2021 (8) TMI 995 - AT - Income Tax

Exemption u/s 11 - allowance of the amount of fixed deposit as application of income u/s 11(1)(a) - HELD THAT - In the instant case, the assessee has not shown that the amount kept in fixed deposits have been allocated to or earmarked for a charitable purpose in accordance with the objects of the Trust. The assessee is making only a general statement that it should be considered as applied . Hence, in our view, the assessee is not entitled for exemption u/s 11(1)(a) of the Act in respect of deposits made in the banks. We have gone through those sections of the Act. Section 11(1A) is concerned with the capital gains arising on sale of a capital asset and its reinvestment for the purpose of availing exemption, i.e., conversion of one capital asset into another capital asset. Sec. 11(5) prescribes mode of making investments. In our view, those provisions will not support the claim of the assessee, since the deduction has been claimed u/s 11(1)(a) of the Act, as per which the income has to be applied for charitable purposes. In any case, reference to the other sections, which have been enacted for some other purpose, may not be appropriate. Accordingly, we reject these contentions of the assessee. In view of the above said discussions, we confirm the order passed by Ld. CIT(A) on this issue. Tax authorities have not accepted application made in form No.10 for accumulation of funds u/s 11(2) - We notice that the time limit for furnishing form No.10 has been prescribed in section 11(2)(c) of the Act by Finance Act, 2015 w.e.f. 1.4.2016. Hence the amendment shall take effect from AY 2016-17 only. It is pertinent to note that Rule 17(2) of the Income tax Rules as amended from 1.4.2016 and also earlier Rule 17 prescribed that the Form No.10 shall be furnished before the expiry of time limit u/s 139(1) for furnishing return of income. We notice that the Chandigarh Bench of Tribunal has held in the case of Infrastructure Development Fund vs DCIT 2020 (12) TMI 542 - ITAT CHANDIGARH that the amendment has been brought into the Income tax Act with effect from 1.4.2016 and hence it will apply only from AY 2016-17. The Tribunal did not give much credence to the time limit prescribed in the Income tax Rules earlier, since there was no corresponding condition prescribed in the substantive law. The year under consideration being assessment year 2012-13, the amended provisions will not be applicable to the assessee for the year under consideration. The AO has only doubted the date of Form No.10, but the undisputed fact remains that the Form no.10 and resolution have been filed before him during the course of assessment proceeding itself, i.e., before completion of the assessment. AO should have entertained Form No.10 and resolution filed by the assessee. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and restore this issue to the file of the A.O. with a direction to consider Form No.10 and resolution filed by the assessee and examine the claim of the assessee u/s 11(2) of the Act in accordance with law.

Summary

Issues:
1. Rejection of claim to allow deduction of fixed deposits as application of income u/s 11(1)(a) of the Act.
2. Rejection of claim for accumulation of income u/s 11(2) of the Act.

Analysis:

Issue 1: Rejection of claim to allow deduction of fixed deposits as application of income u/s 11(1)(a) of the Act:
The assessee, a Charitable Trust, claimed an amount as application of income towards acquisition of assets, including an increase in fixed deposits. The Assessing Officer (AO) and Ld. CIT(A) rejected the claim, stating that the increase in fixed deposits did not qualify as application of income. The contention of the assessee was that the term "applied" in Section 11 does not solely mean "spent" but also includes earmarking or allocation for charitable purposes. However, the assessee failed to demonstrate that the fixed deposits were earmarked for charitable purposes in line with the Trust's objectives. The Tribunal upheld the lower authorities' decision, emphasizing that the income must be genuinely applied for charitable purposes to claim exemption u/s 11(1)(a) of the Act. References to other sections like 11(1A) and 11(5) were deemed irrelevant since the claim was under 11(1)(a).

Issue 2: Rejection of claim for accumulation of income u/s 11(2) of the Act:
The second issue pertained to the rejection of the application made in Form No.10 for accumulation of funds u/s 11(2) of the Act. The AO refused to entertain the form, citing a circular and questioning the genuineness of the form submitted after the return filing deadline. The assessee relied on legal precedents to argue that filing Form No.10 before completion of assessment proceedings should be considered valid. The Tribunal referred to the amended provisions effective from AY 2016-17, which mandated filing Form No.10 before the return filing deadline. Since the assessment year in question was 2012-13, the amended provisions did not apply. The Tribunal directed the AO to reconsider the claim u/s 11(2) by accepting the Form No.10 and resolution submitted during the assessment proceedings.

In conclusion, the Tribunal partially allowed the appeal, upholding the rejection of fixed deposits as application of income u/s 11(1)(a) but directing a reassessment of the claim for accumulation of funds u/s 11(2) due to the valid submission of Form No.10.