2021 (1) TMI 1029 - AT - Income Tax

Exemption u/s 11 - AO rejected accumulation of income u/s.12AA on the ground that the assessee has accumulated its income not for specific purpose, but merely to defer taxation of surplus of amount which has not been applied towards its objects in the corresponding accounting period - HELD THAT - Once assessee has accumulated income with a specific purpose and such purpose is specified in the main objects of the trust, then 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 accumulates funds for the purpose which is specified in trust deed. This view is fortified by the decision of Hon ble Gujarat High Court in the case of CIT (Exemption) vs. Bochasanwasi Shri Akshar Purshottam Public Charitable Trust reported in 2018 (10) TMI 995 - GUJARAT HIGH COURT where it was held that lack of declaration in Form No.10 regarding specific purpose for which funds were being accumulated by the assessee trust would not be fatal to the exemption claimed u/s.11(2) of the Act. The Hon ble Supreme Court 2019 (3) TMI 1405 - SC ORDER has dismissed SLP filed by the Department in the above case and has upheld the findings of the Hon ble Gujarat High Court. In this case, on perusal of facts available on record, clause 4k of trust deed provides for extending help and relief to distressed and destitute, homeless and underprivileged and funds accumulated u/s.11(2) is covered under main objects of the trust. AO as well as learned CIT(A) has erred in denying benefit of accumulation of income u/s.11(2) of the Act. Hence, we direct the Assessing Officer to delete the additions made towards denial of accumulation of income u/s.11 (2) of the Act and direct him to allow benefit of accumulation as claimed by the assessee. - Decided in favour of assessee.

Summary

Issues involved:
1. Rejection of accumulation of income u/s.11(2) for specific purposes.
2. Interpretation of purpose for accumulation of income.
3. Application of funds for charitable purposes.
4. Denial of accumulation of income by Assessing Officer and CIT(A).

Analysis:

Issue 1: Rejection of accumulation of income u/s.11(2) for specific purposes:
The assessee trust accumulated funds under sections 11 & 12 of the Income Tax Act for charitable activities, including Ashram Major Repair Fund, Poor Children's Education Fund, and Medical Aid Fund. The Assessing Officer rejected the accumulation for specific purposes, claiming it was done to defer taxation. The CIT(A) upheld this decision, stating the purposes were general and vague. However, the tribunal found that the trust had specified the purpose for accumulation in Form No.10 as per the trust's main objectives. The tribunal held that as long as the trust's objects allowed for such purposes, the accumulation was valid. Citing legal precedents, the tribunal concluded that lack of specificity in Form No.10 did not invalidate the exemption claimed u/s.11(2) of the Act.

Issue 2: Interpretation of purpose for accumulation of income:
The trust's main objectives included providing help and relief to distressed individuals and underprivileged students, aligning with the purposes for which funds were accumulated. The tribunal emphasized that as long as the trust deed allowed for such purposes, the Assessing Officer could not deny accumulation based on perceived vagueness in Form No.10. Legal precedents supported this view, emphasizing that the trust's main objectives determined the validity of fund accumulation.

Issue 3: Application of funds for charitable purposes:
The tribunal noted that the trust regularly accumulated funds for specific charitable purposes and consistently utilized these earmarked funds accordingly. The trust's actions were in line with its main objectives, demonstrating a genuine commitment to fulfilling charitable activities. The tribunal stressed the importance of actual utilization of accumulated funds for the specified purposes, which was duly verified by the Assessing Officer.

Issue 4: Denial of accumulation of income by Assessing Officer and CIT(A):
Both the Assessing Officer and the CIT(A) erred in denying the benefit of income accumulation u/s.11(2) of the Act. The tribunal found that the trust's actions were in accordance with its main objectives, as outlined in the trust deed. Therefore, the tribunal directed the Assessing Officer to delete the additions made towards the denial of income accumulation and allow the benefit claimed by the assessee, ultimately allowing the appeal filed by the trust.

This detailed analysis highlights the tribunal's decision to uphold the accumulation of income for specific charitable purposes, emphasizing the importance of aligning trust actions with its main objectives as per the trust deed.