2014 (12) TMI 878 - AT - Income Tax

Violation of section 11(2) r.w.s. 13(2)(d) or not - Loans given by assessee to other trusts from unutilized portion exceeded 15% or not Held that - Substantial income of the assessee trust was not used by both the assessees for the purposes for which they were formed - when substantial portion of the amount was not used for the purpose for which the trust was established, whether the assessee trusts are entitled for exemption u/s 11 of the Act - the assessee is under legal obligation to apply the income to the extent of 85% for charitable purpose or religious purpose for which the trust was established - Section 11(1) of the Income-tax Act enables the charitable / religious trust to accumulate or set apart only 15% of the income - the authorities below have failed to consider the provisions of Explanation to section 11(2) and section 11(3)(d) - CIT(A) proceeded on the presumption that advancing money to other charitable institution does not amount to investment or deposit - the payment or credit to other trust is prohibited by Explanation to section 11(2) and section 11(3)(d) was not considered by both the authorities below thus, the matter is to be remitted back to the AO for reconsideration in the light of the law brought in the statute book by Finance Act, 2002 with effect from 2003 inserting Explanation to section 11(2) and section 11(3)(d) Decided in favour of revenue.

Summary

Issues Involved:
Appeals against CIT(A) orders for assessment year 2010-11 for two charitable trusts - Violation of sections 11(2) and 13(1)(d) - Application of income for charitable purposes - Interpretation of Explanation to section 11(2) and section 11(3)(d) - Consideration of Delhi High Court and Tribunal judgments - Remand for reconsideration.

Detailed Analysis:

1. Violation of Sections 11(2) and 13(1)(d):
The appeals were directed against CIT(A) orders for two charitable trusts, registered under section 12AA, for the assessment year 2010-11. The Department argued that the trusts violated section 11(2) read with section 13(1)(d) by giving loans exceeding 15% of unutilized income to other trusts. The Department relied on the Allahabad High Court judgment to support its position.

2. Application of Income for Charitable Purposes:
The trusts contended that they advanced funds to other registered trusts with similar objectives, which amounted to application of income for charitable purposes. They cited the Delhi High Court judgment and the Tribunal decision to support their argument. The trusts emphasized that advancing funds to similar charitable trusts did not violate section 11(5) and section 13(1)(d) of the Act.

3. Interpretation of Explanation to Section 11(2) and Section 11(3)(d):
The Tribunal analyzed the provisions of section 11(2) and the Explanation, which allow exceptions for accumulation of income not applied for charitable purposes. The Tribunal highlighted the provisions introduced by the Finance Act, 2002, emphasizing that income credited or paid to another trust must be deemed as the income of the assessee. The Tribunal noted that previous judgments did not consider these provisions.

4. Consideration of Delhi High Court and Tribunal Judgments:
The Tribunal discussed the Delhi High Court judgment and the Tribunal decision, emphasizing that they did not address the implications of the Explanation to section 11(2) and section 11(3)(d) introduced in 2002. The Tribunal concluded that these judgments might not be directly applicable to the current case due to the oversight of the new legal provisions.

5. Remand for Reconsideration:
The Tribunal found that both lower authorities failed to consider the Explanation to section 11(2) and section 11(3)(d) in their decisions. Consequently, the Tribunal set aside the orders and remanded the issue of exemption under section 11 back to the assessing officer. The Tribunal directed the assessing officer to reconsider the matter in light of the new legal provisions and provide the assessee with an opportunity to explain the implications before making a decision.

6. Conclusion:
The Tribunal allowed the appeals for statistical purposes, emphasizing the need for a fresh consideration of the exemption issue under section 11 in compliance with the Explanation to section 11(2) and section 11(3)(d) introduced by the Finance Act, 2002. The decision aimed to ensure a fair assessment based on the updated legal framework.

This detailed analysis provides a comprehensive overview of the judgment's key issues, legal interpretations, and the Tribunal's decision to remand the matter for reconsideration in light of relevant legal provisions.