IN THE INCOME TAX APPELLATE TRIBUNAL
Hyderabad ‘B‘ SMC Bench, Hyderabad
ITA No1014/Hyd/2015 Assessment Year: 2008-09

The Society of Catechist Sisters of St. Ann (Appellant) vs Asstt. Director of Income Tax (Exemptions)-II (Respondent)
Date of Pronouncement : 23-09-2015

ORDER

This is assessee’s appeal for A.Y 2008-09. In this appeal assessee is aggrieved by the order of the CIT (A) in upholding the order of the AO in rejecting the Form No.10 and consequentially brining to tax the disallowed amount of Rs.5,16,930.

2. Brief facts of the case are that the assessee trust filed its return of income for A.Y 2008-09 on 22.1.2009 declaring ‘Nil’ income after claiming exemption u/s 11 of the I.T. Act. Along with the return of income assessee also filed form No.10 seeking permission to accumulate income for application in subsequent years. During the assessment proceedings u/s 143(3) of the Act, AO observed that Form No.10 does not mention the specific purpose for which the amount is being accumulated. He, therefore held Form No.10 to be defective. An opportunity of rectifying the defects in Form No.10 was given to the assessee and in response to the said notice, assessee filed an explanation through its letter dated 22.12.2010 stating that the amount was accumulated or set apart for “establishment of schools/hospitals/ accommodation for workers”. AO, however, observed that the assessee society has been established and managed by a Minority Community for the benefit of “Roman Catholic Christ and all persons…….” and since the assessee has not filed any extract of the minutes/book or resolution passed by the trustees of the society in support of the purpose mentioned i.e. “establishment of schools/hospitals etc., the explanation dated 22.12.2010 was treated as invalid. He accordingly brought the excess of income expenditure of Rs.10,46,695 as per the income and expenditure statement to tax. Aggrieved, assessee preferred an appeal before the CIT (A) who confirmed the order of the AO as far as the disallowance of the accumulation of income is concerned. Aggrieved, assessee is in second appeal before us.

3. The learned Counsel for the assessee, Shri K.C. Devdas, while reiterating the submissions made by the authorities below submitted that, though no resolution passed by the Board accompanied Form No.10 or the return of income, it was stated that the accumulation of excess of income over expenditure as sated in Form No.10 was to enable the Association/Institution/ Members of the Trust to accumulate sufficient funds for carrying out the objects of the Trust. He submitted that during the course of the assessment proceedings, assessee has furnished the specific purpose for which the funds have been set aside and in such circumstances, the accumulation cannot be denied. He submitted that this issue is covered by the decision of the jurisdictional High Court in the case of Samaj Seva Nidhi vs. Asstt. Commissioner of Income Tax (Inv.) (2015)(376 ITR 507 (T & AP) wherein it was held that where the required information was not furnished through Form No.10 along with the return of income and subsequently, the assessee submitted another letter to the AO intimating specific purpose for which the amount was sought to be utilised, the information furnished before the completion of the assessment requires that no disallowance of accumulation is called for. He has filed a copy of the said order before us. He further submitted that the amount which has been accumulated or set apart for construction of schools/hospitals etc., has been utilised for the very same purpose in the subsequent years and therefore, the disallowance is not called for. The learned DR, on the other hand, supported the orders of the authorities below.

4. Having regard to the rival contentions and the material on record, I find that the assessee is a Charitable Trust and has been registered u/s 12AA of the Act. During the relevant financial year, Assessee has excess of income over expenditure and has sought to set apart the said excess for the purposes of objects of the Trust. Though in form No.10, assessee has not mentioned specific purpose for which the accumulation is being done, we find that during the course of the assessment proceedings, assessee has stated the specific purpose for which the accumulation is being done. The reason for AO’s refusal to accept the subsequent letter of the assessee giving specific purpose of accumulation is that the assessee has not filed the resolution of the society for the specific purpose mentioned in the letter. As far as the decision of the jurisdictional High Court is concerned, we find that the Hon'ble High Court has held that as long as the assessee is able to furnish the required information before the completion of the assessment, it is due compliance of the law and the assessee is eligible to accumulate such income. For coming to this conclusion the Hon'ble High Court has considered the judgment of the Hon'ble High Court of Calcutta in the case of DIT vs. Singhania Charitable Trust reported in 199 ITR 819 (Cal.) and also the decision of the Hon'ble Delhi High Court in the case of CIT vs. Hotel Restaurant Association (261 ITR 190 (Del.) and CIT vs. Nagpur Hotel Owners Association (247 ITR 201 (S.C) for coming to this decision. The relevant portion of the decision is reproduced hereunder for ready reference:

“5. Section 11(2) of the Act reads as follows:

“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 subsection 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 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 ten years ;

(b) the money so accumulated or set apart is invested or deposited in the fOID1s or modes specified in subsection (5) ..”

6. A perusal of the above provision makes it clear that the assessee should supply the information in Form No.10 and indicate the purposes for which the accumulated funds were meant to be utilised.

7. The said provision came up for consideration in Trustees of Singliania Charitable Trust (supra). The High Court of Calcutta was considering the following questions of law when they were referred to it under section 256(1) of the Act for the assessment year 1984-85 (page 820 of 199 ITR):

“1. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in holding that there is nothing illegal on the parr of the assessee in giving notice to the Income-tax Officer in Form No. 10 listing all its objects for the purpose of accumulation of income as provided in section 11(2) of the Income-tax Act, 1961, which requires specification of the purposes ? ",

2. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in cancelling the order of the Commissioner of Income-tax under section 263 of the Incometax Act, 1961, holding that the assessment of the Income-tax Officer allowing accumulation of the income under section 11(2) of the Income-tax Act, for all the objects for which the trust was created and not for any specific objects, was neither erroneous nor prejudicial to the interests of the Revenue ?"

8. In the said case, the Income-tax Officer allowed the exemption under section 11 of the Act by relying on the notice given by the assessee under section 11(2) of the Act. The Commissioner of Incometax, by invoking the powers vested in him under section 263 of the Act called for and examined the assessment records of the assessee. After notice to the assessee and response, he set aside the order of assessment and ordered for de novo enquiry. The assessee preferred an appeal to the Tribunal. The Tribunal held that since a plurality of charitable purposes is not ruled out under the scheme of the Act, no objection could possibly be taken to the assessee's listing out all the objects of the trust in Form No. 10. The matter was taken by the Revenue to the High Court. It was contended that one purpose is interlinked with the other and, therefore, the mention of all the purposes does not make any difference and satisfies the requirement of subsection (2) of section 11. The said contention of the assessee was not accepted holding that the said contention would render the requirement of specification of the purpose for accumulation in that sub-section redundant. It was held that the purposes to be specified cannot, under any circumstances, tread beyond the objects clause of the trust and the Legislature could not have thought of the need of specification of the purpose if it did not have in mind the particularity of the purpose or purposes falling within the ambit of the objects clause of the trust deed. Accordingly, it answered question No.2 in the negative and declined to answer question No.1. It remanded the matter to the Tribunal to allow the assessee to adduce fresh evidence whether in the form of any resolution or otherwise showing that the specific purpose for which the trust requires the accumulation of the income exists and observed that the said evidence should be considered by the Tribunal.

9. The said section was considered by the High Court of Delhi in CIT v. Hotel and Restaurant Association [2003] 261 ITR 190 (Delhi) and it was held as follows (page 192) :

"It is true that specification of certain purpose or purposes is needed for accumulations of the trust's income under section 11(2) of the Act. At the same time the purpose or purposes to be specified cannot be beyond the objects of the trust. Plurality of the purposes for accumulation is not precluded but it depends on the precise purpose for which the accumulation is intended. In the present case, both the appellate authorities below have recorded a concurrent finding that ; the income was sought to be accumulated by the assessee to achieve , the object for which the assessee was incorporated. It is not the case of the Revenue that any of the objects of the assessee-company were not for charitable purpose. The aforementioned finding by the Tribunal is essentially a finding of fact giving rise to no question of law”.

5. Since the facts and circumstances before me are also similar and particularly taking into consideration the assessee’s contention that the funds set apart have been utilised for the purpose mentioned by the assessee in its lettter filed before the AO during the assessment proceedings, I am of the opinion that the assessee is eligible for accumulating the excess of income over the expenditure for the relevant A.Y.

6. In the result, assessee’s appeal is allowed accordingly.

Order pronounced in the Open Court on 23rd September, 2015.

Sd/-
(P. Madhavi Devi)
Judicial Member

Hyderabad, dated 23rd September, 2015.