2024 (1) TMI 1180 - AT - Income Tax

Exemption u/s 11 - assessment of trust - accumulation of income as per section 11(2) of IT Act r.w.r.17 of the Income Tax Rules - Charitable activity u/s 2(15) - According to the assessee merely because assessee has stated the purpose for which the income is being accumulated as Basic Education, Health Care and Nutrition to Underprivileged children , the Ld. CIT(A) could not have upheld the action of the AO - Whether Section 11(2) of the Act makes it necessary for the assessed to make specific mention of any purpose or purposes to enable it to accumulate the income? HELD THAT - We note that the assessee is a public charitable trust registered u/s 12A of the Act with the main objective to do philanthropic acts and to take care/education of street-children/under-privileged children. The objective for the Trust were to do philanthropic acts and to take care of street-children/under-privileged children and especially their (i) Health Care (ii) Nutrition (iii) Literacy and basic education (iv) Self-esteem (v) Group skill, support services and associated support services (vi) Income generating schemes and (vii) Advancement of any other, social welfare objective. According to AO, the assessee had not applied 85% of the income but has accumulated income u/s 11(2) for the purpose of Basic Education, Health Care and Nutrition to Underprivileged children which reason for accumulation, according to him, was not for a specific purpose, and instead was only a reiteration of the broad objectives of the trust - We note that assessee Trust while making a claim for accumulating income as per sub-section (2) of section 11 of the Act, has fulfilled the conditions prescribed therein by filing the Form 10 wherein the assessee has spelled out the purpose for accumulation as Basic Education, Health Care and Nutrition to Underprivileged children which we find is in consonance with the purpose/object of the trust itself. Therefore, according to us, the claim for accumulation u/s 11(2) of the Act cannot be denied to assessee. As decided in the case of Hotel and Restaurant Association ( 2003 (3) TMI 92 - DELHI HIGH COURT ), held that even though it is true that specification of certain purpose or purposes is needed for accumulation of trust s income u/s 11(2) of the Act, but at the same time, the purpose or purposes to be specified cannot be beyond the objects of the Trust. Their Lordships observed Plurality of the purposes for accumulation is not precluded, but it depends on the precise purpose for which the accumulation is intended . Thus, we find that in the present case that income sought to be accumulated by the assessee was to achieve the object for which the assessee was incorporated. We find that it is not the case of AO/Ld. CIT(A) that any of the objects of the assessee trust were not for the purpose beyond the object of the trust or not charitable purpose. Statement of financials of the trust that assessee has applied its income for the education, feeding and clothing of the street children of Mumbai. We note that the income sought to accumulated by assessee was to achieve the three objects for which the assessee was formed. Before us, the Ld. DR could not point out that purpose shown in Form 10 for accumulating Rs. 30 Lakhs was not for object of the trust. In such a scenario, since assessee has satisfied the conditions laid down in section 11(2) of the Act for accumulation of the income, the same has to be allowed. Appeal of the assessee is allowed. CIT(A) not allowing the credit for TDS - At the time of hearing no arguments was advanced on this issue. However, we note that the Ld. CIT(A) has remanded this issue back to the file of the AO for verification and pass order. We confirm the action of the Ld. CIT(A) to the extent of remand back to the AO, and direct the AO to adjudicate the issue afresh.

Summary

Issues Involved:
1. Accumulation of Income under Section 11(2) of the Income Tax Act.
2. Credit for Tax Deducted at Source (TDS).

Summary:

Issue 1: Accumulation of Income under Section 11(2) of the Income Tax Act

The main grievance of the assessee trust was against the Ld. CIT(A)'s decision to disallow the accumulation of Rs. 30 Lakhs under Section 11(2) of the Income Tax Act, 1961, read with Rule 17 of the Income Tax Rules, 1962. The assessee trust, a public charitable trust registered under Section 12A, had filed its return of income declaring a total income of Rs. 11,83,030/- and gross receipts of Rs. 69,49,289/-. The AO disallowed the accumulation claim, arguing that the purpose stated in Form 10'"Basic Education, Health Care and Nutrition to Underprivileged children"'was too general and not specific as required by Section 11(2). The Ld. CIT(A) upheld this view, citing decisions from the Hon'ble Calcutta High Court and the Hon'ble Punjab & Haryana High Court.

Upon appeal, the Tribunal referenced judgments from the Hon'ble Delhi High Court, which had held that specifying broad objectives that align with the trust's purpose is permissible under Section 11(2). The Tribunal noted that the assessee trust had met the conditions prescribed under Section 11(2) and that the purposes stated in Form 10 were consistent with the trust's objectives. The Tribunal also observed that the trust had been applying its income for its charitable purposes, as evidenced by its financial statements. Consequently, the Tribunal allowed the accumulation of Rs. 30 Lakhs under Section 11(2) of the Act.

Issue 2: Credit for Tax Deducted at Source (TDS)

The second issue involved the credit for TDS of Rs. 86,058/-. No arguments were advanced on this issue during the hearing. The Ld. CIT(A) had remanded the issue back to the AO for verification. The Tribunal confirmed this action, directing the AO to adjudicate the issue afresh and give credit in accordance with the law after hearing the assessee.

Conclusion:

The Tribunal allowed the appeal of the assessee for statistical purposes, permitting the accumulation of income under Section 11(2) and remanding the TDS credit issue back to the AO for verification. The order was pronounced in the open court on 12/12/2023.