Swami Satyanand Alternate Therapy Foundation vs ITO Ward Exempt.-2(2), New Delhi: Appeal Allowed on Accumulation of Income under Section 11(1)(a) for AY 2016-17

Case Overview: Swami Satyanand Alternate Therapy Foundation vs ITO Ward Exempt.-2(2), New Delhi

Case Number: ITA 6232/DEL/2019

Appellant: Swami Satyanand Alternate Therapy Foundation, New Delhi

Respondent: Income Tax Officer, Ward Exempt.-2(2), New Delhi

Assessment Year: 2016-17

Case Filed On: 2019-07-23

Order Type: Final Tribunal Order

Date of Order: 2022-12-05

Pronounced On: 2022-12-05

Introduction

The case of Swami Satyanand Alternate Therapy Foundation vs ITO Ward Exempt.-2(2), New Delhi pertains to the assessment year 2016-17, where the appellant, a charitable trust, challenged the restriction on the accumulation of income under Section 11(1)(a) of the Income Tax Act, 1961. The Income Tax Appellate Tribunal (ITAT) allowed the appeal, ruling in favor of the appellant, asserting that the accumulation should be based on the total income derived from the property held in trust, not merely the surplus after the application of income.

Background of the Case

Swami Satyanand Alternate Therapy Foundation, a registered charitable trust, filed its income tax return for the assessment year 2016-17, declaring income at NIL on 13.10.2016. The case was selected for complete scrutiny, and the Assessing Officer (AO) questioned the accumulation of 15% of the income under Section 11(1)(a) of the Income Tax Act, which the trust claimed amounted to Rs.38,05,443/-. The AO restricted the accumulation to the surplus available after the application of income, limiting it to Rs.20,34,215/-. Aggrieved by this decision, the trust appealed before the Commissioner of Income Tax (Appeals), who upheld the AO’s order. Subsequently, the trust appealed before the ITAT.

Appellant’s Grounds of Appeal

The appellant, Swami Satyanand Alternate Therapy Foundation, raised several grounds in its appeal, including:

• The CIT(A) erred in law and on facts by not allowing the accumulation of 15% of the income derived from the property held in trust as per Section 11(1)(a), and instead, restricted it to the surplus after the application of income.
• The CIT(A) failed to allow the carry forward of the net deficit amounting to Rs.17,71,228/-, which should have been available for set-off in subsequent years.

Tribunal’s Findings and Decision

The ITAT, after considering the submissions and material available on record, focused on the interpretation of Section 11(1)(a) of the Income Tax Act. The Tribunal emphasized that the section allows a charitable or religious trust to accumulate or set apart 15% of the total income derived from the property held under trust, and not just the surplus remaining after the application of income.

The Tribunal referred to several precedents, including the decision of the Hon’ble Supreme Court in the case of CIT vs. Programme for Community Organization [248 ITR 1 (SC)], which supported the appellant’s contention that the 15% accumulation should be based on the total income and not restricted to the surplus.

Conclusion and Order

In its order, the ITAT held that the AO and CIT(A) had erred in restricting the accumulation of income under Section 11(1)(a) to the surplus after the application of income. The Tribunal directed the AO to allow the appellant’s claim of accumulation of 15% of the total income derived from the property held under trust, amounting to Rs.38,05,443/-. Furthermore, the Tribunal allowed the carry forward of the net deficit of Rs.17,71,228/- for set-off in subsequent years.

The appeal was allowed in favor of Swami Satyanand Alternate Therapy Foundation, setting a precedent that charitable trusts are entitled to accumulate 15% of their total income, regardless of the surplus after expenditure, under Section 11(1)(a) of the Income Tax Act.

Order Pronounced in the Open Court on 5th December, 2022.

Judicial Member: Kul Bharat

Swami Satyanand Alternate Therapy Foundation vs ITO Ward Exempt.-2(2), New Delhi: Appeal Allowed on Accumulation of Income under Section 11(1)(a) for AY 2016-17