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M/s. V. Ramakrishna Charitable Trust Versus The Deputy Director of Income Tax, (Exemptions) -II, Chennai

2015 (11) TMI 173 - ITAT CHENNAI

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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ecifies by notice in writing given to the assessing officer 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 th .....

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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. - Decided in favour of assessee for statistical purposes - I.T.A. No.92/Mds/2015 - Dated:- 15-5-2015 - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JU .....

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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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mulation properly applied by the assessee. 6. The Commissioner of Income Tax (Appeals) ought to have appreciated that the appellant has duly invested the surplus funds strictly as per requirement of sec 11(5) of the Act. 7. The Commissioner of Income Tax (Appeals) erred in not following the ratio laid down in the following decisions: (i) CIT vs. G.R. Govindarajulu & Sons Charities 144 Taxman 300 (Mad). (ii) Addl CIT vs. ALN Rao Charitable Trust 216 ITR 697 (SC). (iii) CIT vs. Trustees of Bha .....

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etails 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. .....

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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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sioner of Income Tax (Appeals) observed that a perusal of Form No.10B filed along with the return reveals that a sum of E3,91,54,093/- only was applied to charitable purpose during the assessment year 2011-12 by the assessee against the amount of E5,69,76,691/- to be spend/applied during the assessment year 2011-12. The sum of E5,69,76,691/- to be applied during assessment year 2011-12 consisted of E4,74,80,952/- pertaining to assessment year 2011-12 and E94,95,739/- relates to assessment year 2 .....

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ter of option and letter of resolution alongwith the return of income. It is pertinent to observe that the sum to be spent/applied includes E94,95,739/- being unspent amount for the year 2009-10 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-sectio .....

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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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2012 is confirmed. Against this, the assessee is in appeal before us. 5. We have heard both the parties and perused the material on record. The question to be considered is 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. Provisions of Sec.11(1) (a) reads as under:- 11.(1)(a) Income deri .....

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hich may be accumulated or set apart, any such voluntary contributions as are referred to in section 12 shall be deemed to be part of the income; (2) if, in the previous year, the income applied to charitable or religious purposes in India falls short of eighty five per cent of the income derived during that year from property held under trust, or, as the case may be, held under trust in part, by any amount - (i) for the reason that the whole or any part of the income has not been received durin .....

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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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sub-section (1) read with the Explanation to that sub-section is not applied, or is not deemed to have been applied, to charitable or religious purposes in India during the previous year but is accumulated or set apart, either in whole or in part, for application to such purposes in India, such income so accumulated or set apart shall not be included in the total income of the previous year of the person in receipt of the income, provided the following conditions are complied with, namely:- (a) .....

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h the income could not be applied for the purpose for which it is so accumulated or set apart, due to an order or injunction of any court, shall be excluded. On a plain reading of above section, we find that following income of a charitable or religious trust shall not be included in the total income - (1) to the extent of income - (a) applied; (b) deemed to be applied for the object of the trust; and (c) accumulation of income not exceeding 15%; (2) exemption of balance income of income (after .....

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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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ection (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 income .....

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g the provisions of subsection (1) . Consequently it must be held that after section11(1)(a) has had its full force and if still any accumulated income of the previous year is left to be dealt with and to be considered for the purpose of income-tax exemption, sub-section (2) of section 11 can be pressed into service and if it is complied with, then such additional accumulated income beyond 15% will also be eligible for exemption from income-tax on compliance with the conditions laid down by sub- .....

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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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f 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 asse .....

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