TMI Blog2001 (6) TMI 174X X X X Extracts X X X X X X X X Extracts X X X X ..... d manner specifying the purpose for which the income is being accumulated or set apart and the period for which the income is to be accumulated or set apart, not exceeding however 10 years. Secondly, that the money so accumulated or set apart is to be invested or deposited in the forms or modes specified in sub-section (5) of section 11 of the Act. The assessee passed a resolution in a meeting held on26-3-1992resolving that the funds of the Trust available at the end of the current financial year ending on31-3-1992be accumulated up to a period of 10 years, i.e. till31-3-2002. In pursuance of this resolution, the assessee addressed a letter to the Assistant Director of the Income-tax (Exemption) in the form of a notice as prescribed in Form No. 10 intimating its decision for accumulation of funds. The purposes for the aforesaid funds were given in the notice. As would be evident, accumulation was for the purposes of fulfilling 6 objects out of 19 objects as listed in the Trust Deed. The Assessing Officer after holding that the accumulation of surplus funds was not for specific purpose denied, the benefit to the assessee. The ld. CIT(A) concurred with the finding of the Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 695 (Bom.) and (iv) Gedore Tools (India) (P.) Ltd v. IAC [1988] 25 ITD 193 (Delhi). 4. The ld. DR on the other hand supported the order of the ld. CIT(A). It was submitted that accumulation of surplus funds should be seen in the background of the scheme under which the aforesaid provision was brought in on the statute. Essentially there is no difference between the facts available in the case of Trustees of Sighania Charitable Trust and that the case of assessee. As regards the other plea, reliance was placed on the decision of Ahemedabad Bench in Nandlal H. Ramaniv. ITO [1996] 58 ITD 525 wherein it was noted that the decision of any High Court is to be followed in comparison to the decision of Tribunal. In the circumstances, argued the ld. DR, the order of the ld. CIT(A) needs to be upheld. 5. We have carefully considered the rival submissions, gone through the material placed on record to which our specific attention was drawn and the decisions cited on both sides. As per the provisions of section 11 of the Act, the income applied for charitable or religious purposes is not taxable. This is subject to certain conditions laid down therein. The income so applied is to be fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the context of purpose, the same has to be definite and concrete one in distinction to general or vague one. At the same time, it could not be for all the purposes as given in the Trust Deed which would make the provisions of sub-section (2) of section 11 as meaningless. As held in the case of Trustees of Singhania Charitable Trust, the requirement of specification of purpose predicates that the purpose must have an individuality. The aforesaid interpretation also stands to reason when seen in the back-ground that the Legislature in its wisdom has provided for accumulation of surplus funds to the Trust, both under sections 11(1)(a) or (b) and 11(2) of the Act. There is both a distinction and the purpose behind the aforesaid two provisions. While in case of section 11(1)(a) of the Act, the accumulation could be for such purposes (not specific) it is not so under section 11(2) of the Act. The Trust must communicate in specific terms the purpose or purposes for which it wants to accumulate or set apart the income. The concession as allowed in the Act is perhaps to meet a contingency where the fulfilment of a project requires heavy outlay and calls for accumulation of funds, as obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive plea of the assessee that the decision of a High Court other than that of Jurisdictional High Court is not binding on the Court, we find that there is a divergence of view on the issue. While the Karnataka High Court in case of Patil Vijay Kumar's case, Punjab Haryana High Court in the case of Ved Prakash, Bombay High Court in the case of Consolidated Pneumatic Tool Co. (India) Limited, Geoffrey Manners Co. Ltd.'s have taken a view that the decision of High Court is binding on the Tribunal within its territorial jurisdiction, it cannot be construed as to mean that the judgment of the High Court other than that of Jurisdictional one is to be ignored. In fact as held by their Lordship of Supreme Court in case of Union of India v. Kamlakshi Finance Corporation Ltd. AIR 1992 SC 711 the decision of the High Court has to be followed in comparison of the decision of the Tribunal Benches regardless of the fact that matters have not been thrashed at length by High Courts Nandlal H. Ramani's case. The message is clear that it has to be taken into consideration. Thus, in the light of discussion as held above, we hold that assessee is entitled to approval under section 11(2) of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee requested for reduction of rate of land from Rs.155 per sq. yd. to Rs.62 per sq. yd. Certain other transactions relating to adoption of land for the purpose were cited. Subsequently, the deal fell through and the assessee was refunded the money which was given to the Government. Since the assessee failed to locate some suitable site for establishing a school it made an application under section 11(3A) of the Income-tax Act to the Assistant Director of I.T. (Exemption) for allowing it to use the funds for planting a small commemorative forest in Himachal Pradesh. This was with the aim of improving the environment and developing the economy of the area. The approval of the department was sought. In its letter dated2-12-1991it requested the A.D.I. (Exemption) to allow the Trust to apply its funds for the purpose of clause (viii) of the objects which is 'to participate and contribute to schemes of economic and cultural development of the country started or sponsored by the Government'. As per the 'Smarti Vatika Scheme' approved by the Himachal Government, plants were to be planted which would have generated employment to the people around the place. The assessee gave Rs.3,30,000 tow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... low him to utilise such income for such other charitable or religious purpose as specified in the application and in conformity with the objects of the Trust. The aforesaid sub-section reads as under:-- "Notwithstanding anything contained in sub-section (3), where due to circumstances beyond the control of the person in receipt of the income, any income invested or deposited in accordance with the provisions of clause (b) of sub-section (2) cannot be applied for the purposes for which it was accumulated or set apart, the (Assessing) Officer may, on an application made to him in this behalf, allow such person to apply such income for such other charitable or religious purpose in India as is specified in the application by such person and as is in conformity with the objects of the Trust, and thereupon the provisions of sub section (3) shall apply as if the purpose specified by such person in the application under this sub-section were purpose specified in the notice given to the (Assessing) Officer under clause (a) of sub-section (2)." The essential characteristics of the aforesaid sub-section are:-- (a) person in receipt of income cannot apply it for the purpose for which it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of penalty leviable for late filing of return, the assessee has to satisfy the Assessing Officer that there was a reasonable cause which prevented him to file the return in time. In case of approval under section 11(3A) of the Act, the assessee has to show that there were circumstances beyond his control because of which the funds could not be applied for the purposes for which they were set apart. The expression circumstances beyond the assessee's control is more rigid in its comprehension. In case of extension of time for filing the return, while the revenue foregoes the penalty which is in addition to tax payable by the assessee, in the case of grant of approval under section 11(3A) of the Act, it is the tax itself. Further the assessing officer has to satisfy himself that there existed reasons beyond assessee's control because of which the funds could not be applied for the purpose for which approval was given. The changed purpose for which approval is sought has to be in conformity with the objects of the Trust. For this too, the assessee has to satisfy the assessing officer. In case of assessee, it is noted that there are a number of objects specified for which the approval ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur with the findings and conclusions as arrived at by her with respect to all the grounds except ground Nos. 1 2 for which I record my dissent and reasons for doing so are given in following paragraphs. So far as departmental appeal is concerned, I fully concur with the conclusions and findings of learned Accountant Member. 2. The facts relating to ground Nos. 1 2 of assessee's appeal for the assessment year 1992-93 against the order of CIT(A)-XVI, New Delhi dated 11-3-1996 as emerging from the record are like this that assessee is a charitable trust and same was started in 1961 by late Sir Sobha Singh. It has been accepted as charitable trust right till assessment year 1991-92. The objects of the trust had been listed in clause 30 of the Trust Deed. There are as many as 19 objects listed on pages 6 7 of the aforesaid trust deed. It was submitted that as per provisions of section 11(2) of the Income-tax Act, the assessee is allowed to accumulate 75% of the income subject to certain conditions as laid down in the said provision. First condition is that it has to give a notice in writing to the officer in the prescribed manner specifying the purpose for which income is being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that in order to be entitled to the benefit under section 11(2) of the Act, the objects have not to be vague and general. Support was derived from the following decisions: (1) Technical Vocational Training Trust's case; (2) Indian National Theatre Trust's case and (3) Jaipur Stock Exchange Ltd.'s case. 5. In addition to this it was argued that in any case since the Calcutta High Court is not the jurisdictional High Court, its decision is not binding on the Delhi Bench. Reliance was placed on the decision of the Karnataka High Court in the case of Patil Vijay Kumar,S. Krishnamurthy's case, S. Vishwanathan's case. Reliance was also placed on Ved Prakash's case. Consolidated Pneumatic Tool Co.'s case, Geoffrey Manners Co. Ltd's case, Gedore Tools (India) (P.) Ltd.'s case and it was pleaded that assessee is entitled to be allowed to accumulate 75% of the income as all the conditions as laid down in the Act and Rules have been fulfilled and case law as cited fully supports the case of the assessee. 6. The learned DR on the other hand, supported the order of the learned CIT and further submitted that accumulation of surplus funds should be seen in the background of the sch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted or deposited in forms or modes as specified in sub-section (5) of section 11 of the Act. Rule 17 of Income-tax Rules prescribes the notice as mentioned in sub-section (2) of section 11 of the Act. Form No. 10 prescribes the format of a notice to be given to the prescribed authority conveying the intention and purposes for which the income is to be accumulated or set apart. The said format makes a reference to the resolution passed by the Trustees to accumulate the surplus funds. In the said format space has also been provided for indicating purposes/objects for which accumulation is sought. As per language used in sub-section (2) of section 11 of the Act, the purpose for which the income is being accumulated or set apart is to be specific. As per section 11(2) of the Income-tax Act, the trust must communicate in specific terms the purpose for which it want to accumulate or set apart the income. The concession as allowed in the Act is perhaps to meet a contingency where the fulfilment of a project requires heavy outlay and calls for accumulation of funds. The language of section which is clear and unambiguous and only be interpreted in the manner for which it is meant. 8. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... global manner is definitely not in the contemplation of section 11(2) when it is construed in its setting. The assessee's contention that saving and accumulation of income for future application of the same is for the purposes as listed from (a) to (f) as above, (which means not only six but very many other purposes as these purposes have so many other purposes embodied in these). In the widest term so as to embrace so many of the objects which would render the requirement of specification of the purpose for accumulation in that subsection redundant. The purposes to be specified cannot, under any circumstances, tread beyond the objects clause of the trust. The Legislature could not have thought of the need of specification of the purpose if it did not have in mind the particularity of the purpose or purposes falling within the ambit clause of the trust deed when sub-section (2) of section 11 requires specification of purpose, it does so having in mind a statement of some specific purpose or purposes out of the multiple purposes for which the trust stands. Where it not so, there would have been no mandate for such specification. For a charitable trust, in no circumstances, can apply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urplus of this year should be accumulated upto 31-3-2002 for carrying out above noted objects from (a) to (f) and after going through these objects it is clear that accumulation of surplus for this year is not for any specific purposes. Therefore, action of Assessing Officer for not allowing such accumulation as provided under section 11(2) of the Income-tax Act is very much legal and CIT(A) is also justified in confirming the action of Assessing Officer. While upholding the action of authorities below, I dismiss ground Nos. 1 2 of assessee's appeal. ORDER UNDER SECTION 255(4) OF THE INCOME-TAX, 1961 Since in the above captioned appeals we have difference of opinion on the following issue, the matter is submitted to the Hon'ble President for reference to the Third Member:-- "Whether on the facts and in the circumstances of the case the assessee's claim for accumulation of income under section 11(2) of the Act is not admissible on the alleged ground that application in Form No. 10 for accmulation of income was not for specific purpose." THIRD MEMBER ORDER 1. On a difference of opinion between the Members constituting the Division Bench the following point was refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt hostels for boys and girls who are either studying at a school or college or are in service; 4. To start Health Centre and to impart instructions in the art of healthy living; 5 To establish hospitals, dispensaries, Nursing Homes, Maternity Centre, Nature Cure and Yogic Health Homes in India; 6 To construct dharamshalas or sarais in and around hospitals inDelhiorNew Delhito accommodate poor patients and their attendants. 5. The Assessing Officer however, held that the accumulation of surplus funds was not for specific purposes and he proceeded to deny the necessary benefits to the assessee. On further appeal the CIT(Appeals) agreed with the view taken by the Assessing Officer and in doing so he relied on the judgment of the Hon'ble Calcutta High Court in the case of Trustees of Singhania Charitable Trust. According to the CIT(Appeals) the assessee was to list out specific purposes for accumulating the funds and listing of the objects of the Trust could not be treated in the same category. 6. Being aggrieved with the order passed by the CIT(Appeals), the assessee came up in appeal before the Tribunal. At this stage, the decision of the Hon'ble Calcutta High Court in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court Trustees of Singhania Charitable Trust's case not being one of the jurisdictional High Court reliance was placed on the decision of the Ahmedabad Bench of the Tribunal in the case of Nandlal H. Raman's wherein a view had been taken that judgment of the High Court wherever located was to be followed as against the decision of any other Bench of the Tribunal. 10. The learned Accountant Member who passed the order discussed at length the scheme of the Act with reference to the income applied for charitable or religious purposes opining at the outset that income so applied was not taxable and thereafter proceeded to discuss the provisions of section 11(1)(a) as read with section 11(2) of the Act whereby accumulation upto a given extent was permissible. It was observed that as per section 11(1)(a) or (b) accumulation upto 25 per cent of the income was permitted whereas under section 11(2), it was permitted upto 75 per cent the former without any condition and that also for a short period not beyond the year next succeeding and in the case of the latter upto a maximum period of 10 years. It was noted by the learned Accountant Member that under section 11(2) the charitable e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of Singhania Charitable Trust. It was further observed that the language of the section was clear and unambiguous and the same could not be interpreted in any other manner than what had been conveyed in the case of Singhania Charitable Trust. 12. On examining the facts of the assessee's case with reference to the legal propositions aforesaid, the learned Accountant Member observed that in Form No. 10 the assessee had mentioned those 6 objects for which the funds were being accumulated as against a total of 19 objects as mentioned in the Trust Deed. According to her, this clearly showed that the purposes mentioned were specific and concrete since they pertained to the setting up of educational institutions, library, constructing hostels for boys and girls, Health centres, hospitals and dispensaries etc. and the construction of Dharamshalas in or around hospitals to accommodate poor patients and their attendants. It was the observation that these were concrete proposals having definiteness about them and these were not imprecise and vague in any manner. It was also the view of the learned Accountant Member that since accumulation of funds was sought for 10 years it stood to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature then these could not be treated as defining specific objects for which accumulation had been asked for. In coming to the aforesaid conclusions and in forming an opinion contrary to the one expressed by the learned Accountant Member, the learned Judicial Member relied heavily on the same judgment of the Hon'ble Calcutta High Court i.e., Trustees of Singhania Charitable Trust's case which had also been relied upon by the CIT(Appeals) and thereafter by the learned Accountant Member. The following observations at page 823 of the report were referred to, to ultimately come to the conclusion that the CIT(Appeals) was justified in confirming the action of the Assessing Officer in not allowing the assessee to accumulate the funds:-- "It was contended that one purpose is interlinked with the other and, therefore, the mention of all the purposes does not make any difference and satisfies the requirement of sub-section (2) of section 11. We are unable to accept this contention having regard to the broad nature of the purpose being all the objects mentioned in the deed of the trust. Doubtless, it is not necessary that the assessee has to mention only one specific object. There can be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced reliance on the various judgments of the Tribunal which had been adverted to by the learned A.M. in accepting the assessee's stand. A reference was also made at this stage to the judgment of the Calcutta High Court in the case of Trustees of Singhania Charitable Trust contending that even the Hon'ble High Court had not rejected the assessee's claim in toto since no answer was given by their Lordships to question No. 1 which was as follows: "1. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in holding that there is nothing illegal on the part of the assessee in giving notice to the Income-tax Officer in Form No. 10 listing all its objects for the purpose of accumulation of income as provided in section 11(2) of the Income-tax Act, 1961, which requires specification of the purposes?" 18. It was pointed out by the learned counsel that the High Court had remanded the matter back to the Tribunal allowing liberty to the assessee to adduce fresh evidence whether in the form of any resolution or otherwise showing the specific purpose for which the Trust required the accumulation of the income and if such evidence existed and it was plac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch accumulation had been sought could be subjected to the relevant provisions of the Income-tax Act and consequences thereto would follow. 22. I have examined the rival contentions and have also perused minutely the orders passed by the learned Members constituting the Division Bench. Both the learned Members have set out at length the facts of the case as also the scheme of the Act vis-a-vis the point under consideration. There is definitely a distinction between the two relevant provisions of the Act - one allowing accumulation upto 25 per cent of the income where the objects do not have to be specific and the other allowing accumulation upto 75 per cent of the income and the period of accumulation being as long as 10 years but setting out specific objects. In the present case, the assessee while applying for accumulation in Form No. 10 mentioned six objects out of 19 and a minute perusal of these shows with reference to page 7 of the order of the learned Accountant Member that the first three broadly pertained to education since they mention about setting up of schools, colleges, libraries, reading rooms and hostels for boys and girls studying in schools and colleges etc. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act: "Perhaps to meet the contingency where the fulfilment of a project requires heavy outlay and calls for accumulation of funds as observed in the case of Singhania Charitable Trust." 23. I would like to add further to this that a charitable institution which wants to accumulate its income for a long period of 10 years to carry out the charitable objects as set out in the Trust Deed does require time to think, time to plan and time to garner its resources etc. to fulfil those objects for which it has sought accumulation of funds and the Legislature in its wisdom has allowed a long period of 10 years and I, therefore, really cannot appreciate the arguments of the learned D.R. on behalf of the revenue that even when the application for accumulation is filed the applicant Trust must mention the type of institution medical or educational which it will set up as also the type of education or medical treatment which it will impart. This, in my opinion, was never the intention of the law makers when the provision in the form of a concession was introduced whereby a charitable institution need not pay any tax on its income earned for a good period of 10 years provided it carried out ..... X X X X Extracts X X X X X X X X Extracts X X X X
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