2022 (12) TMI 376 - AT - Income Tax

Exemption u/s 11 - investment of accumulated income - spending more than 85% of the receipts for charitable purposes - limitation of applying 85 % or less for the purpose of applicability of Section 11(5) - As submitted assessee has complied with the mandate of Section 11(1) by spending more than 85% of the receipts for charitable purposes so inspite of the deposits otherwise then modes specified u/s 11(5) of the Act or valid investments, the assessee will continue to get the benefit u/s 11 - appellant society is registered under section 12A vide registration and is engaged in organizing golf tournaments in India and abroad for the promotion of game of golf in India - HELD THAT - The Bench is of considered opinion that the belief of assessee was erroneous that having spent 85% of the receipts for charitable purposes, the remaining could have been used in any manner whatsoever beyond the scope of Section 11(5) of the Act. Instead, the Bench is of view that Section 11(5) provides for investing or depositing money referred to in clause (b) of sub-section 2 of Section 11, in the identified investments falling in clause (i) to (xii) of Section 11(5) of the Act. The money referred in Clause (b) (ii) is one accumulated or set apart. Meaning thereby that even if 85% of the income referred in clause (a) or sub-clause (b) of sub section 1 of Section 11 read with the explanation 2 to that sub section (1) is applied to charitable or religious purposes then to claim exemption on the whole of the income, the accumulated or set apart income has to be deposited or invested in the investments identified in sub section (5) of section 11. Aforesaid view of the Bench is fortified by the following findings in M/s. Navajbhai Ratan Tata Trust 2022 (3) TMI 565 - ITAT MUMBAI - Thus there is no error in the findings of Ld. AO or the Ld. CIT(A). The ground raised are not sustainable, the appeal is dismissed ex parte.

Summary

Issues:
Interpretation of proviso of Section 13(1)(d) r.w.s. 11(5) of the Act for exemption under section 11 - Compliance with Section 11(1) by spending more than 85% of receipts for charitable purposes - Applicability of Section 13(1)(d) in denying exemption under Section 11.

Analysis:

1. The case involved an appeal against the order of the Commissioner of Income Tax (Appeals) regarding the denial of exemption under section 11 for the assessment year 2015-16. The appellant, a society organizing golf tournaments, had made investments and shown life membership subscriptions in its balance sheet. The Assessing Officer invoked section 13(1)(d) to deny exemption under section 11, which was upheld by the Commissioner.

2. The Commissioner observed that while the appellant was a charitable institution, the investment made in Mahindra and Mahindra finance did not comply with the modes specified under section 11(5). The Commissioner emphasized that exemption is not available if funds are invested in modes other than those specified under section 11(5), irrespective of the percentage of income spent for charitable purposes.

3. The appellant contended that despite spending more than 85% of receipts for charitable purposes, they should be entitled to exemption under section 11. However, the Revenue argued that there is no limitation of applying 85% or less for the applicability of section 11(5) of the Act.

4. The Tribunal analyzed the provisions of section 13(1)(d) and section 11(5) of the Act. It concluded that compliance with section 11(1) by spending 85% of receipts for charitable purposes does not entitle the appellant to use the remaining income in any manner beyond the scope of section 11(5). Section 11(5) specifies the forms and modes of investing or depositing money for charitable purposes, and any accumulated income must be invested in identified investments under this section to claim exemption on the whole income.

5. The Tribunal referred to a similar case decided by the Mumbai Bench, which clarified that income derived from prohibited investments due to violation of section 13 does not qualify for exemption under section 11. The Tribunal highlighted that only the income derived from prohibited investments would be ineligible for exemption under section 11, not the entire income of the trust.

6. Ultimately, the Tribunal dismissed the appeal, upholding the decision to deny exemption under section 11 based on the violation of section 13(1)(d). The Tribunal's decision was in line with the interpretation of the relevant provisions and previous judicial findings, emphasizing the importance of complying with the specified modes of investment for charitable institutions to claim exemption under section 11.