TMI Blog2020 (3) TMI 1033X X X X Extracts X X X X X X X X Extracts X X X X ..... s or Trust or institution not specified therein. The argument is not well founded. From the changes made by Finance Act, 2002 in section 11, it is clear that restrictions have been imposed on transfer of accumulated or set apart amount but the utilization of income received during the year has not been touched. It is settled that income received during the year can be transferred to other Trust or institution for charitable or religious purpose and same shall be held to be application for such purpose. The argument raised that since there is a restriction only for payment or credit of accumulated amount to a registered Trust or institution recognized under the Act and it would mean that payment can be made to un-registered Trust, institution or to institutions or Trusts not even recognized by the Act as charitable is far-fetched. This would lead to adding words to the provisions of the Statute which is not permissible. There is another aspect of the matter, it has not been even the case of the appellant that the donee is indulged in charitable or religious purpose what has been stated is that the aims and objects of the donor and donee are similar. Circular No.8 of 2002 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... War Heroes Memorial Museum Society, Amritsar [for brevity PSWHMMS ] on directions of the Government of Punjab. The donee-Society was not registered under section 12AA at the relevant time though subsequently registered. The income tax return was selected for scrutiny, assessment was framed on 19.12.2016. Apart from other additions the amount transferred to PSWHMMS was considered as income of the appellant, holding that there was violation of section 11(2) and 11(3)(d) of the Act. The first appeal filed was partly allowed on 07.07.2017, however the impugned addition was upheld. In further appeal, the Tribunal partly allowed the appeal on 28.08.2018 but the addition in question was sustained. [3] Though three substantial questions of law have been claimed, the issue involved and pressed is:- Whether the impugned transfer to PSWHMMS is deemed income of the Society in the year of transfer or not? [4] The relevant portion of section 11 of the Act is reproduced below:- Income from property held for charitable or religious purposes. 11. (1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case referred to in sub-clause (i), so much of the income applied to such purposes in India during the previous year in which the income is received or during the previous year immediately 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 before the expiry of the time allowed under sub-section (1) of section 139 for furnishing the return of income, in such form and manner as may be prescribed) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appropriate fraction of the amount utilised for acquiring the new asset exceeds the appropriate fraction of the cost of the transferred asset. Explanation.-In this sub-section,- (i) appropriate fraction means the fraction which represents the extent to which the income derived from the capital asset transferred was immediately before such transfer applicable to charitable or religious purposes; (ii) cost of the transferred asset means the aggregate of the cost of acquisition (as ascertained for the purposes of sections 48 and 49) of the capital asset which is the subject of the transfer and the cost of any improvement thereto within the meaning assigned to that expression in sub-clause (b) of clause (1) of section 55; (iii) net consideration means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer. (1B) Where any income in respect of which an option is exercised under clause (2) of the Explanation to subsection (1) is not applied to charitable or religious purposes in India during the period referre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, shall not be treated as application of income for charitable or religious purposes, either during the period of accumulation or thereafter. (Inserted by the Finance Act, 2002 w.e.f. 01.04.2003) (3) Any income referred to in sub-section (2) which- (a) is applied to purposes other than charitable or religious purposes as aforesaid or ceases to be accumulated or set apart for application thereto, or (b) ceases to remain invested or deposited in any of the forms or modes specified in sub-section (5), or (c) is not utilised for the purpose for which it is so accumulated or set apart during the period referred to in clause (a) of that sub-section or in the year immediately following the expiry thereof, (d) is credited or paid 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 subclause (iv) or sub-clause (v) or sub-clause (vi) or subclause (via) of clause (23C) of section 10, (Inser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant year, as same was applied through donee. [6] Before dealing with the issue we take over all view of provisions of section 11(1) to 11(3A) of the Act, relevant for the present appeal. Chapter III of the Act deals with the income which do not form part of the total income . Section 11 is for Income from property held for charitable or religious purposes . Sub-section (1) provides that subject to section 60 to 63 of the Act, incomes mentioned in sub clauses (a) to (d) received in previous year are not to be included in total income. Sub-clause (a) provides that if income derived from the property held under the Trust for charitable or religious purpose is applied for the purpose in India and amount accumulated or set apart for application for the purpose in India is not exceeding 15%; subclause (b) deals with the Trust created before the commencement of the Act; sub-clause (c) is with regard to promotion of international welfare in which India is interested and sub-clause (d) includes voluntary contribution given with the specific direction to form part of corpus. The explanations to sub-section (1) are not relevant for the present case. Sub-section (1A) deals with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount is credited or paid to a Trust or Institution registered under section 12AA of the Act or fund or institution or Trust referred to in clauses (iv), (v), (vi) and (via) of section 10(23C) of the Act. [9] Sub-section (3A) of section 11 starts with a non-obstante clause and authorized the assessing officer that for the reasons beyond the control, purpose for which the amount was accumulated can be changed but the change shall be in conformity with the objects of the Trust. Two provisos were added to sub-section (3A) by the Finance Act, 2002 w.e.f. 01.04.2003. The first proviso restricted the power under sub-section that change would not be for the purpose mentioned in section 11(3)(d); the second proviso provides that in case of dissolution of Trust or institution, the assessing officer can permit the application of the accumulated or set apart income in the year of dissolution for the purposes referred to in section 11(3)(d). [10] There is fallacy in the contention raised by learned counsel for the appellant. The requirement of section 11 is that atleast 85% of the income is to be applied for religious or charitable purpose in year of receipt and the accumulation cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t well founded. [17] The reasons and objects of amendments are reproduced below:- Sub-clause (c) (ii) seeks to insert an Explanation below sub-section (2) of the said section so as to provide that 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) of clause (23C) of section 10 shall not be treated as application of income for charitable or religious purposes, either during the period of accumulation or thereafter. Thus, payment to other trusts or institutions out of income from property held under trust in the year of receipt will continue to be treated as application of income. However, any such payment out of the accumulated income shall not be treated as application of income and will be taxed accordingly. Sub-clause (d)(i) seeks ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2) of section 11 so as to provide that any amount paid or credited out of income from property held under trust 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) of clause (23C) of section 10, either during the period of accumulation or thereafter, shall not be treated as application of income for charitable or religious purposes. Thus, payment to other trusts and institutions out of income from property held under trust in the year of receipt will continue to be treated as application of income. However, any such payment out of the accumulated income shall not be treated as application of income and will be taxed accordingly. 21.2 Through the Finance Act, 2002, a new clause (d) has also been inserted in sub-section (3) of section 11 so as to provide that if any income referred to in sub se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2002, same does not enhance the case of the appellant rather paragraph No.10 of the judgment states that the accumulation has to be for specific purpose and amount cannot be accumulated merely by stating that it is for the aims and objects of the Trust. Paragraph No.10 of the judgment is reproduced as under:- 10. The scheme of s.11 of the Act was examined by the apex Court in S.RM.M.CT.M. Tiruppani Trust vs. CIT (1998) 145 CTR (SC) 176 : (1998) 230 ITR 636 at p.640 (SC): TC S.23.2416 as under:- Under s. 11(1)(a), income derived from property held under trust for charity, to the extent that such income is applied for charitable or religious purposes will be exempt from income-tax. Where the income or the tnrie income is not so spent, but is accumulation, it will be exempt to the extent of 25 per cent of its total income or ₹ 10,000/- whichever is higher. Under s.11(2), if the trust desires to accumulate more than 25 per cent, of its income and wants to claim exemption from income-tax it has to comply with the conditions which are laid down in s.11(2)(a) and (b). The first condition is that a notice in writing should be given to the ITO in the prescribed manner sp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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