In a recent judgment, Chandigarh ITAT has held that benefit of income accumulation u/s 11(2) of the Income Tax Act, 1961 (Act) can not be denied on the ground of vagueness if the objects stated in the Form No.10 are the objects as per the bye laws of the trust/society on the basis of which it was granted registration under section 12A.

Case Details:
M/s Rogi Kalyan Samiti (Appellant) vs. ACIT (Respondent)
ITA No.1117/Chd/2014; AY 2010-11
Date of Order: 15-10-2015

Facts of the Case:
The assessee society was registered under section 12A of the Act by the Commissioner of Income Tax, Shimla. During the AY 2010-11 the assessee filed its return of income declaring nil income after claiming deduction under section 11 of the Act. The assessee had set aside an amount of Rs.6,76,48,808/- for accumulation as provided under section 11(2). The assessee had received Rs.11,23,70,948/-, however, during the year, it had spent only Rs.3,84,70,751/- . The assessee submitted Form 10 for accumulation for the purpose of “salary and welfare of patients”. However, Assessing Officer (AO) found the said accumulation as not as per law and assessed it as AOP at Rs.6,76,48,808/-. According to AO, the objects specified in Form No.10 for accumulation of income were too vague and further there was no need for assessee to accumulate funds for the purpose of salary as it has enough funds including grants received from State Government for this purpose.

Before CIT(A), the assessee submitted that the accumulation of surplus income for the purpose of salary and welfare of patients as described in Form No.10 was fully in accordance with objects of the t rust for which it has been granted registration under sect ion 12A of the Act. However CIT(A) held that the assessee had stated the non-specific objective for accumulation which were general in nature.

Contention of the Appellant
Before ITAT, the assessee contended that that even if no specific purpose for accumulation is specified in Form No.10 if the objectives are same as the objectives of the assessee society are as per bye laws on the basis of which registration under sect ion 12A of the Act has been granted to the assessee, the accumulation so sought for cannot be denied.

Contention of the Department
Revenue contested and placed reliance on the judgment of Hon'ble Calcutta High Court in the case of Director of Income Tax (Exempt ion) Vs. Trustees of Singhania Charitable Trust , 199 ITR 819 to the effect that for a charitable t rust to be eligible for accumulation of income beyond the previous year under section 11(2) of the Act , the purpose of such accumulation must be specific.

Excerpts from the Judgment:
On perusal of the bye laws of the assessee society we see that the hiring of staff and utilisation of funds for welfare of patients are two objects of the society. Therefore, it cannot be said that the objects which are stated for the purpose of accumulation of funds under Form No.10 are outside the objects as provided in the bye laws of the society. The contention of the Assessing Officer is that these objects are too vague and are not specific. We do not see any reason for not granting assessee the benefit of such accumulation given the fact that the accumulation is sought for the purpose of its objects on the basis of which it was granted registration under section 12A of the Act. We do not even find the objects stated in the Form No.10 too vague either, as these are the objects as per the bye laws. Admittedly, the objects stated in Form No.10 are not elaborately stated, but that cannot be the reason to deny the said benefit. Our view gets strengthened by the judgment of Hon'ble Delhi High Court in the case of CIT Vs. Hotel & Restaurant Association (supra) , on which the learned counsel for the assessee placed reliance. In that case, the object stated for accumulation was to apply the funds in next years to achieve the object , for which it had been incorporated. The Hon'ble High Court held as under:

“Held, dismissing the appeal, that it is true that specification of a certain purpose or purposes was needed for accumulation 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 of accumulation is not precluded but it depends on the precise purpose for which the accumulation is intended. In the present case, both the Commissioner (Appeals) and the Appellate Tribunal had 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 was not the case of the Revenue that any of the objects of the assessee-company were not for charitable purpose. The finding by the Tribunal was essentially a finding of fact giving rise to no question of law.”

In another case of Delhi High Court in DIT (Exemption) Vs. Daulat Education Society reported in (2006) 278 ITR 260 (Del ), it is held that details of plan to be given is not necessary, if the purpose specified is in consonance with the objects. The judgment of Hon'ble Calcutta High Court in the case of Trustees of Singhania Charitable Trust (supra) as relied upon by the learned D.R. is distinguishable on facts as in that case al l the objects as per law of the assessee were specified as the purpose of accumulation, which is not the case of the present assessee.

The other issue raised by the Assessing Officer to deny the benefit of accumulation is that the assessee has enough funds for the purposes of salary to be paid in the form of grants received from the State Government as well as the unutilized amount of grant so received by the assessee. The assessee has duly given its explanation for need of such huge amount in future years as it has plans to have same super specialty facilities in coming year. However, we find that the issue of such availability of funds or need for such huge funds in future are not relevant for the purposes of granting benefit of accumulation of income. The provision of sect ion 11(2) of the Act provides to give assessee the benefit of such accumulation on the compliance of two conditions stated there in clause (a) and clause (b) . Clause (a) provides to give the notice to the Assessing Officer in the prescribed manner stating the purpose. That manner has been prescribed in Rule 17 of the Income Tax Rules. Clause (b) provides to invest the said funds in modes prescribed. Further Rule 17 provides the notice to be given to the Assessing Officer in Form No.10 before the expiry of  time allowed for furnishing the return of income under sect ion 139(1) of the Act . It is not the Assessing Officer ’s case that the assessee has not complied with any of these conditions. His only concern is the availability of a huge amount of funds for the said purpose. The Assessing Officer in this regard has to confine himself to the provision of the Income Tax Act read with the Income Tax Rules only. The Assessing Officer does not have any prerogative to comment on the way the activities are to be carried on by the assessee. How much funds are needed for which purpose and how funds are to be used for different purposes is none of the Assessing Officer ’s concern. It is only assessee’s own way of functioning. The Assessing Officer cannot sit on the armchair of the assessee to decide all these things, given the fact that the Income Tax Act does not give him any such power. Whether the assessee is receiving excess grant or whether i t is in need of such grants may be the concern of the granting authority or that the assessee, but certainly not of the Assessing Officer.

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