2025 (6) TMI 960 - AT - Income Tax

Denying exemption u/s 11 - Form No.10B was not filed within the due date - HELD THAT - We found that in a series of decisions it has been held that even if Form 10B is filed during assessment the assessee is entitled for the benefit of application of income under section 11 of the Act. Thus the appeal of the assessee is allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this appeal are:

(a) Whether the denial of exemption under section 11 of the Income Tax Act on the ground that Form No.10B was not filed within the due date is justified and lawful.

(b) Whether the entire income of Rs.17,82,350/- can be taxed without allowing deduction of Rs.19,00,295/- claimed by the assessee under section 11.

(c) The permissibility of allowing exemption under section 11 when Form 10B is filed after the due date, including during assessment proceedings.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Validity of denial of exemption under section 11 due to delay in filing Form No.10B

Relevant legal framework and precedents: Section 11 of the Income Tax Act provides exemption to income derived from property held for charitable or religious purposes, subject to fulfillment of procedural requirements including filing of audit report in Form No.10B. The law mandates filing of Form 10B within the due date prescribed under the Income Tax Rules. However, judicial precedents have examined whether exemption can be denied solely on the ground of delay in filing Form 10B.

Several decisions cited by the assessee's Authorized Representative (AR) include:

• Mumbai Metropolitan Regional Iron & Steel Market Commodity (378 ITR 103)
• Laxmanarayayan Dev ShrishanSeveaKhendra (167 taxmann.com 548)
• Association of Indian Panel Board Manufacturer (157 taxmann.com 550)
• Sarvodaya Charitable Trust (125 taxmann.com 75)
• Shree Bhairav Seva Samiti (149 taxmann.com 478)
• Ramasahanimal Sahuwala & Sons Charitable Trust (163 taxmann.com 175)

These authorities have taken the view that non-filing or delayed filing of Form 10B cannot be a ground to deny exemption under section 11 if the assessee has otherwise complied with the substantive conditions of the Act.

Court's interpretation and reasoning: The Tribunal noted that the assessee is a registered charitable trust under section 12AA, and the object and activities are undisputed. The return of income was filed on 28.07.2017, and Form 10B was obtained before the due date but approved by trustees only on 28.03.2018, causing delay. The Centralized Processing Centre (CPC) denied exemption on the ground of non-filing within due date, and the Commissioner of Income Tax (Exemption) confirmed this view.

The Tribunal, however, relied on the series of judicial decisions which held that when the assessee has complied with the procedural requirement of obtaining and filing Form 10B-even if filed belatedly or during assessment proceedings-exemption under section 11 should not be denied merely on technical grounds.

Key evidence and findings: The assessee had filed the return and obtained the audit report before the due date, but approval by trustees was delayed. The delay was not due to non-compliance but procedural delay in approval.

Application of law to facts: Applying the legal principles from the cited precedents, the Tribunal concluded that the delay in filing Form 10B should not disentitle the assessee from exemption under section 11, as the substantive conditions were met.

Treatment of competing arguments: The revenue's argument rested on strict compliance with the due date for Form 10B filing. The Tribunal rejected this strict technical approach in light of settled law emphasizing substance over form.

Conclusion: The denial of exemption under section 11 solely on the ground of delayed filing of Form 10B was held unjustified and unwarranted.

Issue (b): Taxation of entire income without allowing deduction claimed under section 11

Relevant legal framework: Section 11 allows deduction of income applied for charitable purposes. The assessee claimed deduction of Rs.19,00,295/- against total income of Rs.17,82,350/-. The denial of exemption effectively taxed the entire income.

Court's interpretation and reasoning: Since the Tribunal allowed the exemption under section 11 on the basis of delayed but eventual filing of Form 10B, it logically follows that the deduction claimed should be allowed.

Application of law to facts: The assessee's compliance with substantive conditions entitled it to the deduction under section 11. The entire income should not be taxed as claimed by the revenue.

Treatment of competing arguments: The revenue's stand was contingent on denial of exemption due to procedural delay. Once the procedural issue is resolved in favour of the assessee, the revenue's argument falls away.

Conclusion: The deduction of Rs.19,00,295/- under section 11 must be allowed, and the entire income cannot be taxed.

3. SIGNIFICANT HOLDINGS

The Tribunal held that "even if Form 10B is filed during assessment, the assessee is entitled for the benefit of application of income under section 11 of the Act." This establishes the principle that procedural delay in filing Form 10B does not disentitle a registered charitable trust from exemption under section 11, provided substantive conditions are met.

The Tribunal concluded: "The appeal of the assessee is allowed," thereby reversing the denial of exemption and allowing the deduction claimed.