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2015 (11) TMI 173

Exemption u/s 11(2) - whether 15% 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? - Held 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 tr .....

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at form No.10 submitted before the completion of the assessment is required to be considered if the condition as laid down in section 11(2)(a) is satisfied. However, as regard the condition (b) of section 11(2) that the money so accumulated or set apart is invested or deposited in the form or mode specified in sub section (5) of section 11 is subject to verification. We, therefore, think proper to send this issue to the file of the assessing officer with a direction to verify the said condition .....

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The Commissioner of Income Tax (Appeals) erred in confirming the order of the Assessing Officer treating the amount accumulated under Explanation 2 to sec 11(1) of the Act amounting to _1,59,08,870/- as income of the appellant. 3. The Commissioner of Income Tax (Appeals) erred in holding that the accumulated or set apart income as per Explanation (2) to sec 11(1) shall be deemed to be income applied for such purpose and exempt from tax only if the conditions stipulated in sec 11(2) of the Act ar .....

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t Family Research Foundation 195 ITR 5332 (Bom) . 3. The brief facts of the case are that the assessee is a public charitable trust running a polytechnic college since 1976. The trust was registered u/s.12A(a) of the Income Tax Act, 1961 vide order in C.No.2217 dated 30.09.1976. The assessee trust filed its return for the assessment year 2011-12 on 30.09.2011 admitting nil income. The case was selected for scrutiny and notice u/s.143(2) of the Act was issued accordingly. After scrutinizing the d .....

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T return at the time of filing of return of income. Further, the trust spend the amount accumulated in the immediate subsequent year i.e. in the F.Y. 2011-12. Not convinced with the reply, the Assessing Officer found that the assessee claimed the surplus as per clause (2) of explanation to sec. 11(1) of the Act without assigning any reasons. Any other reason means, the assessee should have specified the reasons for unapplied income to be set apart in the nest year. The assessee even in the earli .....

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009-10 as per the utilization statement furnished by the assessee. The unspent amount worked out by the assessee was E1,78,22,598/-. The sum of E1,78,22,598/- was sought to be accumulated under clause(2) of explanation to sec. 11(1) of the Act. For this purpose, letter of resolution dated 15.09.2011 and letter of option dated 27.09.2011 were enclosed with the return of income. In this case, the assessee invokes Explanation (2) to sec.11(1) of the Act for accumulating E1,78,22,598/- by filing let .....

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r, he observed that considering the view that even for clause (2) of sub-section 11(1) of the Act, the conditions stipulated u/s.11(2) of the Act apply which is crystal clear from the wording of section 11(2) of the Act. Mere resolution and letter of option without the purpose are not enough to accumulate or set apart the income. The accumulated or set apart income as per Explanation (2) to section 11(1) of the Act shall be deemed to be income applied to such purposes and hence exempt from tax i .....

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ved 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 fifteen per cent of the income from such property. (b) to (d) xxx Explanation.- For the purposes of clauses (a) and (b),- (1) in computing the fifteen per cent of income w .....

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as does not exceed the said amount. May, at the option of the person in receipt of the income (such option to be exercised in writing before the expiry of the time allowed under sub-section (1) of section 139 for furnishing the return of income) be deemed to be income applied to such purposes during the previous year in which the income was derived; and the income so deemed to have been applied shall not be taken into account in calculating the amount of income applied to such purposes, in the c .....

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such person specifies, by notice in writing given to the Assessing Officer in the prescribed manner, 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, 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 whic .....

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for application to such purposes in India not exceeding fifteen per cent of the income. 8. Thus, it is clear that income earned by the trust during the previous year are given exemption from income-tax to the extent of that part of the income which is actually spent for charitable or religious purposes plus accumulated income not exceeding 15% of the income. Clause (a) of Section 11(1) of the Act permits automatic accumulation of income up to 15% without any precondition set. Once the operation .....

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is given exemption from income-tax by clause (a) of sub section (1) of section 11 itself. That exemption is unfettered and not subject to any conditions. Section 11(2) does not operate to whittle down or to cut across the exemption provision contained in section 11(1)(a) so far as such accumulated income does not exceed 15% of the income accumulated in the previous year. It has also to be appreciated that sub-section (2) of section 11 does not contain any non obstante clause like notwithstandin .....

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to charitable or religious purpose falls short of 85% 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 that filing of Form 10 u/s 11(2) of the Act and exercising in writing before the expiry of the time allowed under sub section (1) of section 139 while furnishing the return of income Explanation to se .....

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ssee 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 15% of the income. 11. With regard to allowance of deduction over and above 15% of the income, for which the assessee is to satisfy the conditions laid down in section 11(2) of the Act. As per the discussion made above, the requirement of .....

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on 11 is subject to verification. We, therefore, think proper to send this issue to the file of the assessing officer with a direction to verify the said condition of clause (b) of section 11(2) of the Act as to whether the assessee has made investment in the prescribed securities or not. Accordingly, the assessing officer will decide this issue after providing opportunity of hearing to the assessee and the issue in dispute is remitted to Assessing Officer for fresh consideration. 12. In the res .....

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