Inconsistent Income Tax Orders – Need Clarification

Dear Members,

We (Nettur technical training foundation) is a registered not for profit organisation registered with Income tax commissioners and covered under section 11 and 12 of the IT act.

With respect to our assessment we have different views taken by different assessing officers.

As per the act we presume that 85% of the gross receipts should be spent on capital and revenue expenses to avail full exemption in a financial year.

  1. For one year both capital and revenue expenditure and depreciation was allowed for arrive at 85%.
  2. Next year depreciation was disallowed ( a clarity on this was given in the finance act 2014 , stating depreciation will not be allowed)
  3. In the next year the gross receipt was clarified as cash basis and not on mercantile basis.
  4. Now we get an assessment order stating that the 85% should be on net profit before depreciation and not on gross receipt ( reason stated by the assessing officer is that there is a departmental circular to this effect)

The subject is rather leading to confusion year after year.

Kindly give your opinion and views.


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5 Responses to Inconsistent Income Tax Orders – Need Clarification

  1. Subhash Mittal says:

    We came across a case, where Trust was having a number of educational institutions, apart from other regular activities of the Trust. Separate accounts were prepared for each of the educational institution, and only surplus / deficit was taken to the Trust’s Consolidated accounts. Based on this I&E, a consolidated R&P was prepared, which only included net surplus & deficit of each institution. Though receipts & payments for other activities were taken fully. Assessment was based on this consolidated Receipt & Payment.

    I had hoped that the original querist ‘Louis’ would have shared further details about his assessment where he stated that in the last year it is based on net surplus / deficit. Considering some divergence of opinion, I would request Ramanuj, the coordinator for SRRF Dialogue to put this issue to the Expert Panel.

  2. RAJESH GUPTA says:

    I also agreed with Mr. Handa and also add that to calculate 85% always use RECEIPTS AND PAYMENT A/C only.

  3. 85% of the gross receipts and not net profit. Gross profit on the basis of cash receipts. If 85% of net profit is taken than how can the limit of 85% can be met since expenditure has already been deducted while arriving at figure of profit ( the right term is excess of income over expenditure and not profit since it is not-for-profit organisation).

  4. Subhash Mittal says:

    Dear Louis,

    Thanks for sharing your experience with the Income Tax Dept. on this blog. Yes sometimes these varied practices does make a person exasperated to say the least. It would have been good had you also shared the AYs for which these decisions were given. Till last year (AY 2014-15) due to several favourable cases, NPOs were allowed double application, i.e. both for capital purchase as well as the relevant annual depreciation. However as you very rightly point FA 2014 was amended to deny double taxation benefit. Amendment is effective from AY 2015-16 onwards.

    Regarding your last two points, one would need to see the orders, but sometimes as per a school of thought, 85% should be taken for net surplus. However if your ITO has taken that view, though it may be irritating however it would be quite advantageous for your institution, since 85% of surplus / profit would always be less than 85% of turnover.

  5. Rakesh Goswami says:

    Consistent approach is:
    Gross receipts as per Income & Expenditure a/c
    Less Expenditure as per Income & Expenditure a/c after adding back depreciation and adding Purchase of assets

    Rakesh Goswami

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