2020 (11) TMI 336 - AT - Income Tax

Exemption u/s 11 - AO made the addition on the ground that since the five years period expires in AY 2013-14, and since the assessee did not utilize the sum accumulated for charitable purpose in terms of section 11(3)(c) - HELD THAT - A reading of Clause (c) of Sec. 11(3) of the Act would show that the time allowed for applying accumulation for charitable purpose is 5 year and one year following the expiry of 5 years. This is clear from the expression used or in the year immediately following the expiry thereof . The previous year following the expiry of period of 5 years from AY 2008-09 will be AY 2014-15 and not AY 2013-14. This appeal relates to AY 2013-14 in which the AO sought to apply the provisions of section 11(3)(c). The Assessee did not raise such a plea regarding the applicability of the aforesaid provisions in AY 2014-15 only. There is a reference to section 11(3)(d) in the order of AO, which in our opinion, is not the correct provision of law. Since the assessee did not give any explanation in not utilising the surplus funds accumulated, the AO brought to tax a sum of ₹ 1,93,54,000. CIT(Appeals), the plea of assessee was that it had utilised the accumulated surplus for construction of a hostel building and products accounts evidencing income expenditure towards the same. Period of 5 years for spending the accumulated surplus for AY 2008-09 or in the year immediately following the expiry thereof is only AY 2014-15. The issue raised now before the Tribunal in the form of grounds of appeal which we have extracted in the earlier part of the order should be considered by the AO. If AY 2013-14 is not the period within which the accumulated surplus has to be applied, then the addition made should be deleted. We therefore set aside the order of CIT(Appeals) and remand this issue for fresh consideration by the AO, after affording opportunity of being heard to the assessee. Appeal by the assessee is treated as allowed for statistical purposes.

Summary

Issues:
- Whether the revenue authorities were justified in taxing a surplus amount not utilized for charitable purposes within the specified period.

Analysis:

1. Background: The appeal concerns the assessment year 2013-14, focusing on the taxability of a surplus amount of ?1,93,54,000 that was not utilized for charitable purposes within the stipulated period.

2. Accumulation of Surplus: The assessee had a surplus income of ?1,93,64,000 in the financial year 2007-08, which was carried forward for accumulation as per section 11(2) of the Income-tax Act, 1961, for a period of 5 years.

3. Taxability Issue: The Assessing Officer (AO) for AY 2013-14 held that since the 5-year period ended, and the surplus was not utilized for charitable purposes as required by section 11(3)(c) of the Act, it should be deemed as income of the following year.

4. Legal Provisions: Section 11(3)(c) specifies the time limit for utilizing accumulated funds for charitable purposes as 5 years and the year following the expiry thereof. The appeal pertains to AY 2013-14, and the AO sought to apply the provisions of section 11(3)(c) in that year.

5. Judicial Interpretation: The Tribunal highlighted that the relevant year for applying the provision would be AY 2014-15, not 2013-14. The AO's reference to section 11(3)(d) was deemed incorrect, and since the assessee did not provide an explanation for not utilizing the surplus, the AO taxed the amount.

6. Appellate Proceedings: The CIT(Appeals) rejected the assessee's claim of utilizing the surplus for constructing a hostel building due to lack of supporting evidence and detailed accounts, upholding the AO's decision to tax the surplus amount.

7. Appellate Tribunal Decision: The Tribunal observed that the issue raised by the assessee regarding the applicability of section 11(3)(c) for AY 2014-15 should be reconsidered by the AO. Consequently, the Tribunal set aside the CIT(Appeals) order and remanded the issue to the AO for fresh consideration, granting the assessee an opportunity to present its case.

8. Conclusion: The Tribunal allowed the appeal for statistical purposes, emphasizing the need for the AO to reassess the taxability of the surplus amount in light of the correct application of the relevant provisions for the subsequent assessment year.

This detailed analysis outlines the legal nuances and procedural steps involved in the judgment, addressing the core issue of taxability of accumulated surplus not utilized for charitable purposes within the specified timeframe.