2016 (1) TMI 493 - AT - Income Tax

Benefit of accumulation as specified under section 11(2) denied - application of the assessee in form no.10 - Held that - In the case of the assessee the Assessing Officer has nowhere examined the utilization of funds of previous years as to whether the separate records were kept for each year of accumulation and whether the fund has been utilized for the purpose of the trust within the time limit mentioned in the provisions of the Act relevant to the Assessment Year in which it has been accumulated. Rather the Assessing Officer has only dealt with the issue, of whether the accumulation of fund is for a specific purpose or not, which in the case of assessee was properly done as they have mentioned that they are accumulating/setting apart funds for the purpose of the trust. 14. The claim of the assessee further gets strengthened looking to the history of the assessee s assessment proceedings wherein its setting apart/accumulation of funds in form no.10 for the purpose of the trust has duly been accepted by the Assessing authorities and the same is being continued in the years after the year under appeal before us. Also in the case of DIT (Exemption) vs. Guru Nanak Vidya Bhandar Trust (2004 (1) TMI 11 - DELHI High Court), Hon ble Delhi High Court has dealt with the issue wherein assessee s claim for accumulation set out in form no.10 were accepted in the preceding and subsequent years to held CIT(A) was not justified in upholding the action of Assessing Officer in rejecting the application in form No.10 for accumulation of funds u/s 11(2) of the Act and accordingly adding to the income of the assessee - Decided in favour of assessee

Summary

Issues Involved:
1. Rejection of accumulation of funds under Section 11(2) of the Income-tax Act.
2. Specificity of the objects listed in Form No. 10.
3. Consideration of case laws and principles of natural justice.
4. Levy of interest under Sections 234A and 234B.
5. Withdrawal of interest under Section 244A.
6. Initiation of penalty under Section 271(1)(c).

Detailed Analysis:

1. Rejection of Accumulation of Funds under Section 11(2) of the Act:
The assessee, Gujarat Chief Minister Relief Fund, filed its return of income at NIL and set apart Rs. 8,21,58,996 as per Section 11(2)(a) of the Act. The Assessing Officer (AO) rejected the application in Form No. 10, stating that the objects for accumulation were not specific and were for a general purpose. The CIT(A) upheld this decision, agreeing with the AO that the purposes listed were merely repetitions of the trust's objects and lacked specificity, thereby failing to meet the requirements of Section 11(2).

2. Specificity of the Objects Listed in Form No. 10:
The CIT(A) and AO emphasized that for accumulation under Section 11(2), the trust must specify a particular purpose, not just repeat its general objects. They relied on judgments from the Hon'ble Madras High Court and Calcutta High Court, which stated that the purposes must have individuality and not be a mere repetition of the trust's objects.

3. Consideration of Case Laws and Principles of Natural Justice:
The assessee argued that the CIT(A) and AO did not consider relevant case laws and failed to appreciate that the objects listed were specific and concrete. The CIT(A) dismissed these arguments, maintaining that the requirements of Section 11(2) were not met due to the lack of specificity in the purposes listed for accumulation.

4. Levy of Interest under Sections 234A and 234B:
The levy of interest under Sections 234A and 234B was deemed consequential and was not a primary issue of contention in the appeal.

5. Withdrawal of Interest under Section 244A:
Similarly, the withdrawal of interest under Section 244A was also considered consequential.

6. Initiation of Penalty under Section 271(1)(c):
The initiation of penalty under Section 271(1)(c) was considered premature and was not adjudicated in this appeal.

Tribunal's Decision:
The Tribunal examined whether the AO was justified in rejecting the application in Form No. 10 for accumulation of Rs. 8,21,58,996 under Section 11(2) for the assessment year 2008-09. The Tribunal noted that Section 11(2)(a) requires the assessee to specify the purpose for accumulation but does not mandate a "specific" purpose. The Tribunal observed that the AO did not raise any objections regarding the conditions required under Section 11(2)(a) except for the specificity of the purpose. The Tribunal highlighted that the assessee's trust, being a government-controlled fund, had objects that were inherently uncertain and could not specify a particular event for accumulation. The Tribunal also noted the consistency in the Income-tax Department's acceptance of the trust's accumulation in previous and subsequent years.

The Tribunal referred to the case of DIT (Exemption) vs. Guru Nanak Vidya Bhandar Trust, where the Hon'ble Delhi High Court upheld the consistency in accepting the accumulation set out in Form No. 10 in preceding and succeeding years. Following this precedent, the Tribunal concluded that the CIT(A) was not justified in upholding the AO's rejection of the application in Form No. 10. Consequently, the appeal was allowed, and the addition of Rs. 8,21,58,996 to the income of the assessee was set aside.

Conclusion:
The Tribunal allowed the appeal, setting aside the order of the CIT(A) and permitting the accumulation of funds under Section 11(2) as claimed by the assessee. The issues regarding the levy of interest under Sections 234A and 234B and the withdrawal of interest under Section 244A were deemed consequential, and the initiation of penalty under Section 271(1)(c) was considered premature.