2022 (1) TMI 1195 - AT - Income Tax

Exemption u/s 11 - assessee has not specified the purposes for which the surplus accumulated would be utilized - HELD THAT - A perusal of the Resolution exhibited clearly shows that the assessee has set apart to be utilized on or before 31/3/2020 for the education purpose towards purchase of land construction of building/other fixed assets. A perusal of the statement of accounts as on 31/3/2017 which are exhibited we find that under the statement of utilization of income for the Financial Year 2016-17 at Item E, the assessee has specifically mentioned the total amount has been spent during the previous year from which it has deducted brought forward balances of previous years and for Assessment Year 2015-16. The assessee has shown the utilization. The above evidences clearly demonstrates the utilization of fund set apart in the year under consideration. Considering the totality of the facts, we do not find any reason to interfere with the findings of the CIT(A) filed by the Revenue is dismissed.

Issues:
1. Dispute regarding the purpose of accumulation of income for a non-profit educational entity.
2. Validity of the claim of exemption under section 11/12 of the Income Tax Act.
3. Interpretation of Form 10 and the requirement of specifying the purpose of fund utilization.

Analysis:

Issue 1: Dispute regarding the purpose of accumulation of income for a non-profit educational entity
The Revenue raised concerns regarding the purpose of the amount set apart for charitable purposes by the non-profit educational entity. The Revenue contended that the entity failed to provide evidence supporting the charitable nature of the amount. The Assessing Officer (AO) questioned the utilization of funds and raised doubts about the entity's commitment to its stated objectives. However, the Commissioner of Income Tax (Appeals) allowed the appeal, emphasizing the entity's eligibility for exemption under section 11/12 of the Act.

Issue 2: Validity of the claim of exemption under section 11/12 of the Income Tax Act
The non-profit educational entity, established with the sole objective of imparting education, claimed exemption under section 11/12 of the Income Tax Act for the Assessment Year 2016-17. The entity filed a return declaring 'NIL' income and sought accumulation of funds under section 11(2) of the Act. The Commissioner of Income Tax (Appeals) supported the entity's claim after reviewing the facts and submissions, ultimately upholding the exemption.

Issue 3: Interpretation of Form 10 and the requirement of specifying the purpose of fund utilization
The AO, during scrutiny assessment proceedings, questioned the purpose of fund accumulation by the entity, citing lack of clarity in Form 10 regarding the utilization of funds. The AO added an amount to the entity's income, challenging the validity of the exemption claim. However, upon further review, it was found that the entity had indeed specified the purpose of fund utilization towards education-related activities, as evidenced by resolutions and financial statements. The Tribunal concluded that the entity had appropriately utilized the accumulated funds for the stated purpose, dismissing the Revenue's appeal.

In conclusion, the Tribunal upheld the Commissioner's decision, emphasizing the entity's charitable nature and proper utilization of funds for educational activities. The judgment highlighted the importance of documenting and specifying the purpose of fund utilization for non-profit entities seeking tax exemptions under the Income Tax Act.

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