2015 (11) TMI 390 - HC - Income Tax

Disallowance of benefit of accumulation by the assessee of an amount u/s 11(2) - ITAT allowed calim - Held that - The required information was furnished through Form No. 10 along with the return and subsequently on March 10, 1997, the assessee submitted another letter to the Assessing Officer intimating the specific purpose for which the said amount was sought to be utilised by indicating that they want to utilise the amount for the objects mentioned in clause 3(a) of the trust deed. In the instant case, the assessee specifically mentioned the purpose for which the accumulated income was sought to be utilised. Learned counsel for the Revenue also fairly submitted that the said intimation is sufficient compliance within the meaning of section 11(2) of the Act. But his opposition is only with regard to the furnishing of the required information on March 10, 1997, as he submits that it ought to have been furnished by September 30, 1996, the last date for filing of the return. It is an admitted fact that the said information was furnished before the completion of the assessment. In view of the ratio laid down by the Supreme Court in Nagpur Hotel Owners Association (2000 (12) TMI 99 - SUPREME Court) and the acceptance of the date of information by the assessee as March 10, 1997, viz., before the date of completion of assessment by the Tribunal, we do not think that the objection raised by the learned Counsel for the Revenue has any substance. The explanation in the letter dated March 10, 1997, is in sufficient compliance with section 11(2) of the Act. - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of section 11(2) of the Income-tax Act, 1961 regarding accumulation of income by a trust.
2. Compliance requirements for specifying the purpose of accumulation under section 11(2) of the Act.
3. Time limit for furnishing information to the assessing authority under section 11 of the Act.

Analysis:

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 under section 260A of the Income-tax Act against an order by the Income-tax Appellate Tribunal. The assessee, a trust formed for charitable purposes, accumulated an amount of Rs. 3,00,000 for future utilization towards welfare activities. The Assessing Officer disallowed this accumulation under section 11(2) of the Act, demanding tax. The Commissioner of Income-tax (Appeals) allowed the appeal, but the Tribunal reversed this decision, emphasizing the necessity of specific information regarding the purpose of accumulation. The High Court analyzed previous judgments and held that compliance with section 11(2) requires specifying the purpose for accumulation within the trust's objects clause.

Issue 2: Compliance requirements for specifying the purpose of accumulation under section 11(2) of the Act.

The High Court referred to the requirement under section 11(2) for the assessee to specify the purpose of accumulation and the period for which it is to be accumulated. It highlighted that the purpose must align with the trust's objects clause. The court cited precedents like Trustees of Singhania Charitable Trust and emphasized that the purpose specified for accumulation cannot exceed the trust's objects. The judgment clarified that the assessee in this case adequately indicated the purpose for accumulation, meeting the compliance standards set by section 11(2) of the Act.

Issue 3: Time limit for furnishing information to the assessing authority under section 11 of the Act.

The High Court addressed the timing of furnishing information to the assessing authority under section 11 of the Act. It noted the Supreme Court's ruling in Nagpur Hotel Owners' Association, emphasizing that the information must be provided before the assessment is completed. In this case, the information was submitted before the assessment was finalized, meeting the requirement set by the Act. The court rejected the Revenue's objection regarding the timing of furnishing information and ruled in favor of the assessee, allowing the appeal.

Overall, the judgment clarified the interpretation of section 11(2) of the Income-tax Act, emphasizing compliance requirements for specifying the purpose of accumulation within a trust's objects clause and addressing the timing of furnishing information to the assessing authority.