2018 (10) TMI 995 - HC - Income Tax

Charitable activity - exemption u/s 11 - mandation to specify the object/purpose in Form No.10 for claiming accumulation u/s. 11(2) - Held that - The statement of purpose for which the income is being accumulated or set apart is one of the requirements which must be satisfied before the assessee can avail the benefit under sub-section (2) of section 11. However, that by itself would not mean that any inaccuracy or lack of full declaration in the prescribed format by itself would be fatal to the claimant. The prime requirement of this clause is of stating of the purpose for which the income is being accumulated or set apart. In the present case, we are prepared to accept the Revenue s stand that the declaration made in Form 10 by the assessee was not sufficient to fulfill this requirement. However, as noted, during the course of assessment proceedings, AO called upon the assessee to explain the position in response to which, the assessee in detail pointed out background under which the board of trustees had met, considered the material and eventually passed a formal resolution setting apart the funds for the ongoing hospital projects of the Trust and for modernization of the existing hospitals. There was thus a clear statement made by the assessee setting out the purpose for which the income was being set apart - Decided against revenue

Summary

Issues: Interpretation of provisions of section 11(2) of the Income Tax Act for claiming accumulation and justification of allowing the claim of accumulation under section 11(2) of the Act.

Interpretation of Provisions of Section 11(2) of the Act:
The Tax Appeals in question revolve around the interpretation of the provisions of section 11(2) of the Income Tax Act, 1961. The primary contention was whether it is mandatory to specify the object/purpose in Form No.10 for claiming accumulation under section 11(2) of the Act. The Revenue challenged the judgment of the Income Tax Appellate Tribunal, questioning the Tribunal's interpretation of the said provisions. The crux of the issue was whether the statement of purpose for which the income is being accumulated or set apart, as required by clause (a) of section 11(2), must be explicitly specified in Form No.10. The Tribunal's decision was based on the argument that while the declaration made in Form 10 may not have been sufficient, the assessee had adequately explained the purpose during the assessment proceedings, fulfilling the essential requirement of stating the purpose for accumulation.

Justification of Allowing Claim of Accumulation:
The second issue at hand was the justification of allowing the claim of accumulation amounting to ?3,60,00,000 under section 11(2) of the Act. The Respondent-assessee, a Public Charitable Trust engaged in providing medical facilities, had set apart this sum for future projects and modernization of hospitals. The Assessing Officer initially contested the claim, stating that the purpose for accumulation was not specified, both in Form 10 and the resolution of the board of trustees. However, the assessee provided a detailed explanation during the assessment proceedings, highlighting the necessity of the funds for ongoing hospital projects and modernization. The Tribunal, in its judgment, acknowledged that while the declaration in Form 10 may have been lacking, the clear statement made by the assessee during the assessment process regarding the purpose for accumulation justified allowing the claim. The Tribunal emphasized that the purpose for accumulation must align with the objects of the trust, and in this case, it was evident that the funds were intended for charitable medical purposes, as supported by the resolution passed by the trustees.

In conclusion, the High Court upheld the Tribunal's decision, dismissing the Tax Appeals. The judgment underscored the importance of fulfilling the requirements of section 11(2) of the Act, particularly regarding the statement of purpose for accumulation, while also recognizing that technical deficiencies in the prescribed format may not invalidate a claim if the purpose is adequately substantiated during assessment proceedings.