TMI Blog2015 (11) TMI 173X X X X Extracts X X X X X X X X Extracts X X X X ..... in 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 10 years. The money so accumulated or set apart is invested or deposited in the forms or modes specified in sub section (5) of section 11 of the Act. A regards the condition in respect of furnishing of prescribed form 10 we have given the finding that 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 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 dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 details filed and discussing the case with the Authorised Representative, the assessment was completed u/s.143(3) of the Act on 24.03.2014 determining the total income at E1,59,08,870/-. During the course of assessment proceedings, the Assessing Officer found that a sum of E1,78,22,598/- was set apart as per clause (2) of explanation to sec. 11(1) of the Act. A show cause notice was issued to the trust proposing to treat the above sum of E1,78,22,598/- as per provision of sec 11(1)(a) of the Act. In response, the Authorised Representative stated that the trust follows accrual basis of accounting and also the trust got considerable receivables towards fees, interest, etc at the year end. In view of the unspent income the option provided under explanation (2) to sec.11(1) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 009-10 for which no details were furnished in the return of income, either before the Assessing Officer or before the undersigned, etc., Sub-section (2) of section 11 of the Act is invoked where 85% of the income referred to in clause (a) or clause (b) of sub-section (1) read with explanation to that sub-section is not applied to charitable purpose during the previous year but accumulated. For such accumulation the assessee has to fulfill the following two conditions:- 01. 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, which shall in no case exceed ten years. 02. the money so accumulated or set apart is invested or deposited in the forms or modes specified in subsection( 5). Further, 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 pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... following as does not exceed the said amount, and (b) in the case referred to in sub-clause (ii), so much of the income applied to such purposes in India during the previous year immediately following the previous year in which the income was derived 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 case referred to in sub-clause (i), during the previous year in which the income is received or during the previous year immediately following, as the case may be, and, in the case referred to in sub-clause (ii), during the previous year immediately following the previous year in which the income was derived. 6. The other relevant provision governing the issue is provisions of Sec.11(2) which read as under:- 11(2) Where eighty-five ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 of Sec.11(1)(a) exhausted, then follows sub-section (2) of Section 11 of the Act, which deals with the question of investment of the balance of accumulated income over and above 15% accumulated income which has still not qualified for exemption under clause (a) of sub-section 11(1) of the Act. That balance accumulated income can also qualify for exemption from income-tax meaning thereby the ceiling or the limit of exemption of accumulated income from income-tax as imposed by clause (a) of sub-section (1) of section 11 would get lifted if the additional accumulated income beyond 15% as the case may be, is invested as laid down by section 11(2) after following the procedure laid down therein. Therefore, sub-section (2) will operate for the entire balance of the previous year which has not got the benefit of tax exemption under clause (a) of sub-section (1) of section-11 of the Act. It has to be kept in view that out of the accumulated income of the previous year, 15% of the total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mulation not exceeding 15% are less than 85% still the trust is eligible for exemption from income u/s 11(2) of the Act. In other words, it can be said that a chartable or religious trust can claim exemption from income even no income is applied for the object of the trust during the year, the remaining 85% of the income will be allowed exemption u/s 11(2) of the Act provided the statutory requirements for filing Form 10 and investing the amount in specified securities are fulfilled by the assessee. 10. In the 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 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 section 11(2) is that if such income is accumulated or set apart, then such income ..... X X X X Extracts X X X X X X X X Extracts X X X X
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