2016 (9) TMI 1046 - AT - Income Tax

Independent accumulation of income u/s. 11(2), besides accumulation of profit u/s. 11(1)(a) - Held that - It has been brought to our notice from the details of application of funds in both the assessment years with the submission that application of fund is already more than 85%, therefore the issue of accumulation of fund u/s. 11(2) becomes academic and does not require any adjudication, as the CIT(Appeals) has already allowed the accumulation of fund as per the provisions of section 11(1)(a) of the Act. Therefore, we do not find it necessary to give a specific finding on a issue, whether accumulation of fund is further permissible after allowing accumulation of fund u/s. 11(1)(a) of the Act. Accordingly, this issue is disposed of for both the assessment years. Investment or deposit disallowed - Held that - The mode of investment is given in sub-section (5) of section 11 for accumulating the fund. Investment or deposits of money can be made as per sub-section (5) of section 11 of the Act and clause (iii) says that for the purpose of sub-section (2), deposits can be made in any account of the Scheduled Bank or co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank); meaning thereby, if the assessee makes investments or deposits in the scheduled bank and claims the deposits as accumulated for the purpose of section 11(1)(a) or 11(2), the investment or deposit cannot be disallowed only for the reason that application of money was not for the object of the society. We accordingly do not find any merit in the disallowance and direct the AO to treat the deposits in the scheduled bank as part of accumulation of fund as no disallowance can be made. Non-application of accumulation of fund within a specified period - Held that - CIT(Appeals) has categorically observed that the accumulated fund was not applied for the objects of the society and if not applied, it is to be liable to be taxed in the previous year immediately following the previous year in which it was derived where it could not be applied to the specified purposes and the CIT(Appeals) has given directions that the said amount will be taxable in A.Y. 2009-10 and not in the current year. The CIT(Appeals) has taken into account the provisions of the Act and having noted that the accumulated fund was not applied for the specified purposes, he directed that this amount be taxed in the A.Y. 2009-10. Since we do not find any infirmity in the order of CIT(Appeals), we confirm the same.

Summary

Issues involved:
1. Disallowance of depreciation by CIT(Appeals) - Revenue's appeal against CIT(A) order.
2. Accumulation and set apart of income under Section 11(1)(a) - Assessee's appeal against CIT(A) order.
3. Investment in fixed deposits as application of income - Assessee's appeal against CIT(A) order.
4. Treatment of accumulated income as deemed income under Section 11(3)(c) - Assessee's appeal against CIT(A) order.

Detailed Analysis:
1. Disallowance of Depreciation:
The appeals were filed by the revenue and the assessee against the CIT(Appeals) orders. The revenue challenged the CIT(A) order allowing depreciation when the entire amount of capital asset purchased was treated as application of income. The assessee argued that various tribunal and high court decisions supported their entitlement to depreciation despite the entire amount being treated as application of income. The Tribunal noted consistent views favoring the assessee's entitlement to depreciation, citing relevant judgments. As no contrary judgment was presented by the revenue, the Tribunal confirmed the CIT(A) order allowing depreciation.

2. Accumulation and Set Apart of Income:
The assessee contested the CIT(A) order on various grounds, including the accumulation or set apart of income under Section 11(1)(a). The CIT(A) had dismissed the claim for accumulation without notice to the Assessing Officer, citing that it had already been allowed under Section 11(2). The Tribunal found that the application of funds exceeded 85%, making the issue of accumulation under Section 11(2) academic. The Tribunal did not find it necessary to rule on further accumulation after Section 11(1)(a) approval. The appeal on this issue was disposed of accordingly.

3. Investment in Fixed Deposits:
The assessee challenged the CIT(A) decision regarding the investment in fixed deposits not being considered as an application of income under Section 11(1)(a). The Tribunal examined the relevant provisions and found that investments in scheduled banks for accumulation purposes were permissible under Section 11. The Tribunal directed the AO to treat the deposits in the scheduled bank as part of the accumulation of funds, rejecting the disallowance made by the CIT(A).

4. Treatment of Accumulated Income:
The assessee raised concerns about the treatment of accumulated income under Section 11(3)(c). The CIT(A) had decided that the accumulated fund not applied for specified purposes would be taxed in the subsequent assessment year. The Tribunal upheld the CIT(A) decision, stating that the accumulated fund not applied for the society's objects would be taxable in the specified year as directed by the CIT(A). The appeals of the revenue were dismissed, and those of the assessee were partly allowed based on the issues discussed and analyzed.

These detailed analyses provide a comprehensive overview of the judgment, addressing each issue involved and the Tribunal's findings on the appeals presented.