2025 (4) TMI 1296 - AT - Income Tax

Disallowing the claim of accumulation u/s. 11(2) - there is no specific reason mentioned in Form 10 how the amount accumulated going to be spent for - HELD THAT - AO does not have case that accumulation u/s. 11(2) of the Act is for purpose outside the objects of the assessee trust. The only reason stated by the AO in denying the claim of accumulation of income u/s. 11(2) of the Act is that the amount set aside for accumulation has not been specifically mentioned or categorised. We find from Form 10 that the assessee had enumerated the reasons for accumulation of income which is well within the objects of the assessee trust. As decided MAMTA HEALTH INSTITUTE FOR MOTHER AND CHILDREN 2007 (5) TMI 88 - HIGH COURT DELHI in annual report as well as the overview of these projects clearly shows that the projects were in consonance with the objectives sought to be achieved by the assessee which were for the benefit of women and adolescent girls particularly in the slums or in a community which was not particularly well off. On-going through the objects of the society it is clear that the assessee sought to accumulate funds for a charitable purpose. Appeal filed by Revenue is dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

- Whether the Assessing Officer (AO) was justified in denying the claim of accumulation of income under section 11(2) of the Income Tax Act, 1961, on the ground that the purpose specified in Form No. 10 for accumulation was vague and general rather than specific and concrete.

- Whether the absence of a detailed or specific purpose for accumulation in Form No. 10, without further explanation during assessment or appellate proceedings, justifies denial of exemption under section 11(2).

- The applicability and interpretation of judicial precedents regarding the specificity required in stating the purpose for accumulation under section 11(2), including the relevance of the decision of the Gujarat High Court in CIT (Exemption) vs. Bochasanwasi Shri Akshar Purshottam Public Charitable Trust.

- Whether the CIT(A) erred in allowing the claim of accumulation based on general purposes aligned with the trust's objects, despite the AO's contention that the purpose must be definite and not general.

- The extent to which the objects of the trust as per the trust deed and the purposes stated in Form No. 10 satisfy the legal requirements of section 11(2) for accumulation of income.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of denial of accumulation claim due to vague/general purpose stated in Form No. 10

Relevant Legal Framework and Precedents: Section 11(2) of the Income Tax Act allows a charitable trust to accumulate income for specified purposes, provided the purpose is mentioned specifically in Form No. 10. The AO relied on precedents such as Deputy Commissioner of Income Tax vs. Trustees of Singhania Charitable Trust (Calcutta High Court) and Commissioner of Income Tax vs. Mutthiah Chettiar Family Trust (Madras High Court), which emphasize that the purpose for accumulation must be specific and concrete, not vague or general.

However, the CIT(A) and the Tribunal referred to later judicial pronouncements, notably the Delhi High Court in CIT vs. Hotel and Restaurant Association and Director of Income Tax (Exemption) vs. Mamta Health Institute for Mother & Children, which held that while specification of purpose is necessary, it must be within the objects of the trust and need not be narrowly or overly specific. The purpose can be plural and general, provided it aligns with the trust's charitable objects.

Court's Interpretation and Reasoning: The Tribunal noted that the AO's sole reason for denial was the lack of specificity or categorization in Form No. 10. The Tribunal emphasized that the purposes stated in Form No. 10-"Charitable activities including relief to poor, medical aid, educational aid, marriage aid, rehabilitation, environmental protection, contribution to charitable trusts registered under section 12"-are well within the objects of the trust as per its deed.

The Tribunal relied on the Delhi High Court's observation that the purpose(s) to be specified cannot be beyond the objects of the trust, and plurality of purposes is permissible. The Tribunal found no dispute that the purposes fall within the charitable objects of the trust. Therefore, the AO's demand for a more concrete or narrowly defined purpose was not supported by law.

Key Evidence and Findings: The trust deed dated 29.11.1998 was examined, showing objects such as aid to handicapped, rehabilitation of deprived persons, education of neglected and orphaned, and aid to the poor-broad charitable objects. Form No. 10 enumerated purposes consistent with these objects. The AO did not allege that the accumulation was for non-charitable purposes.

Application of Law to Facts: The Tribunal applied the principle that the accumulation purpose must be within the trust's objects and that general purposes aligned with those objects suffice for exemption under section 11(2). The vague or general nature of the stated purposes in Form No. 10 was not fatal to the claim.

Treatment of Competing Arguments: The AO's reliance on older precedents requiring specific and concrete purposes was distinguished from the more recent and authoritative decisions of the Delhi and Gujarat High Courts, which allow general purposes within the trust's objects. The Department's argument that the assessee failed to provide specific purposes during assessment or appeal was rejected because the Form No. 10 and trust deed sufficiently disclosed the purposes.

Conclusion: The Tribunal upheld the CIT(A)'s order allowing the claim of accumulation, finding no legal basis to deny exemption on the ground of generality or vagueness of the stated purposes.

Issue 2: Applicability of the Gujarat High Court decision in CIT (Exemption) vs. Bochasanwasi Shri Akshar Purshottam Public Charitable Trust

Relevant Legal Framework and Precedents: The Gujarat High Court in the cited case held that lack of a specific declaration in Form No. 10 regarding the purpose of accumulation is not fatal to exemption under section 11(2), especially if the purpose is within the trust's objects and the assessee provides a satisfactory explanation during proceedings.

Court's Interpretation and Reasoning: The AO and Revenue contended that the Gujarat High Court judgment is distinguishable because, in that case, the assessee corrected the initial vague declaration by furnishing detailed explanations during assessment, which was accepted. In the present case, the Revenue argued, the assessee did not furnish such specific purposes either during assessment or appeal.

The Tribunal, however, found that the facts were not materially different because the Form No. 10 in the present case did specify purposes aligned with the trust's objects. The absence of further elaboration during assessment or appeal was not fatal since the purposes were already within the trust's charitable objects and clearly stated in Form No. 10.

Key Evidence and Findings: The Tribunal noted that the Revenue did not dispute that the purposes fall within the trust's objects. The Gujarat High Court's ruling was also upheld by the Supreme Court in dismissing the Department's Special Leave Petition, lending authoritative weight to the principle that strict specificity beyond the trust's objects is not mandated.

Application of Law to Facts: The Tribunal applied the principle that the trust's objects and the purposes stated in Form No. 10 suffice for accumulation under section 11(2), and the Revenue's reliance on the need for additional explanation was not supported by law.

Treatment of Competing Arguments: The Tribunal rejected the Revenue's argument that the absence of detailed purposes during assessment or appeal proceedings distinguishes the case from the Gujarat High Court decision, holding that the stated purposes in Form No. 10 and the trust deed were adequate.

Conclusion: The Tribunal held that the Gujarat High Court decision supports the assessee's claim and that the CIT(A) rightly relied upon it to allow the accumulation.

Issue 3: Interpretation of section 11(2) and the nature of the purpose required for accumulation

Relevant Legal Framework and Precedents: Section 11(2) permits accumulation of income for a specified purpose, which must be mentioned in Form No. 10. Judicial precedents have clarified that the purpose must be within the trust's objects and need not be narrowly defined or singular.

Court's Interpretation and Reasoning: The Tribunal emphasized that section 11(2) is a concessional provision intended to enable charitable trusts to accumulate income to meet contingencies or fund projects requiring substantial outlay. The purpose need not be narrowly defined but must be within the scope of the trust's objects.

Key Evidence and Findings: The Tribunal noted that the AO's reliance on older judgments requiring specificity was outweighed by later authoritative rulings permitting general purposes within the trust's objects. The Tribunal also observed that the AO did not contend that the accumulation was for non-charitable purposes.

Application of Law to Facts: The Tribunal applied the principle that the purposes stated in Form No. 10-general charitable activities-are valid for accumulation under section 11(2). The AO's demand for a definite or concrete purpose was not supported by the legal framework.

Treatment of Competing Arguments: The Tribunal rejected the AO's view that the purpose must be concrete or definite and that vague or general purposes are insufficient. It also rejected the argument that the assessee's failure to provide specific purposes during proceedings justified denial.

Conclusion: The Tribunal concluded that the purposes stated in Form No. 10 meet the statutory requirement of section 11(2) and justify the claim for accumulation.

3. SIGNIFICANT HOLDINGS

- "As various courts have held, the Assessing Officer cannot deny such accumulation of income merely for the reason that purpose specified in Form No.10 is vague and general in nature. As long as objects of the trust provide for such purpose, then the assessee can accumulate funds for the purpose which is specified in trust deed."

- "Specification of certain purpose or purposes is needed for accumulation of the trust's income under Section 11(2) of the Act. At the same time the purpose or purposes to be specified cannot be beyond the objects of the trust. Plurality of the purposes for accumulation is not precluded but it depends on the precise purpose for which the accumulation is intended."

- The Tribunal upheld the view that the lack of detailed or narrowly specific purposes in Form No. 10 does not invalidate the claim for accumulation if the stated purposes are within the charitable objects of the trust.

- The Tribunal affirmed the correctness of the CIT(A)'s order deleting the addition made by the AO and allowing the benefit of accumulation as claimed by the assessee under section 11(2) of the Act.

- The appeal filed by the Revenue was dismissed, confirming that the general purposes stated in Form No. 10, aligned with the trust's objects, satisfy the requirements of section 11(2) for accumulation of income.