Charitable institution claiming relief under section 11 shall not be eligible to claim standard deduction of section 24

 

If charitable institution was entitled to claim expenditure on maintenance of house property under section 10(23C) or 11, it was not entitled to section 24(a) deduction on income from house property as same would amount to double deduction. Thus, charitable institution claiming relief under section 11 shall not be eligible to claim standard deduction of section 24.

 Facts:

The assessee was a charitable society and was registered u/s 12AA of the Act as charitable institution. The assessee was running a hospital. It had two house properties and received rental income.

 

The assessee claimed standard deduction in respect of income received from the house properties. However, during the proceedings the AO disallowed the claim of the assessee. The reason being that deduction u/s 24(a) of the Act is inconsistent to the principles of revenue recognition involving charitable organizations.

 

It was highlighted that in case of charitable organization, the income and expenditure has to be real one corresponding to inflow and outflow. Therefore, the Assessing Officer disallowed the claim of the assessee.

 

On appeal, CIT (A) allowed the claim of the assessee. On this, revenue made higher appeal to the Tribunal.

 

Held:

Provision of section 10(23C)(iiiae) clearly shows that if the aggregate annual receipts of hospital or institution for treatment do not exceed Rs. 1 crore , it is entitled for exemption under section 10(23C)(iiiae). It means that the aggregate annual receipts of the assessee includes income from all sources including the income from running of the hospital for providing treatment should be covered by section 10(23C) (iiiae).

 

Therefore, the house property which was held under the trust, the income earned by the assessee from such house property shall also form part of the aggregate annual receipts of the institution provided the same is utilized for providing treatment. Thus, assessee was entitled for exemption under section 10(23C) (iiiae).

 

The next issue regarding standard deduction allowed under section 24(a) while computing income from house property was taken up. In this regard, it was noted that deduction could be claimed by all institutions including charitable institution when the income is not exempt under section 11 or section 10(23C). thus, in the case in hand, when the assessee claimed exemption under section 11 or 10(23C), the standard deduction provided in section 24(a) was not available to the assessee.

 

The explanation provided for the same was that standard deduction of 30 per cent is being provided for maintenance of house property. The assessee, in the present case, being a charitable trust/society, its income was exempted under section 11 or section 10(23C) on application. In other words, the income received by the assessee shall not form part of the total income provided the same is applied for carrying out the objects of the trust.

 

In the present case, the income received by the assessee from house property was applied for maintenance of the very same house property and the same was allowed as application under section 11 and section 10(23C).

 

Thus, the assessee was not entitled for standard deduction of 30 per cent as provided in section 24(a) as if the standard deduction is allowed, it would amount to double deduction. Therefore, the assessee was entitled to claim the actual expenditure on maintenance of the house property as application of income, however, not entitled for standard deduction under section 24(a). Charitable institution claiming relief under section 11 shall not be eligible to claim standard deduction of section 24.

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