TMI Blog2011 (5) TMI 640X X X X Extracts X X X X X X X X Extracts X X X X ..... umulated or set apart and the period for which the income is to be accumulated or set apart, which shall, in no case exceed 10 years. However, matter is send to AO to verify whether money so accumulated or set apart is invested or deposited in the form or mode specified in sub-section (5) of section 11 - Decided partly in favor of assessee for statistical purpose - IT APPEAL NO. 54 (rjt.) of 2009 - - - Dated:- 31-5-2011 - A.L. GEHLOT, N.R.S. GANESAN, JJ. J.P. Shah for the Appellant. S.L. Meena for the Respondent. ORDER A.L. Gehlot, Accountant Member. This appeal filed by the assessee against the order of the C.I.T.(A) dated 12-12-2008. The grounds raised in the appeal are argumentative in nature, therefore, they are abridged to read as below:- (1) Ld. C.I.T.(A)-II has erred in not differentiating provisions of Sec.11(1)(a) and 11(2) of the Act. (2) Ld. CIT(A) II has erred in not considering the exemption available U/s. 11(2) of the balance income not spent i.e., total Property Income Less 25% of the income plus amount applied during the year, though form No.10 with resolution was filed before Ld. A.O. before passing of the assessment order. 2. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing imposed on such exempted accumulated income during the previous year and also brings such further accumulated income out of the tax net if the conditions laid down by sub-s(2) of s.11 are fulfilled meaning thereby the money so accumulate is set apart to be invested in the Government securities etc., as laid down by cl.(b) of sub-s.(2) of s.11 apart from the procedure laid down cl.(a)of s.11(2) being followed by the assessee-trust. Therefore, the exemption u/s.11(1)(a) is unfettered and not subject to any conditions. In other words it is an absolute exemption. Therefore, when these conditions of section 11 are satisfied, no income can be brought to tax. In the case of C.I.T. v. Nagpur Hotel Owners Association (247 ITR 201, 165 CTR 1), the Hon'ble Supreme Court has held that it is abundantly clear from the wordings of sub-s.(2) of s.11 that it is mandatory for the person claiming the benefit of s.11 to intimate to the assessing authority the particulars required, under r.17 in Form No.10. If during the assessment proceedings the A.O. does not have the necessary information question of excluding such income from assessment does not arrives at all. But if the form No.10 is availabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Add: Income of the Institution to be Charged to Tax (as discussed above) Rs. 1,46,43,350 Total Income Rs. 1,46,43,350 4. The assessee carried the issue before the CIT(A) once again and drew his attention to paragraph 4 of letter dated 22-07-1999 written by the assessee to the assessing officer wherein it was submitted as follows: "a. The A.O. observed that on the face of the return of income filed on 03-09-1996, under the column 'statement or documents enclosed', the appellant mentioned at (e) 'Form No.10' as one of the enclosures, but the same was not found as an enclosure. The A.O. further stated that, subsequently, during the course of original proceedings, by a letter dated 22-07-1999, the Form No.10 dated 21-07-1999 was furnished with a remark "Form No.10 attached herewith (Ann.-1). Due to oversight the same has not been enclosed which may pleased be condoned'. The A.O. concluded that, as the date of Form No.10 was 21-07-1999, and it was submitted only on 22-07-1999, it was clear that the appellant did not furnish the Form No.10 along with the return of income, ass required u/s.11(2) of the Act. b. To the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee to produce details with evidences regarding the receipts from stevedores, payments to workers and the surplus amount remained with the assessee as on 31-03-1994, the assessee did not furnish the required information. The ld.CIT(A) also found that the assessee repeated the same pattern in subsequent years also by not furnishing Form No.10 within stipulated time limit, nor did set apart 25% of the receipts to meet the objects of the trust by making specified investment as per the requirement of provisions of section 11(5) of the Act. The C.I.T.(A) distinguished the judgments cited by the assessee, viz., Addl. CIT v. A.L.N. Rao Charitable Trust [1995] 216 ITR 697/83 Taxman 252 (SC), CIT v. G.R. Govindarajulu Sons Charities [2004] 271 ITR 145/[2005] 144 Taxman 300 (Mad.), CIT v. Mayur Foundation [2005] 274 ITR 562 (Guj.) and CIT v. Nagpur Hotel Owners Association [2001] 247 ITR 201/114 Taxman 255 (SC) to hold that the assessee-trust neither filed return u/s 139(1) nor u/s.139(4) of the Act. The return filed by the assessee was beyond the limitation prescribed in sections 139(1) and 139(4) and therefore, had to be regularized by issue of notice u/s.148. The assessee did no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment was decided by Tribunal. The Ld. A. R. accordingly submitted that the A.O. has to accept the Form No.10 filed by the assessee. 7. The Ld. A. R. relied upon a judgment of Supreme Court in the case of A. L. N. Rao Charitable Trust (supra) and submitted that the Apex Court has examined the issue pertaining to Sec.11(1)(a) and Sec.11(2) and laid down the law that Sec.11(2) does not restrict operation of Sec.11(1)(a) and that accumulated income exempted under Sec.11(1)(a) need not be invested in Government securities. Additional accumulated income beyond 25% can also get an exemption if invested as laid down in Sec.11(2) of the Act. The Ld. A. R. also relied upon the judgment in the case of CIT v. Programme for Community Organisation [2001] 248 ITR 1/116 Taxman 608 (SC) wherein it has been held that on plain language of section 11(1)(a) of the Act, the assessee was entitled to accumulate 25% of the income. The Ld. A. R. has also relied upon a decision of ITO v. Shri Mahakal Mandir Prabandh Samiti [2010] 131 TTJ (Ind.) (UO) 66. 8. The Ld. D. R, on the other hand, relied upon the order of A.O. and C.I.T.(A) and submitted that the ITAT has given clear direction that the case is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the original order of the ITAT, we find that the ITAT has discussed the provisions of Sec.11(1)(a) and 11(1)(2) of the Act. The ITAT had also considered the judgment of the Hon'ble Madras High Court in the case of G.R. Govindarajulyu Sons Charities (supra) and the judgment of the Hon'ble Supreme Court in the case of Nagpur Hotel Owners Association (supra) wherein it has been held that it is mandatory for the person claiming the benefit of Sec.11 to intimate to the assessing authority the particulars required under Rule 17 in Form No.10 applicable at the relevant time. It is further held that if during the assessment proceedings, the A.O. did not have the necessary information, question of excluding such income from assessment does not arise at all. It is further held that if Form No.10 is available then no income can be taxed and the assessee is entitled for deduction. After these discussions, the ITAT sent back the matter to the file of the A.O. to decide the issue afresh, in view of provisions of Sec.11(1)(a) and 11(2)(b) and also that if the assessee filed Form No.10 along with the return of income. To be more specific, the direction of the Tribunal reads, thus - "Therefore, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the merit of the case, we find that the question to be considered is whether 25% of accumulation of income under section 11(1)(a) of the Act is a flat deduction available to the assessee or for that purpose, whether filing of Form No.10 along with the return of income and fulfilling other formalities are a pre-condition or not. Provisions of Sec.11(1) (a) reads as under:- "11.(1)(a) Income derived from property held under trust wholly or charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which income so accumulated or set apart is not in excess of twenty-five per cent of the income from such property. (b) to (d) ** ** ** Explanation.- For the purposes of clauses (a) and (b),- (1) in computing the twenty-five per cent of income which may be accumulated or set apart, any such voluntary contributions as are referred to in section 12 shall be deemed to be part of the income; (2) if, in the previous year, the income applied to charitable or religious purposes in India falls sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for which the income is being accumulated or set apart and the period for which the income is to be accumulated or set apart, which shall in no case exceed ten years; (b) the money so accumulated or set apart is invested or deposited in the forms or modes specified in sub-section (5): Provided that in computing the period of ten years referred to in clause (a), the period during which the income could not be applied for the purpose for which it is so accumulated or set apart, due to an order or injunction of any court, shall be excluded." On a plain reading of above section we find that following income of a charitable or religious trust shall not be included in the total income - (1) to the extent of income - (a) applied; (b) deemed to be applied for the object of the trust; and (c) accumulation of income not exceeding 25%; (2) exemption of balance income of income (after income applied, deemed to be applied and accumulation not exceeding 25%). 14. Section 11(1)(a) of the Act and considering the procedure laid down by the Hon'ble Apex Court in the case of A.L.N. Rao Charitable Trust (supra), we find that following income shall not be included in the tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lt with and to be considered for the purpose of income-tax exemption, sub-section (2) of section 11 can be pressed into service and if it is complied with, then such additional accumulated income beyond 25% will also be eligible for exemption from income-tax on compliance with the conditions laid down by sub-section (2) of section 11 of the Act. The relevant portion of the calculation of A.O. is reproduced at para 3 of this order. 16. A charitable or religious trust have to apply 75% of income for the object of the trust so as to qualify for exemption u/s 11 of the Act. Income not exceeding 25% of income is allowed to be accumulated under this section 11(1)(a) of the Act. This accumulation is automatic and does not call for any statutory stipulation. Explanation to section 11(1) provides deemed application of the income. The said Explanation deals with a situation where income applied to charitable or religious purpose falls short of 75% of the income for the reason that the income was not received during that year or for any other reason, the trust have to exercise in writing for accumulation in accordance with Explanation to section 11(1) of the Act. It is pertinent to mention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... light of above discussion, we are of the considered view that as per section 11(1)(a) the assessee is entitled for flat deduction without any condition or formality of filing form No.10, if income is accumulated or set apart for application of the objects of the trust in India to the extend to which the income so accumulated or set apart does not exceed 25% of the income. In the case under consideration, the total income of the trust is Rs. 5,30,77,705. The income applied during the year for the object of the trust comes to Rs. 3,84,34,356. The calculation of exemption of income u/s 11(1)(a) is as under: Income applied for the object of the trust Rs. 3,84,34,356 Add : 25% of income Rs. 1,32,69,429 Rs. 5,17,03,785 The balance of (Rs. 5,30,77,705 (-) Rs. 5,17,03,785) = Rs. 13,73,920 The above income of Rs. 13,73,920 qualifies for exemption if the trust satisfies the conditions laid down in section 11(2) of the Act including filing of Form 10 and investing the amount in the specified securities. 18. In respect of ground No.2 of the appeal which is related to allowance of deduction over and above 25% of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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