2003 (3) TMI 92 - HC - Income Tax

A. Whether, on the facts and circumstances of the case, the Tribunal is justified in holding that the accumulation of income by the assessee under section 11(2) of the Income-tax Act, 1961 (hereinafter referred to as the Act ), for all objects for which the trust was created and not for specific purpose was neither prejudicial nor erroneous to the interests of the Revenue ? - B. Whether section 11(2) of the Act makes it necessary for the assessee to make specific mention of any purpose or purposes to enable it to accumulate the income? - It is not the case of the Revenue that any of the objects of the assessee-company were not for charitable purpose. - finding by the Tribunal is essentially a finding of fact giving rise to no question of law. We, accordingly, decline to entertain the appeal.

Summary

Issues:
1. Interpretation of section 11(2) of the Income-tax Act, 1961 regarding accumulation of income by a trust.
2. Compliance with statutory requirements for accumulation of income.

Issue 1: Interpretation of section 11(2) of the Income-tax Act, 1961 regarding accumulation of income by a trust.

The case involved an appeal by the Revenue against the order of the Income-tax Appellate Tribunal regarding the accumulation of income by the assessee under section 11(2) of the Income-tax Act, 1961 for the assessment year 1992-93. The primary question raised was whether the accumulation of income for all objects for which the trust was created, without specifying a specific purpose, was justified and not prejudicial to the interests of the Revenue. The Revenue argued that the assessee failed to mention a specific purpose for the accumulation as required by section 11(2) of the Act. However, both the Commissioner (Appeals) and the Tribunal held that the income was accumulated by the assessee to achieve the object for which it was incorporated, making it eligible for exemption under section 11(1)(b) of the Act.

Issue 2: Compliance with statutory requirements for accumulation of income.

The Assessing Officer initially declined to consider the accumulated amounts for taxation as the specific object for accumulation was not indicated in the statutory form filed by the assessee. However, the Commissioner (Appeals) accepted the claim of the assessee, stating that the resolution to accumulate income was in order, notice had been given to the Assessing Officer in the prescribed format, and the money had been invested in specified securities for achieving the object of incorporation. The Tribunal upheld this view and noted that the assessee had applied the accumulated income for fulfilling its object. The court emphasized that while specific purposes for accumulation are required under section 11(2) of the Act, they must align with the objects of the trust, and in this case, the purpose was in line with the charitable objects of the assessee-company. Consequently, the court dismissed the appeal by the Revenue, stating that the finding by the Tribunal was a factual one and did not give rise to any legal question for consideration.

In conclusion, the judgment clarified the interpretation of section 11(2) of the Income-tax Act, emphasizing the alignment of specific purposes for accumulation with the objects of the trust. It highlighted the importance of compliance with statutory requirements for accumulation of income by a trust and upheld the decision that the assessee was entitled to exemption under section 11(1)(b) of the Act based on the purpose of accumulation being in line with its incorporation object.