2019 (12) TMI 1275 - AT - Income Tax

Denial of exemption u/s 11(2) - claim of the assessee was rejected primarily on the ground that the purpose of accumulation is not mentioned but the objects were mentioned in form 10 - HELD THAT - Assessee trust has duly mentioned the purpose of accumulation i.e. to compensate the trading members or a constituents, where a trading member being declared a defaulter on the stock exchange. To our opinion, this was the sole object of the trust for which this protection fund was created and thus sufficiently satisfy the requirements of section 11(2) of the Act. We also note that similar claim of the assessee has been allowed in the earlier years by the Revenue. The case of the assessee finds support from the decision of BOCHASANWASI SHRI AKSHAR PURSHOTTAM PUBLIC CABLE TRUST 2019 (3) TMI 1405 - SC ORDER held that non specification of purpose for which the funds were accumulated by assessee trust under section 11(2) would not be fatal to the exemption claimed. As relying on BHARAT KALYAN PRATISTHAN VERSUS DIRECTOR OF INCOME TAX (EXEMPTION) 2007 (1) TMI 98 - DELHI HIGH COURT held that specification of certain purpose or purposes is needed for accumulations of the trust s income under section 11(2) of the Act however, the details of the purposes for which the income was accumulated need not be specified. Accordingly, we set aside the order of Ld. CIT(A) and direct the AO to allow the claim of the assessee under section 11(2) of the Act. The ground NO.1 is allowed. Interest charged by the AO under section 234A - HELD THAT - There is no delay in filing the return of income by the assessee trust. We have perused the provisions of section 234A of the Act and are of the opinion that the interest under section 234A is attracted only where the return is furnished after the due date as envisaged u/s 139(1) of the Act or is not furnished at all by the assessee. In the present case, the assessee has duly filed the return of income well within the time under section 139(1) - CIT(A) has not adjudicated the matter and simply directed the AO to dispose of the petition under section 154 of the Act. In our opinion, the charging of interest under section 234A is apparently wrong and against the provisions of the Act. Accordingly, we direct the AO to delete the interest charged. Interest charged under section 234C - CIT(A) instead of adjudicating the issue directed the AO to dispose of the pending application filed by the assessee under section 154 - HELD THAT - We have perused the provisions of Section 243C of the Act and observed that the interest under section 234C of the Act is to be charged on the returned income and not the assessed income and therefore the interest under section 234C has wrongly been charged by the AO. Accordingly, we direct the AO to charge interest under section 234C of the Act as per the provisions of the Act. The ground No.4 of the appeal is allowed for statistical purpose Exemption under 10(23EA) - claim was not made by the assessee during the filing of return of income but as alternative at the appellate stage before CIT(A) - HELD THAT - Issue is squarely covered in favour of the assessee by the order of the Hon ble Bombay High Court in the case of DIT(E) vs. Exchange M/s. National Stock Investment Protector Fund Trust 2019 (1) TMI 799 - BOMBAY HIGH COURT the appeal filed by the Revenue is dismissed.

Summary

Issues Involved:
1. Confirmation of addition by denying exemption under section 11(2) of the Act.
2. Charging of interest under section 234A of the Act.
3. Charging of interest under section 234C of the Act.
4. Allowing exemption under section 10(23EA) of the Act at the appellate stage.

Issue-wise Detailed Analysis:

1. Confirmation of addition by denying exemption under section 11(2) of the Act:
The primary issue was the confirmation of an addition of ?33,19,23,133/- by the CIT(A), upholding the denial of exemption under section 11(2) of the Act by the AO. The trust was set up under the direction of the Ministry of Finance and SEBI to protect investors' interests, and its income was previously exempt under section 10(23C)(iv) and later under section 10(23EA) of the Act. From A.Y. 2007-08, the trust claimed exemption under section 11(1) and 11(2) for income on investments. The AO denied the exemption for A.Y. 2011-12, stating that the trust did not specify the purposes of accumulation in Form 10, only mentioning the objects. The CIT(A) upheld this view, citing the generality of the purposes mentioned. However, the Tribunal found that the trust had adequately specified the purpose of accumulation, which was to compensate trading members or constituents if a trading member was declared a defaulter. The Tribunal noted that similar claims had been allowed in previous years and cited Supreme Court and High Court decisions supporting the trust's position. Consequently, the Tribunal set aside the CIT(A)'s order and directed the AO to allow the exemption under section 11(2).

2. Charging of interest under section 234A of the Act:
The assessee contested the interest charged under section 234A amounting to ?23,46,936/-, arguing that there was no delay in filing the return of income. The Tribunal observed that interest under section 234A is applicable only if the return is filed after the due date or not filed at all. Since the assessee had filed the return within the due date, the Tribunal found the interest charge incorrect and directed the AO to delete it.

3. Charging of interest under section 234C of the Act:
The assessee also challenged the interest charged under section 234C amounting to ?43,41,831/-. The Tribunal noted that interest under section 234C should be charged on the returned income, not the assessed income. The CIT(A) had directed the AO to dispose of the pending application under section 154 without adjudicating the issue. The Tribunal found that the interest was wrongly charged on the assessed income and directed the AO to charge interest as per the provisions of the Act.

4. Allowing exemption under section 10(23EA) of the Act at the appellate stage:
The Revenue raised an issue regarding the CIT(A) allowing exemption under section 10(23EA) even though the claim was not made during the filing of the return but at the appellate stage. The Tribunal referred to a Bombay High Court decision, which held that there is no prohibition in law against a trust qualifying under sections 11 to 13 from claiming exemption under section 10(23EA). The High Court had also noted that the necessary facts were on record, and the claim was based on statutory interpretation. The Tribunal, following this precedent, dismissed the Revenue's appeal.

Conclusion:
The appeal of the assessee was partly allowed, with the Tribunal directing the AO to allow the exemption under section 11(2) and delete the interest charged under sections 234A and 234C. The Revenue's appeal was dismissed, affirming the CIT(A)'s decision to allow the exemption under section 10(23EA).