Lack of full declaration in Form 10 of accumulation u/s 11(2) by itself would not be fatal to the claim. Supreme Court dismisses SLP of the Revenue
ABCAUS Case Law Citation:
ABCAUS 2842 (2019) (03) SC
Important Case Laws Cited/relied upon by the parties
CIT v. Hostel and Restaurant Association (2003) 261 ITR 190
The assessee was a Public Charitable Trust. For the assessment year in question, the assessee had filed the return of income claiming deduction under section 11(2) of the Income Tax Act, 1961 (the Act).
The Assessing Officer (AO) questioned such claim prima facie believing that the assessee had not indicated the purpose for which the income was set apart which was one of the requirement of section 11 of the Act.
He also referred to the declaration to be made by the assessee under Form 10 in support of such a claim in which also, according to him, there was no specification of the purpose.
The assessee filed a detailed reply stating that the Trust was engaged in providing medical facilities at various centers and at the time of setting apart of the funds, two hospital projects were coming up and modern amenities were required to be provided in the existing hospitals.
It was stated that in view of the above, the board of the trustees therefore passed a resolution (which was filed along with the return of income) to set apart such amount to finance future requirement of the trust’s projects for purchase of necessary equipments, ambulance van, furniture and fixtures and for modernization of the hospitals.
The Assessing Officer was of the opinion that there was no such specification in the declaration in Form 10. Accordingly the AO took an adverse view and passed the assessment order not giving the claim of accumulation u/s. 11(2).
In appeal, the CIT(A) confirmed the view of the Assessing Officer upon which, assessee filed further appeal before the Tribunal.
The Tribunal allowed the appeal of the assessee. The Revenue took the matter in further appeal to the High Court.
The Hon’ble High Court observed that Section 11(2) of the Act provides that eighty five percent of the income which is not utilized by the Trust for charitable or religious purposes would not be included in the total income of the previous year of receipt of the income provided the conditions laid down in clause (a) to (c) contained therein are satisfied. Clause (a) in particular, which is applicable, provides that such person furnishes the statement in the prescribed form and in prescribed manner to the Assessing Officer staying 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 five years.
The Hon’ble High Court opined that undoubtedly the statement of purpose for which the income is being accumulated or set apart is one of the requirements which must be satisfied before the assessee can avail the benefit under sub-section (2) of section 11 of the Act. However, that by itself would not mean that any inaccuracy or lack of full declaration in the prescribed format by itself would be fatal to the claimant.
The Hon’ble High Court stated that the prime requirement of this clause is of stating of the purpose for which the income is being accumulated or set apart. Although the Revenue was right in that the declaration made in Form 10 by the assessee was not sufficient to fulfill this requirement, however, during the course of assessment proceedings, the the assessee in detail pointed out background under which the board of trustees had met, considered the material and eventually passed a formal resolution setting apart the funds for the ongoing hospital projects of the Trust and for modernization of the existing hospitals. There was thus a clear statement made by the assessee setting out the purpose for which the income was being set apart.
Accordingly, the Hon’ble High Court upheld the order of the Tribunal.
Against the judgment of the High Court, the Income tax Department had filed an Special Leave Petition (SLP) which was dismissed by the Hon’ble Supreme Court