2021 (9) TMI 1204 - AT - Income Tax

Exemption u/s 11 - addition to total income being accumulation pertaining to FY 2003-04 - benefit under either section 11 of the Act or section 10(23C) - HELD THAT - The provision of section 11 and 10(23C) are two parallel regimes which do not overlap with each other. We therefore, find substantial merit in the case made out by the appellant that for examining utilization period of amount set aside and accumulated in excess of 15% pertaining to FY 2003-04 when it was not registered u/s 10(23C) of the Act will have to be examined only as per provision of section 11(3) of the Act and not as per provision of section 10(23C). The legislature in its wisdom has vide Finance Act, 2020 has now eliminated the scope of two parallel regimes as noted above. It is now very clearly provided that a trust can only obtained benefit of under either section 11 of the Act or section 10(23C) of the Act. In this regard, initially section 11(7) was inserted by Finance (No. 2) Act 2014 w.e.f 01-04-2015 and now first and second proviso s have been inserted to section 11(7) by Finance Act 2020 w.e.f 01-06-2020. We are presently concern with a case for AY 2009-10 and the surplus pertains to FY 2009-10 when the appellant was not registered under provision of section 10(23C). The subsequent insertion of section 11(7) and its further amendment are though not applicable but are supportive to our interpretation that earlier provisions of sections 11 and 10(23C) were two parallel regimes which operated independently in their respective realms. As a result, the addition made by the AO is deleted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the addition of ?4,39,07,729 to the total income of the appellant.
2. Applicability of Section 10(23C)(iv) versus Section 11(3) for the assessment of the accumulated income.
3. Whether the orders passed by the AO and CIT(A) are legally valid.

Detailed Analysis:

1. Validity of the Addition of ?4,39,07,729 to the Total Income of the Appellant:
The appellant filed a return declaring NIL income, but the AO assessed the total income at ?4,39,07,729. The AO observed that the appellant had accumulated surplus of ?4,39,07,729 for FY 2002-03, which was in excess of 15% and remained unutilized within the stipulated period. Therefore, the AO deemed it taxable in the year under consideration. The CIT(A) upheld this addition, asserting that the accumulation period under Section 10(23C)(iv) had expired, and the amount was taxable.

2. Applicability of Section 10(23C)(iv) versus Section 11(3) for the Assessment of the Accumulated Income:
The appellant argued that the notification under Section 10(23C)(iv) was applicable from AY 2007-08 and not for prior years. They contended that the accumulated income for FY 2003-04 should be assessed under Section 11(3), which allows utilization within the year immediately following the expiry of the five-year period. The appellant claimed that the accumulated amount was utilized in FY 2009-10, thus complying with Section 11(3). The Revenue, however, maintained that since the appellant was registered under Section 10(23C)(iv) from AY 2007-08, the surplus should be assessed under this section, which does not provide an additional grace period for utilization.

3. Whether the Orders Passed by the AO and CIT(A) are Legally Valid:
The tribunal examined the provisions of Sections 11 and 10(23C), noting that they are parallel regimes operating independently. The tribunal found merit in the appellant's argument that the surplus accumulated in FY 2003-04 should be assessed under Section 11(3), which allows utilization up to FY 2009-10. The tribunal cited CBDT Circular No. 14 and a High Court judgment in Venu Charitable Society, which supported the view that Sections 11 and 10(23C) are independent regimes. The tribunal concluded that the AO and CIT(A) erred in applying Section 10(23C) retrospectively to the surplus accumulated in FY 2003-04.

Conclusion:
The tribunal held that the provisions of Section 11(3) were applicable to the surplus accumulated in FY 2003-04, allowing utilization up to FY 2009-10. Since the appellant utilized the surplus in FY 2009-10, the addition of ?4,39,07,729 was deleted. The appeal filed by the assessee was allowed, and the orders passed by the AO and CIT(A) were found to be incorrect.

Order:
The appeal filed by the assessee is allowed. The addition of ?4,39,07,729 made by the AO is deleted. The order was pronounced in the open Court on 23rd September, 2021.