2021 (8) TMI 1357 - AT - Income Tax

Exemption u/s 11 - treating unutilized amount of grant received from Essar Limited - claim towards actual application of income in the immediately next financial year - HELD THAT - We find that the law permits availability of deduction u/s 11(1) of the Act where the assessee has successfully demonstrated the application of income in the immediately subsequent financial year. Inconsistency in taking shelter of either Section 11(1) or Section 11(2) of the Act, in our view, is not fatal for the purposes of granting tax relief to a charitable trust engaged in benefit of public at large. The substantial compliance of the conditions laid down in the respective provision is of overriding importance. The assessee, in the instant case, claimed that, on facts, it has complied with the provisions of Section 11(1) of the Act read with Explanation (1)(1)(b) thereto towards utilization of CSR money received and thus entitled to tax benefits available to the charitable trust. We observe that the claim towards actual application of income in the immediately next financial year is a question of fact. The aforesaid fact thus requires suitable examination at the end of the AO to enable him to form a view on entitlement of tax benefits u/s 11 of the Act in accordance with law and in terms of observations made hereinabove. We accordingly consider it expedient to set aside the first appellate order and restore the issue back to the file of the AO to ascertain actual utilization of donation/income received from Essar Steel Ltd. for charitable purposes in immediately next financial year in terms with Explanation 1(b) to Section 11(1) of the Act. In the event, where the AO finds to his satisfaction that the amount has been utilized in the next financial year as pleaded, he shall grant the deduction to the assessee as claimed in accordance with law. Needless to say, proper opportunity shall be granted to the assessee to ascertain the relevant facts and the AO shall pass speaking order.

Summary

Issues:
Entitlement of benefits to charitable trust under s.11 of the Income Tax Act, 1961 for unutilized amount received under Corporate Social Responsibility (CSR) initiative from a donor.

Analysis:
The appeal was filed by the assessee against the order of the CIT(A) concerning the treatment of an unutilized amount received from a donor under CSR initiative. The controversy revolved around the entitlement of benefits to the charitable trust under s.11 of the Act. The assessee received Rs.2 Crores from a company for specific purposes of welfare, out of which Rs.55,88,997/- was spent, and Rs.1,44,11,003/- remained unutilized in the relevant financial year. The issue was whether the unutilized amount could be treated as applied income under s.11(1) of the Act.

The assessee claimed that the unutilized amount should be deemed as applied during the previous year and treated as application of income under s.11(1) of the Act. The AO contended that there was a deficiency in compliance with the law as no communication was made with the AO or any form filed. The Revenue alleged a change in the assessee's stance regarding the deduction claimed under s.11(1) of the Act.

The ITAT held that the law permits deduction under s.11(1) if income is applied in the immediately subsequent financial year, and inconsistency in claiming deductions under different sections is not fatal. The substantial compliance with the conditions of the provision is crucial. The ITAT observed that the actual application of income in the next financial year is a question of fact that needs examination by the AO to determine the entitlement to tax benefits.

The ITAT set aside the CIT(A)'s order and remanded the issue to the AO to ascertain the actual utilization of the unutilized amount for charitable purposes in the next financial year. The AO was directed to grant the deduction if satisfied with the utilization. The ITAT clarified that the delay in filing the intimation for availing benefits under s.11(1) would not be viewed adversely. The appeal of the assessee was allowed for statistical purposes.

In conclusion, the judgment focused on the proper application of income received under CSR initiative by a charitable trust, emphasizing the importance of substantial compliance with the provisions of the Income Tax Act to determine entitlement to tax benefits for charitable activities.