2015 (12) TMI 1499 - AT - Income Tax

Disallowance of the accumulation of income - rejection of Form 10 - Held that - The assessee is a charitable trust and has been registered under section 12AA of the Act. During the relevant financial year, the assessee has excess of income over expenditure and has sought to set apart the said excess for the purposes of objects of the trust. Though in Form 10, the assessee has not mentioned specific purpose for which the accumulation is being done, we find that during the course of the assessment proceedings, the assessee has stated the specific purpose for which the accumulation is being done. The reason for the Assessing Officer s refusal to accept the subsequent letter of the assessee giving specific purpose of accumulation is that the assessee has not filed the resolution of the society for the specific purpose mentioned in the letter. Thus particularly taking into consideration the assessee s contention that the funds set apart have been utilised for the purpose mentioned by the assessee in its letter filed before the Assessing Officer during the assessment proceedings, I am of the opinion that the assessee is eligible for accumulating the excess of income over the expenditure for the relevant assessment year. - Decided in favour of assessee

Summary

Issues:
- Disallowance of accumulation of income under section 11 of the Income-tax Act for the assessment year 2008-09.

Detailed Analysis:

1. Background and Disallowance: The case involves an appeal by the assessee against the order of the Commissioner of Income-tax (Appeals) upholding the rejection of Form 10, leading to the taxation of a disallowed amount. The assessee, a trust, filed its return seeking exemption under section 11 of the Income-tax Act but faced issues with Form 10 not specifying the purpose of accumulating income. The Assessing Officer disallowed the accumulation due to lack of specific purpose and non-submission of supporting documents.

2. Contentions and Legal Precedents: The counsel for the assessee argued that despite the initial deficiency in Form 10, the specific purpose for accumulation was later provided during assessment proceedings. Citing a relevant High Court case, the counsel contended that timely submission of necessary information should prevent disallowance. The Departmental representative supported the lower authorities' decisions.

3. Judicial Analysis and Precedents: The Judicial Member noted that the trust, being registered under section 12AA, had the excess income over expenditure set aside for trust objectives. Despite the initial lack of specificity in Form 10, the subsequent submission of the purpose was deemed crucial. Referring to legal precedents from the High Courts of Calcutta and Delhi, it was established that the purpose for accumulation should align with the trust's objects. The judgment emphasized that as long as the required information is furnished before assessment completion, accumulation should be permitted.

4. Decision and Conclusion: Considering the trust's charitable nature and the subsequent utilization of the accumulated funds for the stated purpose, the Judicial Member allowed the appeal. The judgment highlighted the importance of aligning the accumulation purpose with the trust's objectives and complying with the specified legal requirements. The decision was based on the principle that timely submission of relevant information should prevent disallowance under section 11 of the Income-tax Act.

In conclusion, the judgment by the Appellate Tribunal ITAT Hyderabad favored the assessee, allowing the accumulation of income for the relevant assessment year based on the provided purpose and legal compliance. The decision underscored the significance of timely and accurate disclosure of information in Form 10 to avoid disallowances under section 11 of the Income-tax Act.