gross receipts not surplus remaining

Charitable Institution is entitled to application of 15 per cent of gross receipts u/s 11(1)(a) without considering expenditure incurred or surplus available

In a recent judgment, ITAT Pune has held that Charitable Institution is entitled to application of 15 per cent of gross receipts u/s 11(1)(a) without considering expenditure incurred or surplus available.

ABCAUS Case Law Citation:
4833 (2025) (11) abcaus.in ITAT

In the instant case, the Revenue had challenged the order passed by the CIT(A) in allowing deduction under section 11(1)(a) of the Income Tax Act, 1961 (the Act) at 15% of the gross receipts whereas accumulation is permissible only out of the income remaining after application of income.

The respondent eassessee was a trust primarily engaged in educational activities. It filed its return of income declaring total loss at Rs.10.87 crores. 

The Assessing Officer completed the assessment u/s 143(3) of the Income Tax Act, 1961 (the Act) after making disallowance of depreciation.

Subsequently, the Assessing Officer noted that as per provisions of section 11 of the Act, the assessee is entitled to accumulate income u/s 11(1)(a) of the Act to the extent of 15% for future years, however, such accumulation is permissible only to the extent of availability of surplus. 

He noticed that in the case of assessee though the surplus available with the assessee was only Rs. 81 lakhs the accumulation u/s 11(1)(a) of the Act had been claimed by the assessee at Rs. 8 crores which was not as per law.  In view of the above, the Assessing Officer, invoking the provisions of section 147 of the Act, reopened the assessment. 

Accordingly notice u/s 148 of the Act was issued to the assessee and after considering the submissions filed by the assessee the Assessing Officer restricted the accumulation u/s 11(1)(a) of the Act to the extent of surplus available to the assessee after allowing the expenditure incurred.  Thus, the Assessing Officer determined the total income of the assessee at Nil.

The CIT(A) directed the Assessing Officer to allow the deduction u/s 11(1)(a) of the Act on 15% of the gross receipt of the trust and allowed the application of income after the remaining amount.

Before the Tribunal the AO submitted that while deciding the issue in favour of the assessee The CIT(A) had relied on the decision of the Pune Bench of the Tribunal which had not been accepted by the department and an appeal had been filed before the Hon’ble Bombay High Court which was still pending. 

On the other hand, the assessee submitted that the issue was decided by the CIT(A) by following the decisions of the Hon’ble Supreme Court and the decision of the Hon’ble Bombay High Court. 

The assessee further submitted that merely because the Revenue has filed an appeal against the order of the Tribunal, however, unless the order is reversed by the Hon’ble High Court, the view of the Tribunal shall prevail.  In any case, since the CIT(A) had also relied on the decision of the Pune Bench of the Tribunal which in turn had followed the decision of the Hon’ble Supreme Court.

The Tribunal observed that the Assessing Officer following the decision of the Mumbai Bench of the Tribunal restricted the exemption u/s 11(1)(a) on the ground that such exemption is available to the assessee only to the extent of surplus revenue after application of the expenditure. 

The Tribunal further observed that the CIT(A) had directed the Assessing Officer to allow the deduction u/s 11(1)(a) of the Act on 15% of the gross receipt of the trust and allow the application of income after the remaining amount. The CIT(A)  followed the decisions of the Pune Bench of the Tribunal which in turn had followed the decision of the Hon’ble Delhi High Court according to which the exemption u/s 11(1)(a) of the Act i.e. 15% is an absolute exemption and the application of section 11(2) of the Act does not extend to nullify the absolute exemption. Also, the Coordinate Bench while deciding the issue had also followed the decision of the Hon’ble Supreme Court.

The Tribunal opined that merely because the Revenue has not accepted the decision of the Pune Bench of the Tribunal and an appeal had been filed before the Hon’ble Bombay High Court, the same cannot be a ground to decide the issue in favour of the Revenue by taking a different view other than the view taken by the Tribunal. 

The Tribunal upheld that order of the CIT(A) directing the Assessing Officer to allow the deduction u/s 11(1)(a) of the Act on 15% of the gross receipt of the trust and allow the application of income after the remaining amount. 

As a result, the grounds raised by the Revenue were dismissed.

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