2018 (8) TMI 2071 - AT - Income Tax

Exemption u/s 11 - receipts of the assessee as deployed in FDs - accumulation of unutilized income u/s.11(2) - assessee submitted that the maturity proceeds of the FDs go to the SB Account and monies are spent for charitable purpose from the SB account - HELD THAT - The entire discussion in the order of assessment is academic for the present AY 2012-13 because ultimately there is no tax implication in AY 2012-13. If the stand of the Assessee is accepted, the Assessee will get one more year to apply the accumulated income of AY 2012-13. If the stand of the revenue is accepted, the Assessee will have to spend the accumulation of AY 2011-12 within the period allowed in law and period of one year will lapse without application thereby leaving a shorter period for application of accumulation of AY 2011-12. The accumulation of unutilized income of AY 2011-12 u/s.11(2) of the Act as well as the income of AY 2012-13 are deployed in the form of fixed deposits in bank accounts. The fixed deposits as and when they mature are again renewed and reinvested in fixed deposits. Therefore, the identification of funds of the Assessee as identifiable to accumulation of unutilized income of AY 2011-12 or that of receipt as income of AY 2012-13 is not possible in the present case. In such circumstances, we are of the view that the plea of the Assessee ought to have been accepted by the CIT(A). The provisions require that the income earned from the property held under trust must be first applied to the objects of the trust and if any income is remaining then accumulation to the extent of 15% of such income is permitted and if the total income could not be utilised towards the objects of the trust then the assessee can resort to further accumulation u/s. 11(2) over and above the amount of 15%. The CIT(A) has used the word first in his order whereas the expression first is not found in Sec.11(1)(a) or Sec.11(2) of the Act. If the sum of ₹ 1,89,01,520 spent for charitable purpose in AY 2012-13 is reduced from ₹ 7,88,84,408 the resultant figure of ₹ 5,99,82,888/- which would be the deficit in applying 85% of the total income of AY 2012-13 u/s.11(2) of the Act. 15% of the receipts of AY 2012-13 of ₹ 9,28,05,186 which can be accumulated as a matter of right would be a sum of ₹ 1,39,20,778. The above claim of the Assessee for accumulation is in order in the given facts and circumstances of the case where the identity of the monies as accumulation of AY 2011- 12 or the income of AY 2012-13 is not possible. We therefore direct the AO to accept the claim of the Assessee as made by the Assessee. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the CIT(A)'s order.
2. Application of income accumulated under Section 11(2) in the FY 2010-11.
3. Consideration of income applied during the year as relatable to income accumulated under Section 11(2).
4. Determination of income accumulated under Section 11(2) during the year.
5. Taxable income computation.

Issue-wise Detailed Analysis:

1. Validity of the CIT(A)'s Order:
The assessee contended that the order passed by the CIT(A) 14, Bangalore, was bad in law and should be quashed. The CIT(A) confirmed the AO's order, stating that the income derived from property during the previous year is not equated with accumulated income under Section 11(2). The CIT(A) opined that the income earned from the property held under trust must be first applied to the objects of the trust, and only the remaining income can be accumulated up to 15%. The CIT(A) concluded that the AO completed the assessment in accordance with the provisions laid down in Section 11, and hence, the assessment order did not require any interference.

2. Application of Income Accumulated under Section 11(2) in the FY 2010-11:
The assessee argued that the income accumulated under Section 11(2) in the FY 2010-11 amounting to ?3,45,65,489 was applied during the year under consideration (AY 2012-13). The assessee claimed that out of the total income applied for charitable purposes in AY 2012-13 amounting to ?5,34,67,009, ?3,45,65,489 should be construed as having been spent out of the income accumulated under Section 11(2) in the FY 2010-11.

3. Consideration of Income Applied During the Year as Relatable to Income Accumulated under Section 11(2):
The assessee contended that the sum of ?3,45,65,489 applied during the year should be considered as relatable to the income accumulated under Section 11(2) in the FY 2010-11. The AO, however, considered the entire amount spent during the year amounting to ?5,34,67,009 as amount applied for objects of the trust from the current year's income, and did not consider the sum of ?3,45,65,489 accumulated under Section 11(2) in the FY 2010-11 as applied during the year.

4. Determination of Income Accumulated under Section 11(2) During the Year:
The assessee argued that the income accumulated under Section 11(2) during the year should be considered at ?5,99,82,888 as claimed in the return of income. The AO determined the amount accumulated under Section 11(2) during the year at ?2,54,17,400. The Tribunal noted that the entire discussion in the assessment order was academic for AY 2012-13 as there was no tax implication for that year. The Tribunal accepted the assessee's plea that the application of income in AY 2012-13 should be first considered as having been made out of the accumulation of AY 2011-12, and only the remainder should be considered as the application of income of AY 2012-13.

5. Taxable Income Computation:
The AO computed the taxable income as NIL after considering the total receipts, total expenditure incurred towards the objects of the trust, and the income set apart for future under Section 11(1)(a). The Tribunal directed the AO to accept the claim of the assessee as made by the assessee, considering the identity of the monies as accumulation of AY 2011-12 or the income of AY 2012-13 was not possible.

Conclusion:
The Tribunal allowed the appeal by the assessee, directing the AO to accept the claim of the assessee regarding the application of income and accumulation under Section 11(2) as made by the assessee. The Tribunal emphasized that the identity of the funds as either accumulation of AY 2011-12 or income of AY 2012-13 was not possible, and hence, the assessee's claim was in order.