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2013 (12) TMI 609 - HC - Income TaxIntimation of accumulation of income - Held that - The application under Section 11 (2) was not filed with the return by the assessee - The information was given during the process of the assessment before the assessment was completed - There was sufficient material before the Assessing Officer both in the shape of the information furnished within the prescribed period and the proof of not only setting apart 85% of the amount to be spent in next year but also the expenditure of that amount in the next year - The insistence of furnishing of information on Form 10 as a condition precedent is insistence on the form and not the substance of the provisions of the Act - The Tribunal was justified in remanding the matter back to examine the books of account of the assessee for assessment year 2009-10 to find out whether the amount was spent in the next year and if the investment exceeds unspent amount within the prescribed period the Assessing Officer will condone the delay and irregularity in filing Form 10 - Decided in favour of assessee.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Court were: (a) Whether the Income Tax Appellate Tribunal (ITAT) erred in directing the Assessing Officer (AO) to condone the delay and irregularity in filing Form No. 10, when the assessee had spent the accumulated amount in the subsequent year, despite non-compliance with the statutory time limit for filing Form No. 10, and whether such delay can only be condoned by the Commissioner of Income Tax as per CBDT Circular No. 273 dated 3.6.1980. (b) Whether the ITAT erred in allowing the exemption claimed by the assessee ignoring the Supreme Court judgment in Commissioner of Income Tax v. Nagpur Hotel Owners' Association, which mandates that Form No. 10 must be filed before completion of the assessment. 2. ISSUE-WISE DETAILED ANALYSIS Issue (a): Condonation of Delay and Irregularity in Filing Form No. 10 Relevant legal framework and precedents: Section 11(2) of the Income Tax Act, 1961, read with Rule 17 of the Income Tax Rules, 1962, requires an assessee to give notice of accumulation of income (unspent funds) in the prescribed Form No. 10 within the prescribed time limit (generally before the due date for filing the return). CBDT Circular No. 273 (1980) provides that condonation of delay in filing Form No. 10 is a discretionary power exercisable by the Commissioner of Income Tax. The Supreme Court in Commissioner of Income Tax v. Nagpur Hotel Owners' Association held that the notice of accumulation must be given before completion of assessment so that the Assessing Officer is aware of the accumulation and can grant exemption accordingly. Court's interpretation and reasoning: The Court noted that the assessee had furnished information containing all material particulars required under Form No. 10, albeit not in the prescribed form and with some delay. The ITAT had held that the provisions of Section 11(2) are directory rather than mandatory, and the AO has the power to condone delay especially when the assessee had demonstrated that the unspent amount was set apart and subsequently spent in the next year within the prescribed period. The Court emphasized that the purpose of the provisions is to ensure that unspent income is earmarked and utilized for charitable purposes within the stipulated time. The insistence on strict compliance with the prescribed form and time limits, when the substance of the requirements was met, was not a valid exercise of power by the AO. Key evidence and findings: The assessee had filed a letter addressed to the Additional CIT under Section 11(2)(a) read with Rule 17, stating the amount to be accumulated and intended to be spent in the next year. The letter contained all relevant details similar to Form No. 10. Further, the assessee furnished audited accounts for the subsequent assessment year (2009-10) showing investment and expenditure of the accumulated amount within the prescribed period. Application of law to facts: The Court found that though the letter was not on Form No. 10 and was filed late, the assessee complied substantially with the statutory requirements and demonstrated actual utilization of funds. The AO's technical rejection of the application on grounds of non-compliance with formality was not justified. Treatment of competing arguments: The department argued that condonation of delay is only within the Commissioner's power and that the Supreme Court judgment mandates filing before assessment completion. The Court held that since the information was furnished before completion of assessment and the AO had material to verify utilization, the delay and form irregularity could be condoned by the AO. The Court rejected the department's formalistic approach. Conclusions: The Court upheld the ITAT's direction to the AO to condone the delay and irregularity in filing Form No. 10, given the assessee's fulfillment of the substantive requirements and actual spending of funds in the subsequent year. Issue (b): Allowance of Exemption Despite Non-Compliance with Form No. 10 Filing Requirement Relevant legal framework and precedents: Section 11 of the Income Tax Act provides exemption for income applied or set apart for charitable purposes. The Supreme Court in Nagpur Hotel Owners' Association held that Form No. 10 must be filed before completion of assessment to claim exemption for accumulated income. Court's interpretation and reasoning: The Court observed that the exemption is contingent upon setting apart the income for charitable purposes and actual application thereof within the prescribed period. The Court held that the requirement to file Form No. 10 is procedural and directory, not a condition precedent to exemption if the assessee has otherwise complied substantively. The Court noted that the assessee had furnished the required information during the assessment process and had demonstrated actual utilization of the accumulated funds in the next year, supported by audited accounts. Key evidence and findings: The assessee's letter under Section 11(2)(a), the audited accounts for the subsequent year showing investment and expenditure of the accumulated funds, and the detailed submissions before the CIT (A) and ITAT were crucial. Application of law to facts: The Court concluded that the exemption under Section 11 should not be denied merely on the ground of non-filing of Form No. 10 in the prescribed format or within the prescribed time, when the assessee has otherwise complied with the substantive requirements and the purpose of the exemption provisions has been fulfilled. Treatment of competing arguments: The department's reliance on the Supreme Court's strict interpretation in Nagpur Hotel Owners' Association was addressed by distinguishing the facts: here, the information was furnished before assessment completion and the funds were spent as required. The Court rejected the department's insistence on strict formal compliance. Conclusions: The Court affirmed the ITAT's allowance of exemption to the assessee, despite the non-compliance with the prescribed form and timing for filing Form No. 10. 3. SIGNIFICANT HOLDINGS The Court held: "We do not find substance in the contention... that unless the information, which was otherwise provided by the assessee is furnished in Form No.10, the Assessing Officer could not have taken into consideration and was entitled to reject it." "The benefit of the exemption is on setting apart of the 85% amount to be spent in next year before the assessment is complete, and not on the furnishing of information on prescribed form." "When a request by way of letter, which complies with the requirement and furnishes all the information required in Form No.10 was made available on record and there was sufficient proof before the Assessing Officer that the amount was not only kept apart but was also spent in next year, the adherence to the form and not substance, was not valid exercise of power by the AO and CIT (A)." The Court confirmed the ITAT's direction to remand the matter to the AO to verify the books of account for the subsequent year to ensure the amount was spent as claimed and to condone the delay if so found. Core principles established include:
Final determinations on the issues were in favour of the assessee, and the income tax appeal filed by the department was dismissed. The Court upheld the ITAT's approach that substance prevails over form in the context of exemption claims under Section 11 of the Income Tax Act.
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