2010 (4) TMI 755 - AT - Income Tax

Exemption u/s 11(1)(a) - Scrutiny - Condonation of delay - Submission of Form No. 10 - Circular No. 273, dated 3-6-1980 - The Assessing Officer s computation of income available for accumulation under section 11(1)(a) is correct and is in accordance with law - As rightly pointed out, for accumulation of income under section 11(1)(a), it is to be computed on commercial principles and not on gross receipts on rejection of the condonation application by the CIT, the assessee filed an additional ground before the Tribunal and the Tribunal in that case found the funds accumulated are for charitable purpose and the amounts are set apart/accumulated in FD in nationalized bank - whether the conditions mentioned in Circular No. 273, dated 3-6-1980 is fulfilled or not - if the delay in filing Form No. 10 is condoned by the Administrative CIT, this order of ours should not be an impediment for claiming exclusion from the total income as contemplated under section 11(2) of the Act - In the result, the appeal filed by the revenue is allowed

Issues Involved:
1. Accumulation of income under section 11(1)(a) on gross receipts versus income computed on commercial principles.
2. Non-filing of Form No. 10 within the stipulated time for accumulation under section 11(2).
3. Applicability of case laws relied upon by the Assessing Officer.
4. Relevance of the Supreme Court decision in CIT v. Programme for Community Organisation.

Issue-wise Detailed Analysis:

1. Accumulation of Income under Section 11(1)(a):
The primary issue was whether the accumulation of 15% should be on gross receipts or income computed on commercial principles. The Assessing Officer allowed accumulation on income computed on commercial principles, amounting to Rs. 88,29,648, which resulted in an allowable deduction of Rs. 13,24,447, as opposed to the assessee's claim of Rs. 14,22,876 based on gross receipts of Rs. 94,85,843. The CIT(A) allowed the assessee's claim, but the Tribunal reversed this, citing that section 11(1)(a) refers to "income" and not "gross receipts." The Tribunal supported this with the decision in Gem & Jewellery Export Promotion Council v. Sixth ITO and the High Court of Madras in CIT v. Rao Bahadur Calavala Cunnan Chetty Charities.

2. Non-filing of Form No. 10 for Accumulation under Section 11(2):
The assessee did not file Form No. 10 within the stipulated time, leading to disallowance under section 11(2). The CIT(A) allowed the appeal, but the Tribunal noted that the assessee filed Form No. 10 belatedly and emphasized the need for condonation of delay by the Administrative CIT as per Circular No. 273, dated 3-6-1980. The Tribunal reversed the CIT(A)'s order, stating that the assessee should move the condonation application before the CIT. If the delay is condoned, the exclusion from total income under section 11(2) can be claimed.

3. Applicability of Case Laws Relied Upon by the Assessing Officer:
The Tribunal supported the Assessing Officer's reliance on the decision in Gem & Jewellery Export Promotion Council, which followed the High Court of Madras in CIT v. Rao Bahadur Calavala Cunnan Chetty Charities. These decisions emphasized that accumulation under section 11(1)(a) should be computed on commercial principles, not on gross receipts.

4. Relevance of the Supreme Court Decision in CIT v. Programme for Community Organisation:
The CIT(A) relied on the Supreme Court decision in CIT v. Programme for Community Organisation, but the Tribunal found this inapplicable. The Supreme Court held that exemption under section 11(1)(a) is to be computed on income before application, not gross receipts. Thus, the Tribunal concluded that the Assessing Officer's computation was correct.

Conclusion:
The Tribunal allowed the revenue's appeal, reversing the CIT(A)'s order on both issues. The accumulation of income under section 11(1)(a) should be on income computed on commercial principles, and the delay in filing Form No. 10 must be condoned by the Administrative CIT for the assessee to claim the benefit under section 11(2).

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