2021 (9) TMI 1072 - AT - Income Tax

Exemption u/s 11 12 - AO has taken the view that the Gross receipts excluding corpus donation shall constitute the income of trust or institution - HELD THAT - The concept of income has to be understood in terms of sec.2(24) and other provisions of the Act. Hence, the view expressed by the AO that the Gross receipts excluding corpus donation shall constitute the income of trust or institution is contrary to the provisions of Income tax Act. The total income has to be computed in the hands of a charitable trust in accordance with the provisions of sec.11 to 13 of the Act and the same also satisfies the definition of total income given u/s 2(45) of the Act. Assessed maturity proceeds of Fixed deposit as income of the assessee - A capital receipt cannot be subjected to tax except under the authority of law. In any case, what was received by the assessee on maturity of fixed deposit is the maturity proceeds of the amount deposited by it earlier. The interest earned on the said fixed deposit shall constitute income in the hands of the assessee. Accordingly, maturity proceeds of fixed deposit cannot constitute income in the hands of assessee under any count. Hence the Ld CIT(A) was not justified in confirming assessment of the maturity proceeds of fixed deposit as income of the assessee. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the addition relating to maturity proceeds of fixed deposit. Certain fixed assets as application of income - AO allowed an aggregate amount of investment in fixed assets as application of income - We do not find any infirmity in the decision rendered by Ld CIT(A) on this issue. The assessee has claimed the expenditure of ₹ 7,29,227/- referred above in the Income and Expenditure account. Hence it cannot again be allowed as application of income. With regard to remaining three items, the assessee has not furnished any detail before us also and further the assessee has not proved that they are in the nature of capital expenditure resulting in acquisition of any asset. Accordingly we confirm the order passed by Ld CIT(A) on this issue. Rejection of Form no.10 filed by the assessee for accumulation of income u/s 11(2) - During the original assessment proceedings, it may be the case that the assessee has not filed Form no.10 before the AO. However, it cannot be said that the same situation/position prevailed during second round of proceedings also. We noticed that the assessee has applied for condonation of delay before Ld CIT and the same was rejected by Ld CIT. The said fact has been noticed by the AO in the original assessment order also. Hence the copy of petition filed by the assessee along with Form no.10 is very much available with the AO during second round. The year under consideration in this appeal is AY 2005-06, i.e, prior to AY 2016-17. Accordingly, we are of the view that the Form No.10 already filed by the assessee should have been considered by the AO for the detailed reasons discussed above. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to consider Form No.10 filed by the assessee and examine the claim made u/s 11(2) in accordance with law.

Summary

Issues Involved:
1. Assessment of maturity amount of Fixed Deposit as income.
2. Rejection of claim of application of income in respect of certain fixed assets.
3. Rejection of claim for accumulation of income under Section 11(2) of the Income Tax Act.

Detailed Analysis:

1. Assessment of Maturity Amount of Fixed Deposit as Income:
The assessee contested the assessment of the maturity amount of a fixed deposit as income. The AO assessed the maturity proceeds of ?50.00 lakhs as income, interpreting the term "income" under Section 11 to include "Gross receipts excluding corpus donation." The CIT(A) confirmed this view.

Upon review, it was clarified that Section 11 prescribes exemptions for income applied for charitable or religious purposes and does not redefine the concept of "income." The term "income" as per Section 2(24) includes various receipts, but the maturity proceeds of a fixed deposit, being a capital receipt, do not fall under this definition. Only the interest earned on the fixed deposit can be considered income. Consequently, the Tribunal set aside the CIT(A)'s order and directed the AO to delete the addition of ?50.00 lakhs related to the maturity proceeds of the fixed deposit.

2. Rejection of Claim of Application of Income in Respect of Certain Fixed Assets:
The assessee claimed certain expenditures as application of income for acquiring fixed assets. The AO allowed ?7,65,302/- as application of income but rejected additional claims totaling ?7,91,051/- for lack of details and nature of the expenditure.

The CIT(A) upheld the AO's decision, noting that the amount of ?7,29,227/- was already claimed in the Income and Expenditure account and thus could not be claimed again. The remaining amounts were not substantiated as capital expenditures. The Tribunal found no error in the CIT(A)'s decision and confirmed the rejection of these claims.

3. Rejection of Claim for Accumulation of Income under Section 11(2):
The assessee filed Form No.10 for accumulation of income under Section 11(2) after the due date for filing the return but before the conclusion of the assessment proceedings. The CIT refused to condone the delay, and the AO, consequently, did not allow the accumulation. The CIT(A) upheld this decision.

The Tribunal noted that the assessment order was passed in the second round of proceedings, and the Form No.10 was available with the AO during this round. The Tribunal referred to the Supreme Court's judgment in Nagpur Hotel Owners Association, which held that Form No.10 could be filed before the completion of assessment proceedings. Given that the assessment year in question was 2005-06, prior to the amendments effective from AY 2016-17, the Tribunal directed the AO to consider Form No.10 and examine the claim under Section 11(2) in accordance with the law.

Conclusion:
The Tribunal partly allowed the appeal, directing the AO to delete the addition related to the maturity proceeds of the fixed deposit and to consider the Form No.10 for accumulation of income under Section 11(2). The rejection of the claim for application of income in respect of certain fixed assets was upheld.