2020 (3) TMI 1033 - HC - Income Tax

Exemption u/s 11 - Use of accumulated income for different purpose - Treating the amount given to PSWHMMS as the income of the appellant-society in terms of section 11(3)(d) - appellant is a Society working under the Government of Punjab, same being principal donor also - HELD THAT - In the present case, it was not the claim of the appellant that the amount was being accumulated for the payment to PSWHMMS. At this stage, we are not dilating as to whether for such purpose there could be accumulation or not. In such circumstances, there is a clear violation of the conditions referred in sub-section (2) and sub-section (3) of section 11. The amount has been spent for the purpose other than for what it was accumulated, it comes within the mischief of section 11(3)(c). The second limb of the argument raised is that by adding explanation to sub- section (2) and adding clause (d) to sub-section (3) of section 11 it is rather clarified that the assessees like appellant can pay or credit the accumulated sum to an unregistered or funds or Trust or institution not specified therein. The argument is not well founded. From the changes made by Finance Act, 2002 in section 11, it is clear that restrictions have been imposed on transfer of accumulated or set apart amount but the utilization of income received during the year has not been touched. It is settled that income received during the year can be transferred to other Trust or institution for charitable or religious purpose and same shall be held to be application for such purpose. The argument raised that since there is a restriction only for payment or credit of accumulated amount to a registered Trust or institution recognized under the Act and it would mean that payment can be made to un-registered Trust, institution or to institutions or Trusts not even recognized by the Act as charitable is far-fetched. This would lead to adding words to the provisions of the Statute which is not permissible. There is another aspect of the matter, it has not been even the case of the appellant that the donee is indulged in charitable or religious purpose what has been stated is that the aims and objects of the donor and donee are similar. Circular No.8 of 2002 ar nowhere supports the argument raised by the appellant rather clause 21.1 clarifies that payment to other Trust or institution out of the receipt of the year will continue to be treated as application, however no payment can be made from the accumulated income and the same shall be taxed; clause 21.2 reproduces Section 11(3)(d) stating that transfer shall be deemed to be income or person making such payment or credit. The addition of amount transferred to PSWHMMS is upheld. The question is answered against the appellant. The appeal is dismissed.

Summary

Issues Involved:
1. Justification of ITAT's decision regarding the amount given to PSWHMMS under section 11(3)(d).
2. Rejection of the revision of form No.10 by ITAT.
3. Whether the ITAT's order is perverse.

Issue-wise Detailed Analysis:

1. Justification of ITAT's decision regarding the amount given to PSWHMMS under section 11(3)(d):
The appellant, a Society under the Government of Punjab, transferred ?1 crore to Punjab State War Heroes Memorial & Museum Society (PSWHMMS) during the assessment year 2014-15. This transfer was directed by the Government of Punjab. The Tribunal upheld the addition of this amount to the appellant's income, citing a violation of sections 11(2) and 11(3)(d) of the Income Tax Act, 1961. The court clarified that section 11 requires at least 85% of the income to be applied for charitable or religious purposes in the year of receipt, with the remaining 15% allowed for accumulation for future specified purposes. The accumulated amount cannot be transferred to another trust or institution registered under section 12AA or specified under section 10(23C). The court found that the appellant's transfer to PSWHMMS, which was not registered under section 12AA at the time, violated these provisions. The court concluded that the transfer fell within the mischief of section 11(3)(c), as the amount was spent for purposes other than those for which it was accumulated.

2. Rejection of the revision of form No.10 by ITAT:
The appellant argued that the revision of form No.10 should have been accepted, given the changes in calculations by the authorities. However, the court did not find merit in this argument. The court emphasized the requirement for specific purposes for accumulation, as outlined in section 11(2). The appellant did not claim that the amount was accumulated for payment to PSWHMMS. Therefore, the court upheld the ITAT's decision to reject the revision of form No.10.

3. Whether the ITAT's order is perverse:
The appellant contended that the ITAT's order was perverse, arguing that the aims and objects of the donor and donee societies were similar, and thus, the amount should not be treated as income. The court rejected this argument, stating that the purpose of accumulation must have some individuality and cannot merely reproduce the aims and objects of the trust. The court referred to the amendments made by the Finance Act, 2002, which imposed restrictions on transferring accumulated amounts to other trusts or institutions. The court also noted that the appellant did not claim that PSWHMMS was engaged in charitable or religious purposes. The court found no perversity in the ITAT's order and upheld the addition of the transferred amount to the appellant's income.

Conclusion:
The court dismissed the appeal, upholding the ITAT's decision to treat the transferred amount as income of the appellant society. The court emphasized the need for specific purposes for accumulation and the restrictions on transferring accumulated amounts to other trusts or institutions. The court found no merit in the appellant's arguments and concluded that the ITAT's order was justified.