2015 (9) TMI 128 - AT - Income Tax

Addition of accumulated income of trust - as per AO appellant trust had not filed the requisite application as contemplated u/s.11 - operation of the injunction of the District Court - whether the period in which the order of the Jt.Dist.Judge was in operation to be excluded for reckoning the period of 10 years as mentioned in section 11(2)(a) of the Act under the facts of the present case? - Held that - Affairs of the assesseetrust were taken over by the Court appointed Receiver and, therefore, it can be inferred from the material available on record that the trustees of the assessee-trust were restrained from managing the affairs. Sub-section(3A) of section 11 contemplates a situation where due to circumstances beyond the control of the person in receipt of the income, any income invested or deposited in accordance with the provisions of clause(b) of sub-section (2) could not be applied for the purpose for which it was accumulated or set apart. In that situation, the Assessing Officer may, on an application made to him in this behalf, allow such person to apply such income for such other charitable or religious purpose in India as is specified in the application by such person and as is in conformity with the objects of the trust; and thereupon the provisions of sub-section(3) shall apply as if the purpose specified by such person in the application under this sub-section for a purpose specified in the notice given to the Assessing Officer under clause (a) of sub-section(2). In the present case, no such application was made by the assesseetrust or the Court appointed Receiver. However, there is no dispute with regard to the fact that the trustees were restrained from managing the affairs. For the omission on the part of the Court appointed Receiver would not, in our considered, view disentitle the assessee-trust for seeking condonation of delay, if any, in notifying the AO in the terms of provision of section 11(2) of the Act. Therefore, we hereby set aside the orders of the authorities below and restore the issue to the file of AO for decision afresh. The AO would verify the period during which the affairs of the assessee-trust were managed by the Court appointed receiver. He would exclude such period in the light of first proviso to section 11(2) of the Act and would verify whether the money so accumulated or set apart was invested or deposited in the forms or modes specified in Section 11(5) of the Act. - Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:
1. Application of Section 11(3)(c) of the Income Tax Act, 1961.
2. Impossibility of the trust to spend the accumulated money due to court orders.
3. Allowance for the trust to spend the accumulated amount when legally possible.
4. Legality of the CIT(A) order.
5. Leave to amend grounds of appeal.

Issue-Wise Detailed Analysis:

1. Application of Section 11(3)(c) of the Income Tax Act, 1961:
The primary issue revolves around the application of Section 11(3)(c) concerning the addition of Rs. 1,35,70,420/- by the Assessing Officer (AO). The AO made the addition for the Assessment Year (AY) 2009-10, stating that the trust did not utilize the accumulated income within the prescribed period. The CIT(A) upheld this addition, leading the assessee to appeal. The tribunal analyzed whether the period during which the trust's affairs were managed by court-appointed receivers should be excluded from the ten-year accumulation period under Section 11(2)(a).

2. Impossibility of the Trust to Spend the Accumulated Money Due to Court Orders:
The assessee argued that the trust was unable to manage its affairs and spend the accumulated money due to a court order dated 01/10/1994, which appointed receivers for the trust's properties and restrained the trustees from managing the trust. This order remained in force until 30/08/2007. The assessee contended that this period should be excluded when computing the ten-year period for spending the accumulated income. The tribunal agreed, noting that the trust's inability to apply the funds was due to circumstances beyond its control, as the court-appointed receiver managed the trust's affairs.

3. Allowance for the Trust to Spend the Accumulated Amount When Legally Possible:
The assessee sought permission to spend the accumulated amount once it became legally possible. The tribunal acknowledged this request, emphasizing that the trust should not be penalized for the receiver's failure to comply with the provisions of the Income Tax Act. The tribunal directed the AO to verify the period during which the trust was managed by the court-appointed receiver and exclude this period from the ten-year accumulation period under Section 11(2)(a). The AO was also instructed to verify whether the accumulated funds were invested in modes specified under Section 11(5).

4. Legality of the CIT(A) Order:
The assessee challenged the CIT(A)'s order as being contrary to law and facts. The tribunal found that the CIT(A) failed to appreciate the impact of the court order on the trust's ability to manage its affairs and comply with the provisions of the Income Tax Act. The tribunal set aside the CIT(A)'s order and remanded the matter to the AO for fresh consideration in light of the court's findings.

5. Leave to Amend Grounds of Appeal:
The assessee sought leave to add, alter, or amend the grounds of appeal before the final hearing. The tribunal did not specifically address this request, as the primary issues were resolved by remanding the matter to the AO for fresh consideration.

Conclusion:
The tribunal allowed the appeal for statistical purposes, directing the AO to exclude the period during which the trust was managed by the court-appointed receiver from the ten-year accumulation period under Section 11(2)(a). The AO was also instructed to verify the investment of accumulated funds as per Section 11(5). The tribunal's decision emphasized the need to consider the impact of the court order on the trust's ability to comply with the Income Tax Act provisions.