2016 (11) TMI 656 - AT - Income Tax

Disallowance of exemption claimed u/s 11(2) - Held that - As already noted, in Form no.10, as well as resolution of the trust, the assessee has specifically mentioned the purpose of utilization of fund in construction / re development of buildings / properties of the trust. Thus, the purpose of utilization is in consonance with the objects of the trust. That being the case, assessee s claim cannot be disallowed. We also find merit in the submission of the assessee that disallowances envisaged on account of non utilisation of accumulated fund cannot be made in the first year of claim. A reading of provisions contained in section 11(3) along with section 11(2) of the Act, makes it clear that only after the expiry of five years period if the Assessing Officer finds that the accumulated or set apart funds were not utilised for achieving the objects of the trust then only he can disallow assessee s claim of exemption under section 11(2). For the aforesaid reasons, we do not agree with the conclusion of the Departmental Authorities. Accordingly, we set aside the impugned order of the learned Commissioner (Appeals) and allow assessee s claim of exemption under section 11(2).

Summary

Issues:
Disallowance of exemption claimed under section 11(2) of the Income Tax Act.

Analysis:
The appeal concerned the disallowance of an exemption claimed by a trust under section 11(2) of the Income Tax Act for an amount of ?95 lakh for the assessment year 2011-12. The Assessing Officer disallowed the claim as the purpose of accumulation shown by the trust was deemed general and lacked specificity. The trust argued that the accumulated funds were set apart for the development of existing properties and construction of new buildings for trust activities, in line with its objectives. The trust submitted Form no.10 along with a resolution specifying the purpose of the accumulated fund. The Commissioner (Appeals) upheld the disallowance, but the trust contended that the purpose of accumulation was clearly defined and aligned with the trust's objectives. The tribunal noted that the trust had complied with the provisions of section 11(2)(a) by filing a declaration in Form no.10, clearly stating the purpose for which the fund was accumulated. The resolution of the trust also confirmed the utilization of the fund for development and construction activities in line with the trust's objectives.

The tribunal observed that the purpose of accumulation mentioned in Form no.10 and the trust's resolution was consistent with the trust's objectives, such as constructing buildings for students and renovating existing properties. The tribunal referred to judicial precedents where trusts were allowed exemption under similar circumstances. It was emphasized that the purpose of utilization of the fund was in line with the trust's objectives, and disallowance could only occur after five years if the funds were not utilized for the specified purpose. The tribunal disagreed with the Department's conclusion and set aside the Commissioner (Appeals) order, allowing the trust's claim of exemption under section 11(2).

In conclusion, the tribunal allowed the trust's appeal, emphasizing that the purpose of accumulation of funds was specific and aligned with the trust's objectives. The tribunal highlighted the importance of complying with statutory provisions and ensuring that the accumulated funds are utilized for the specified purpose within the stipulated timeframe to claim exemption under section 11(2) of the Income Tax Act.