2011 (11) TMI 486 - AT - Income Tax

Eligibility of exemption u/s 11 - non compliance of provisions of section 11(2) for approval of accumulation of surplus fund above 15% for the purpose of future utilisation during assessment proceedings - Held that - If an assessee whose income is to be assessed u/s 11 12 it failed to apply 85% of its income on charitable purpose but wants to accumulate or set apart that income for future years application then such income would not be taxable in the year of receipt. The assessee has to fulfill certain conditions giving specifically in writing to the AO in the prescribed form the purpose for which the income is being accumulated or set apart. The reasons for this would be that in future years such income shall be used for those specified purposes. The assessee has to disclose the period also. In any condition it would not exceed 10 years. The amount so accumulated or set apart has to be deposited in the specified modes. Hence accumulation of surplus fund above 15% for the purpose of future utilization is not allowed. The assessee failed to comply with the conditions enumerated in section 11(2). It has not filed form No. 10 before the completion of asstt. order - Decided against the assessee. It is also held that disallowance for the purpose of accumulation is to be restricted for the amount over and above of 15% of the limit and will not be applicable on the remaining 15% thereby allowing exemption u/s 11 - Decided against the Revenue.

Summary

Issues Involved:
1. Exemption under Section 11 of the Income Tax Act.
2. Compliance with Section 11(2) of the Income Tax Act for accumulation of surplus funds.
3. Filing of Form No. 10 for accumulation of funds.
4. Condonation of delay in filing Form No. 10.

Detailed Analysis:

1. Exemption under Section 11 of the Income Tax Act:
The primary issue revolves around the eligibility of the assessee for exemption under Section 11 of the Income Tax Act. The assessee, a statutory body established under the Ministry of Human Resource Development, claimed exemption under Section 11. The Assessing Officer (AO) disallowed the exemption, concluding that the assessee did not comply with the provisions of Section 11(2) concerning the accumulation of surplus funds. The AO assessed the income of the assessee at Rs. 12,31,16,398 after allowing a deduction of Rs. 1,20,000 towards expenditure.

2. Compliance with Section 11(2) of the Income Tax Act for accumulation of surplus funds:
Section 11(2) permits an assessee to accumulate surplus funds for future charitable purposes, provided certain conditions are met. The assessee must inform the AO in writing about the purpose and period of accumulation, which should not exceed ten years, and invest the accumulated funds in specified modes. The assessee failed to submit Form No. 10, which is required to comply with these conditions, before the completion of the assessment order.

3. Filing of Form No. 10 for accumulation of funds:
The assessee filed Form No. 10 on 16.3.2009, after the completion of the assessment order on 20.12.2007. The Hon'ble Supreme Court in the case of CIT v. Nagpur Hotel Owners' Association held that the form must be submitted before the completion of the assessment order. The AO and the CIT(A) concluded that the assessee did not meet the conditions of Section 11(2) due to the delayed submission of Form No. 10.

4. Condonation of delay in filing Form No. 10:
The assessee argued that the delay in filing Form No. 10 should be condoned, as the delay is generally condoned if the charitable object of the council is intact. However, the CIT(A) and the Tribunal emphasized that the delay must be justified and applied for within a reasonable time. The Tribunal referred to the Supreme Court's observation that the intimation required under Section 11 must be furnished before the assessment proceedings are completed. Any claim for exemption based on information supplied after the completion of the assessment would necessitate reopening the assessment, which is not contemplated by the Act.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, agreeing that the disallowance of accumulation under Section 11(2) should be restricted to amounts exceeding 15% of the total receipts. The Tribunal found no merit in both the appeals, rejecting them and affirming that the assessee failed to comply with the mandatory conditions of Section 11(2) for the accumulation of surplus funds. The benefit of accumulation for future utilization was not granted due to the delayed submission of Form No. 10, which was a critical requirement for claiming such exemption.