2016 (1) TMI 1492 - AT - Income Tax

Revision u/s 263 by - exemption u/s 11 - grant 15% accumulation on the gross income - need to file Form 10 - whether 15% of the accumulation permitted u/s 11(1)(a) of the Act is to be calculated on the gross income or on the net income? - HELD THAT - On a plain reading of section 11(1)(a) of the Act it can be seen that 85% of the income of the trust to be applied for charitable/religious purposes and upto15% is permitted for accumulation in order to avail full exemption. There is no condition stated/s 11(1)(a) of the act to invest the 15% accumulated income in the modes specified as per section 11(5) of the Act. Section 11(2) of the Act is for giving relief to unapplied income which is short of 85% with a condition of keeping such surplus in the specified mode as per section 11(5) of the Act. This is to be done after giving notice to the AO by the assessee in Form No.10 of the Income Tax Rules. In the instant case if the 15% of the gross total income is set apart u/s 11(1)(a) of the Act it comes to Rs. 2, 03, 50, 121/- (15% of Rs. 13, 56, 67, 475/-). After incurring of capital expenditure the surplus was only Rs. 92, 71, 940/-. Therefore there is no need to file Form 10 before the AO nor for any investment as mentioned u/s 11(5) of the Act since the entire excess would be within 15% of the income accumulated as per Sec. 11(1)(a) of the Act. Hence we hold that CIT is not justified in invoking his revisionary jurisdiction u/s 263 of the Act and the same is quashed. Decided in favour of assessee.

Summary

Issues:
1. Interpretation of section 11(1)(a) for accumulation on gross income.
2. Correctness of CIT's order under section 263 regarding accumulation calculation.
3. Compliance with Form 10 and investment requirements under section 11(5).

Issue 1: Interpretation of Section 11(1)(a) for Accumulation on Gross Income

The appeal concerned the calculation of accumulation under section 11(1)(a) of the Act on gross income. The assessee, a religious Trust, argued for 15% accumulation on gross income, not on net income. The Trust's contention was supported by CBDT circular no.5-P(LXX-6) of 1968 and judicial pronouncements like CIT vs Programme for Community Organization (1997) 228 ITR 620 (Ker). The Tribunal analyzed the legislative provisions and judicial decisions, emphasizing that the accumulation percentage is to be calculated on the gross income. The Tribunal referred to various cases, including S RM M CT.M Tiruppani Trust vs CIT (1998) 145 CTR 176(SC), to support the interpretation that accumulation should be based on gross income.

Issue 2: Correctness of CIT's Order under Section 263 Regarding Accumulation Calculation

The CIT, under section 263, set aside the assessment order due to alleged failure in accumulation compliance by the Trust. The CIT contended that the Trust did not file Form 10 or invest the shortfall amount as required under section 11(5). The Tribunal examined the CIT's order and found it erroneous, as the accumulation under section 11(1)(a) was correctly calculated on gross income, not on net income. The Tribunal held that the Trust's compliance with accumulation requirements was not necessary, as the entire excess was within the 15% accumulated income as per section 11(1)(a). Thus, the Tribunal quashed the CIT's revisionary jurisdiction under section 263.

Issue 3: Compliance with Form 10 and Investment Requirements under Section 11(5)

The CIT's order under section 263 raised concerns about the Trust's failure to submit Form 10 and invest the shortfall amount in specified modes as per section 11(5). However, the Tribunal clarified that such compliance was not necessary since the accumulation was correctly calculated on gross income. The Tribunal emphasized that the Trust did not need to file Form 10 or make additional investments as the entire excess was within the permissible 15% accumulation on gross income under section 11(1)(a). Consequently, the Tribunal allowed the appeal filed by the assessee, holding that the CIT's order was not justified and quashed it accordingly.

This detailed analysis of the legal judgment highlights the interpretation of section 11(1)(a) for accumulation on gross income, the correctness of the CIT's order under section 263, and the compliance issues related to Form 10 and investment requirements under section 11(5.