2015 (10) TMI 2840 - AT - Income Tax

Exemption u/s 11 - accumulation not made as per law and assessed it as AOP - objects specified in Form No. 10 for accumulation of income were too vague and further there was no need for assessee to accumulate funds for the purpose of salary as it has enough funds including grants received from State Government for this purpose - Assessee stated that the assessee is a society registered under section 12A of the Act since 2005 - whether assessee has accumulated the funds as per law? - HELD THAT - On perusal of the bye laws of the assessee society, we see that hiring of staff and utilization of funds for welfare of patients are two objects of the society. Therefore, it cannot be said that the objects which are stated for the purpose of accumulation of funds under Form No.10 are outside the objects as provided in the bye laws of the society. The contention of the AO is that these objects are too vague and are not specific. No reason for not granting assessee the benefit of such accumulation given the fact that the accumulation is sought for the purpose of its objects on the basis of which it was granted registration u/s 12A - We do not even find the objects stated in the Form No.10 too vague either, as these are the objects as per the bye laws. Admittedly, the objects stated in Form No.10 are not elaborately stated, but that cannot be the reason to deny the said benefit. Thus we find that there is no vagueness in the purposes specified by the assessee in Form No.10. Assessee has enough funds for the purposes of salary to be paid in the form of grants received from the State Government as well as the unutilized amount of grant so received by the assessee - It is not the Assessing Officer s case that the assessee has not complied with any of these conditions. His only concern is the availability of a huge amount of funds for the said purpose. AO in this regard has to confine himself to the provision of the Income Tax Act read with the Income Tax Rules only. AO does not have any prerogative to comment on the way the activities are to be carried on by the assessee. How much funds are needed for which purpose and how funds are to be used for different purposes is none of the Assessing Officer s concern. It is only assessee s own way of functioning. AO cannot sit on the armchair of the assessee to decide all these things, given the fact that the Income Tax Act does not give him any such power. Whether the assessee is receiving excess grant or whether it is in need of such grants may be the concern of the granting authority or that the assessee, but certainly not of the AO. We find that this issue raised by the AO to be not relevant for giving benefit of accumulation. benefit of accumulation of funds as provided u/s 11(2) allowed - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of the accumulation of funds under Section 11(2) of the Income Tax Act.
2. Specificity of the objectives stated in Form No. 10 for accumulation of income.
3. Relevance of the availability of funds for the purpose of accumulation.

Comprehensive, Issue-wise Detailed Analysis:

1. Legality of the accumulation of funds under Section 11(2) of the Income Tax Act:
The assessee, a charitable trust registered under Section 12A of the Income Tax Act, declared nil income for the assessment year 2010-11, claiming a deduction under Section 11. The trust set aside Rs. 6,76,48,808 for accumulation as per Section 11(2) and submitted Form 10 for this purpose. The Assessing Officer (AO) rejected the accumulation, assessing it as an Association of Persons (AOP) and disallowed the exemption under Section 11(2), citing that the objectives specified were too vague. The CIT (Appeals) upheld the AO's decision, asserting that the submission of Form 10 is not merely a technical requirement but a means to seek permission for accumulation, which must be for specific objectives. The Tribunal, however, found that the assessee had complied with the requirements of Section 11(2) by filing Form 10 and depositing the funds in an account, and thus, the accumulation was as per law.

2. Specificity of the objectives stated in Form No. 10 for accumulation of income:
The AO contended that the objectives stated in Form No. 10, "salary of staff and welfare of patients," were too vague. The CIT (Appeals) agreed, stating that the objectives were general and non-specific. The Tribunal, however, held that the objectives were in line with the bye-laws of the society, which included hiring staff and utilizing funds for the welfare of patients. The Tribunal emphasized that the objects stated in Form No. 10 were not outside the objects provided in the bye-laws and were not too vague. It referenced the Delhi High Court's judgment in CIT Vs. Hotel & Restaurant Association, which held that the purpose for accumulation must align with the trust's objects and does not need to be overly specific.

3. Relevance of the availability of funds for the purpose of accumulation:
The AO argued that the trust had sufficient funds from state government grants and questioned the need for further accumulation. The Tribunal found this reasoning irrelevant for denying the benefit of accumulation. It stated that Section 11(2) only requires compliance with two conditions: giving notice to the AO in the prescribed manner (Form No. 10) and investing the funds in prescribed modes. The Tribunal held that the AO's concern about the availability of funds was beyond his prerogative and not supported by the Income Tax Act. The decision to accumulate funds and the amount required for future purposes are within the trust's discretion and not the AO's concern.

Conclusion:
The Tribunal concluded that the assessee had complied with the legal requirements for accumulation under Section 11(2) and that the objectives stated in Form No. 10 were specific enough as per the trust's bye-laws. It directed the AO to grant the benefit of accumulation of funds to the assessee. The appeal was allowed, and the order was pronounced on October 15, 2015.