9911796707
TMI Blog2019 (9) TMI 145X X X X Extracts X X X X X X X X Extracts X X X X ..... i erred in denying the appellant to claim the deduction u/s 11(2) of 6,50,00,000/-. 2. Without prejudice to ground raised above and on facts and circumstances of the case and in law the appellant may be granted the exemption in respect of deemed application of income as provided in Explanation to Section 11(1) with respect to the income of Rs. 6,50,00,000 which is applied for religious purposes in the immediately subsequent previous year. 3. On the facts and circumstances of the case and in law learned CIT(A) erred in restricting the exemption u/s. 11(1)(a) on account of application of income for the religious objects of the trust to Rs. 24,79,348 as against exemption claimed for Rs. 91,86,875." 3. The assessee is a religious trust registered with the Director of Income Tax(Exemption),Mumbai u/s. 12A vide registration no. TR/614 dated 24.08.1979. The trust is registered with the Charity Commissioner , Mumbai. The main object of the trust is to establish, to do administration of, to manage, to do management of, to support, all in conformity with the usages of Shwetamber Murtipujak Tapagachhiya Jain Principles religious educational institution and get done and encourage all s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1961 Act, to the tune of Rs. 6,50,00,000/- which stood added to the income of the assessee, vide assessment order dated 28.12.2016 passed by the AO u/s 143(3) of the 1961 Act. 3.6 The AO further disallowed expenses to the tune of Rs. 67,07,527/- claimed by the assessee to have been incurred on objects of the trust as per Income & Expenditure account of the assessee , vide assessment order dated 28.12.2016 passed by AO u/s. 143(3) of the 1961 Act. 4. Being aggrieved by an assessment framed by the AO vide assessment order dated 28.12.2016 passed u/s 143(3) of the 1961 Act, the assessee filed first appeal before Ld. CIT(A) . The assessee submitted before learned CIT(A) that assessee has duly filed Form no. 10 along with Resolution passed by Board of Trustees during the course of assessment proceedings before the AO on 21.12.2016 although it was filed in physical mode and not electronic mode. The assessee submitted that all the requirements for claiming accumulation of income as stipulated u/s 11(2) were satisfied except that Form No. 10 was not submitted before the stipulated time as provided u/s 139(1) of the 1961 Act but the same was filed in physical mode before the AO before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come u/s 139(1) of the 1961 Act and even physically Form No. 10 was not filed within time stipulated for filing of return of income u/s 139(1) of the 1961 Act. It was claimed before learned CIT(A) by assessee that factum of accumulation or setting apart of an amount of Rs. 6.50 crores was duly mentioned in income-tax return in form no. ITR-7 at serial number 9(vi) filed by assessee with Revenue. The assesseee also claimed before learned CIT(A) that it filed in Schedule -I to ITR-7 , details of accumulation/setting apart within meaning of Section 11(2) of the 1961 Act wherein an amount of Rs. 6.50 crores was stated as accumulated for the year under consideration for purchase of immovable properties. It was submitted that in computation of income filed before the AO, the accumulation of Rs. 6.50 crores u/s 11(2) of the 1961 Act was specifically shown as deduction from the computation of income. The assessee also stated that in Audit Report in Form no. 10B (furnished electronically) , the auditors have stated that an amount of Rs. 6.50 crores was accumulated or set apart for specified purposes u/s 11(2) of the 1961 Act at serial number 5 of Form No. 10B. Thus, it was submitted that in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.04.2016 by Finance Act, 2015, which reads as under: "(c) the statement referred to in clause (a) is furnished on or before the due date specified under sub-section (1) of section 139 for furnishing the return of income for the previous year." The Memorandum explaining the clauses in Finance Act, 2015 stipulates that said Form No. 10 is to be filed before the due date for filing of return of income u/s 139 and in case the said Form No. 10 is not filed before the due date, the benefit of accumulation shall not be available and such income would be taxable, which reads as under: " In order to remove the ambiguity regarding the period within which the assessee is required to file Form 10, and to ensure due compliance of the above conditions within time, it is proposed to amend the Act to provide that the said Form shall be filed before the due date of filing return of income specified under section 139 of the Act for the fund or institution. In case the Form 10 is not submitted before this date, then the benefit of accumulation would not be available and such income would be taxable at the applicable rate." It was claimed that this amendment is applicable prospectively wef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that mere procedural lapse should not cause prejudice to the assessee in claiming deduction u/s 11(2) of the 1961 Act. The assessee prayed that exemption provision be liberally construed in favour of the assessee. Without prejudice, the assessee also claimed in alternative that assessee is entitled for deduction u/s 11(1) of the 1961 Act as it has complied with all the conditions stipulated for said deduction. 5. The learned CIT(A) rejected the contentions of the assessee vide appellate order dated 08.02.2019, by holding as under:- " 6.3 Decision on ground no 3: I have considered the facts of the case, gone through the AO's Order and the submission of the appellant trust. In this case, the appellant trust had filed its return of income in on 25.03.2015 electronically in ITR-7 without the Audit Report, as required u/s 12A(1) of the I.T.Act. The requirements of filing Audit Report and the implication for non-filing of Form-10B is best understood by visiting the relevant provisions of the Act, which is reproduced for reference. The statutory provisions with regard to submission of Audit Report is as under:- "12A. (1) The provisions of section 11 and section 12 sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g with resolution of trustee. Therefore, I am convinced that the appellant has failed to comply with the requirement of filing audit report as per Sec. 12A of the I.T. Act. On consideration of the above facts, it is found that non-filing of the Audit Report in the case of the appellant trust is a clear violation of Statutory Provision. It is all the more important in the case of a charitable trust to file its audit report in time, as the trust is provided with benevolent tax exemption benefits to encourage charitable works. Thus, the timely filing of Audit Report is put in the statue with a view to keep a check on the potential misuse of these benevolent provisions. In view of the above facts and circumstances, and due to violation of statutory provision u/s 12A of the I.T.Act, I decline to interfere with the findings of the A.O. with regard to denial of exemption on the ground of non-submission of Audit Report to the appellant trust. Therefore, the ground of appeal nos. 3 is dismissed." 6. With regard to the second issue , the assessee explained that it had claimed an exemption u/s. 11(1)(a) amounting to Rs. 91,86,875/- on account of application of its income for religious ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for ay: 2014-15. The copy of said challan of Rs. 30 lacs was also handed over by learned counsel for the assessee to learned DR who did not controvert the factual position as the terms of stay of demand stood fulfilled by the assessee. 7.2 Coming to merits of the issue, the Ld. Counsel for the assessee submitted that there are three grounds of appeal raised by the assessee in its appeal filed with the tribunal. It was submitted that ground no. 2 is consequential in nature and if ground no. 1 is adjudicated in favour of the assessee , then in that scenario the assessee would not like to press ground no. 2. It was submitted that assessee is a religious trust and is duly registered with Director of Income Tax (Exemption) , Mumbai u/s. 12A vide registration no. TR/614 dated 24.08.1979 . It was submitted that the trust is duly registered which Charitable Commissioner, Mumbai. It was submitted that assessee is religious trust and has done accumulation of income to the tune of Rs. 6,50,00,000/- u/s. 11(2) during the year under consideration i.e. previous year relevant to ay: 2014-15, for acquiring immovable property for constructing temple. It was submitted that premises was bought in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aside an amount of Rs. 6.50 crores for purchasing immovable property for achieving objects of the trust. The assessee also placed on record Form no. 10 dated 21.02.2015 (page 20-21/pb)setting aside an income of Rs. 6.50 crores for investing in immovable property for purchase of Dharmshala, Upashray, Temple , Pathshala etc.. Our attention was also drawn to page no. 23-25/paper book wherein audit report in Form no. 10B dated 21.02.2015 along with e-filing receipt dated 25.03.2015 is placed, wherein at column 5 accumulation of income to the tune of Rs. 6.5 crore is reflected and at column number 6 , the assessee has reflected that Fixed Deposit is created for an amount of Rs. 6.50 crores in compliance with provision of Section 11(2)(b) of the 1961 Act. Our attention was also drawn to the order passed by Ld. CIT(A). It was submitted that Rule 12 of the 1962 Rules made it mandatory w.e.f. 01.04.2014 for filing of Form no. 10 electronically but no corresponding amendments were made in Rule 17 which was only amended w.e.f. assessment year 2016-17 w.e.f. 01.04.2016. Our attention was drawn to paper book / page no. 26-27 wherein said amended Rule 17 of the 1962 Rules is placed. Our attenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year of e-filing of these forms. It has been requested that the delay in filing of Form No. 9A and Form NO.10for AY 2016-17 may be condoned under section 119(2) (b) of the Act. 5. Accordingly, in supersession of earlier Circular/Instruction issued in this regard, with a view to expedite the disposal of applications filed by trusts for condoning the delay and in exercise of the powers conferred under section 119(2)(b) of the Act, the Central Board of Direct Taxes hereby authorizes the Commissioners of Income-tax, to admit belated applications in Form No. 9A and Form No.10 in respect of AY 2016-17 where such Form No. 9A and Form No.10 are filed after the expiry of the time allowed under the relevant provisions of the Act. 6. The Commissioners will, while entertaining such belated applications in Form No. 9A and Form No.10, satisfy themselves that the assessee was prevented by reasonable cause from filing of applications in Form No. 9A and Form No.10 within the stipulated time. Further, in respect of Form No. 10 the Commissioners shall also satisfy themselves that the amount accumulated or set apart has been invested or deposited in anyone or more of the forms or modes specified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eving objects of these earmarked funds were deducted from these earmarked funds. The assessee also submitted that while filing return of income , in computation of income the assessee has reflected these donations received including earmarked donation and expenses were also claimed against these donations. It was submitted that without any reasons the AO has disallowed these expenses to the tune of Rs. 67,07,527/- incurred against donations received towards earmarked funds.Our attention was drawn to paper book / page no. 1 and 8 . Our attention was also drawn to the appellate order passed by learned CIT(A) while disposing of this ground. 7.6 The Ld. DR on the other hand submitted that e-filing of form no. 10 is mandatory which ought to have been filed before due date of filing of return of income u/s 139(1) of the 1961 Act and the assessee has not filed Form no. 10 electronically alongwith return of income and it was filed physically on 21.12.2016 during the course of assessment proceedings conducted by the AO. It was submitted by learned DR that assessee e-filed Form no. 10 only on 07.11.2017 when appellate proceedings were going on with learned CIT(A) and the copy of the said F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turn of income u/s 139(1) of the 1961 Act. While filing return of income, the assessee had claimed deduction of Rs. 6,50,00,000/- u/s 11(2) for purchasing immovable property for achieving its objects and activities. The said declaration of claiming deduction of Rs. 6.50 crores u/s 11(2) has been also been made and reflected in the ITR-7 filed with the Revenue on 25.03.2015. The said declaration is also found mentioned in Form No. 10B being audit report issued by the auditors on 21.0.2015, which was filed with Revenue on 25.03.2015 along with Return of income. The assessee however did not file Form No. 10 along with its income-tax return filed with the Revenue. The said Form No. 10 was eventually filed by assessee for the first time physically/manually before the AO on 21.12.2016 , when the assessment proceedings were underway before the AO which culminated into an assessment order dated 28.12.2016 passed by the AO u/s 143(3) of the 1961 Act. The assessee also undisputedly filed Resolution dated 10.02.2014 passed by Board of Trustees approving accumulation of income to the tune of Rs. 6.50 crores in immovable properties for achieving objects and activities of the trust, physically b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity of deduction of Rs. 6.50 crores by way of accumulation of income claimed by the assessee u/s 11(2) of the 1961 Act. First, let us see the provisions of the statute as they existed during the relevant period as well of now. For the year under consideration, the relevant provisions of the 1961 Act and Rules are enumerated below:- Section 11(2) as it then stood during relevant period is reproduced hereunder :- "Income from property held for charitable or religious purposes. 11 (1)***** "[(2) [Where [eighty-five] per cent of the income referred to in clause (a) or clause (b) of 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) such person specifies, by notice in writing given to the [Assessing] Officer in the prescribed manne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apart and the period for which the income is to be accumulated or set apart, which shall in no case exceed five years; (b) the money so accumulated or set apart is invested or deposited in the forms or modes specified in sub-section (5); (c) the statement referred to in clause (a) is furnished on or before the due date specified under sub-section (1) of section 139 for furnishing the return of income for the previous year: Provided that in computing the period of five years referred to in clause (a), the period during which 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.] [Explanation.-Any amount credited or paid, out of income referred to in clause (a) or clause (b) of sub-section (1), read with the Explanation to that sub-section, which is not applied, but is accumulated or set apart, to any trust or institution registered under section 12AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub- clause (v) or sub-clause (vi) or sub-clause (via) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, shall be excluded. This amendment will take effect from 1st April, 2016 and accordingly apply in relation to the assessment year 2016-17 and subsequent years." 8.4 Memorandum to Finance Bill, 2015 with respect to the aforesaid amendment carried in provisions of Section 11 provided as under: "Rationalisation of provisions of section 11 relating to accumulation of Income by charitable trusts and institutions Under the provisions of section 11 of the Act, the primary condition for grant of exemption to trust or institution in respect of income derived from property held under such trust is that the income derived from property held under trust should be applied for the charitable purposes in India. Where such income cannot be applied during the previous year, it has to be accumulated and applied for such purposes in accordance with various conditions provided in the section. While 15% of the income can be accumulated indefinitely by the trust or institution, 85% of income can only be accumulated for a period not exceeding 5 years subject to the conditions that such person submits the prescribed Form 10 to the assessing Officer in this regard and the money so accumulated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said sub-section in respect of such income, is not furnished on or before the due date specified under sub-section (1) of section 139 for furnishing the return of income for the previous year; or (ii) the return of income for the previous year is not furnished by such person on or before the due date specified under sub-section (1) of section 139 for furnishing the return of income for the said previous year. This amendment will take effect from 1st April, 2016 and accordingly apply in relation to the assessment year 2016-17 and subsequent years. 8.7 Thus, this Sub-section 9 to Section 13 made it mandatory to file return of income within time stipulated u/s 139(1) and also furnishing of statement in Form No. 10 making declaration of accumulation u/s 11(2) before the due date as prescribed u/s 139(1) of the 1961 Act, w.e.f. ay: 2016-17, for claiming deduction u/s 11(2). Thus, the provisions of the 1961 Act were itself amended w.e.f. ay: 2016-17 onwards making it mandatory for filing of return of income within due date as provided u/s 139(1) of the 1961 Act and also to file Form No. 10 before the time stipulated for filing of return of income u/s 139(1) of the 1961 Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (4) The Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems), as the case may be, shall- (i) specify the procedure for filing of Forms referred to in sub-rule (3); (ii) specify the data structure, standards and manner of generation of electronic verification code, referred to in sub-rule(3), for purpose of verification of the person furnishing the said Forms; and (iii) be responsible for formulating and implementing appropriate security, archival and retrieval policies in relation to Forms so furnished. ]" 8.10 Thus, as can be seen above, amended Rule 17 of the 1962 Rules now provides that Form No. 10 shall be filed electronically and this amendment is brought in by Income-tax (First Amendment) Rules, 2015 w.e.f. 01.04.2016. However, Rule 17 of the 1962 Rules always stipulated that Form No. 10 is to be filed before the due date of filing of return of income u/s 139(1). It can be seen from proviso to Rule 12(2) of the 1962 Rules that w.e.f. 01.04.2014, it provided that notice of accumulation of income as is required u/s 11(2)(a) is to furnished electronically , which stood inserted by the Income-Tax (Fourth Amendment) R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Section 139(4) of the 1961 Act provides that in case return of income could not be filed within due date for filing of return of income as stipulated u/s 139(1), the return of income can be filed before the end of the assessment year, which reads as under: "139 (4) Any person who has not furnished a return within the time allowed to him under sub-section (1), may furnish the return for any previous year at any time before the end of the relevant assessment year or before the completion of the assessment, whichever is earlier.]" 8.13 The assessee in the instant case has filed its return of income on 25.03.2015 which is within time prescribed u/s 139(4) and as we have seen that provisions of Section 139(4A) for the relevant period under consideration before us clearly stipulates that all provisions of the 1961 Act shall , so far as may be, apply as if it were a return of income required to be furnished u/s 139(1) of the 1961 Act. The assessee did e-filed return of income in ITR-7 on 25.03.2015 within time stipulated u/s 139(4) of the 1961 Act. Thus, by virtue of stipulation in Section 139(4A) as we have seen above as applicable for relevant period under consideration before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.16 We are presently concerned with ay: 2014-15 in the instant appeal. Thus, as we have seen above the amendments in the 1961 Act were all brought post ay:2014-15. For us, now it is relevant to see that Rule 17 of the 1962 Rules provided for furnishing of Form No. 10 within time allowed u/s 139(1) of the 1961 Act to avail deduction u/s 11(2) of the 1961 Act and at the same time proviso to Rule 12(2) of the 1962 Rules provided for e-filing of Form No. 10 electronically. These two conditions clearly were not met by the assessee. Thus, for period under consideration before us, the un-amended 1961 Act as discussed by us above shall hold the field. We have seen that Hon'ble Supreme Court has held in Nagpur Hotel Owners Association(supra) that it will be sufficient compliance of law, if Form No. 10 is filed at any stage prior to completion of assessment proceedings by the AO. The law as declared by Hon'ble Supreme Court in the above case shall hold the field till amendments were brought in the 1961 Act itself by Parliament which are substantive amendments in the 1961 Act . Earlier, the Hon'ble Bombay High Court has in this case of Nagpur Hotel Owners Association(supra) dealt with del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;in the prescribed manner' in section 8(4) does not take in the time element. In other words, the section does not authorise the rule-making authority to prescribe a time-limit within which the declaration is to be filed by the registered dealer. The view that we have taken is supported by the language of section 13(4)(g) of the Act which states that the State Government may make rules for the 'time within which, the manner in which and the authorities to whom any change in the ownership of any business or in the name, place or nature of any business carried on by any dealer shall be furnished.' This makes it clear that the Legislature was conscious of the fact that the expression 'in the manner' would denote only the mode in which an act was to be done, and if any time-limit was to be prescribed for the doing of the act, specific words such as 'the time within which' were also necessary to be put in the statute. In Stroud's Judicial Dictionary, it is said that the words 'manner and form' refer only 'to the mode in which the thing is to be done, and do not introduce anything from the Act referred to as to the thing which is to be done o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court at the behest of Revenue in the aforesaid case of Nagpur Hotel Owner Association(supra), the Hon'ble Supreme Court held that there will be substantial compliance if the said Form No. 10 is filed by the assessee before the AO before completion of assessment proceedings, by holding as under in the case of Nagpur Hotel Owners Association(supra):- "6. It is abundantly clear from the wordings of sub-section (2) of section 11 that it is mandatory for the person claiming the benefit of section 11 to intimate to the assessing authority the particulars required under rule 17 in Form No. 10 of the Act. If during the assessment proceedings the Assessing Officer does not have the necessary information, question of excluding such income from assessment does not arise at all. As a matter of fact, this benefit of excluding this particular part of the income from the net of taxation arises from section 11 and is subjected to the conditions specified therein. Therefore, it is necessary that the assessing authority must have this information at the time it completes the assessment. In the absence of any such information, it will not be possible for the assessing authority to give the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.04.2014. This is the first year for compliance of said amended Rule to file Form No. 10 electronically. The assessee however defied proviso to Rule 12(2) of the 1962 Rules as it did not file Form No. 10 electronically before the conclusion of the assessment proceedings by the AO. The assessee however later on 07.11.2017 e-filed Form No. 10 electronically. The said Form No. 10 filed electronically along with Resolution dated 10.02.2014 of the Board of Trustee authorising accumulation of income to the tune of Rs. 6.50 crores for purchase of property for temple, dharmshala etc. were duly filed before learned CIT(A) before the culmination of first appellate proceedings vide appellate order dated 08.02.2019. We have observed that the assessee has stated that it is due to oversight that it skipped its attention that from this assessment year onwards i.e. with effect from 01.04.2014 , there was an amendment in proviso to Rule 12(2) requiring it to file Form No. 10 electronically which amendment was applicable from 01.04.2014. Further, it is claimed that Rule 17 was not amended simultaneously when aforesaid amendment in proviso to Rule 12(2) of the 1962 Rules took place. We have also obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the specified time for AY 2016-17, which was the first year of e-filing of these forms. It has been requested that the delay in filing of Form No. 9A and Form NO.10for AY 2016-17 may be condoned under section 119(2) (b) of the Act. 5. Accordingly, in supersession of earlier Circular/Instruction issued in this regard, with a view to expedite the disposal of applications filed by trusts for condoning the delay and in exercise of the powers conferred under section 119(2)(b) of the Act, the Central Board of Direct Taxes hereby authorizes the Commissioners of Income-tax, to admit belated applications in Form No. 9A and Form No.10 in respect of AY 2016-17 where such Form No. 9A and Form No.10 are filed after the expiry of the time allowed under the relevant provisions of the Act. 6. The Commissioners will, while entertaining such belated applications in Form No. 9A and Form No.10, satisfy themselves that the assessee was prevented by reasonable cause from filing of applications in Form No. 9A and Form No.10 within the stipulated time. Further, in respect of Form No. 10 the Commissioners shall also satisfy themselves that the amount accumulated or set apart has been invested or dep ..... X X X X Extracts X X X X X X X X Extracts X X X X
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