9911796707
TMI Blog2011 (10) TMI 193X X X X Extracts X X X X X X X X Extracts X X X X ..... 959 under Punjab Town Improvement Act, 1922. During the previous year relevant to assessment year 2007-08 the assessee earned income of Rs. 14.23,42,944/- out which an amount of Rs 3,99,18,967/- was applied. The assessee trust passed a resolution setting apart a sum of Rs. 8,10,00,000/- to be applied for general public utility in the next five succeeding years and informed the assessing officer in Form No. 10 within the time allowed as also filed copy of resolution passed on 17/10/2007. It was, therefore, contended before the assessing officer that the surplus to the extent of Rs. 8,10,00,000/- should be deemed to be the application of income for the purposes of section 11 of the Act. The assessing officer, however, noted that the assessee had debited a sum of Rs. 3,15,88,850/- to income and expenditure account, the amount of Income-tax paid for assessment years 2002-03 and 2003-04 amounting to Rs. 69,67,739/- and Rs. 2,45,78,188/- respectively. TDS on FDRs. of Rs. 4,29,233/- was also claimed as expenditure. However, the AO observed that the assessee upto Assessment Year 2002-03 was assessed as local authority. However, after amendment in section 10(20) by the Finance Act, 2002 wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount in excess of amount applied and accumulated, will not be allowed. The ld. CIT (Appeals), therefore, upheld the order of the assessing officer. Ld CIT(A), however, allowed the claim of the assessee that the income tax paid by the assessee was application of income for the purposes of section 11(1)(a) of the Act. 5. Before us the ld. AR of the assessee submitted that accumulation under section 11(1)(a) is different from accumulation under section 11(2) of the Act. The assessee is entitled for both the accumulations i.e. under section 11(1)(a) to the extent of 15 per cent and under section 11(2) in a case where the assessee is not able to apply 85 per cent of the income. Therefore, section 11(2) is applicable only to the income being 85 per cent after allowing exemption of 15 per cent of the income of the trust. In view of these facts it has been submitted that the assessee is eligible for exemption of Rs. 2,13,30,208/- being 15 per cent of income. The ld. AR of the assessee relied on the ITAT decision in the case of Market Committee, Gharonda v. ACIT (supra). The ld. AR of the assessee also placed reliance on the following decisions:- (i) S. RM. M. CT. M. Tirupanni Trus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp; ** ** Explanation.-For the purposes of clauses (a) and (b),- (1) in computing the fifteen per cent of the income which may be accumulated or set apart, any such voluntary contributions as are referred to in section 12 shall be deemed to be part of the income; (2) if, in the previous year, the income applied to charitable or religious purposes in India falls short of eighty-five per cent of the income derived during that year from property held under trust, or, as the case may be, held under trust in part, by any amount- (i) for the reason that the whole or any part of the income has not been received during that year, or (ii) for any other reason, then- (a) in the case referred to in sub-clause (i), so much of the income applied to such purposes in India during the previous year in which the income is received or during the previous year immediately following as does not exceed the said amount, and (b) in the case referred to in sub-clause (ii), so much of the income applied to such purposes in India during the previous year immediately following the previous year in which the income was der ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where they occur, the words "five years" had been substituted. Explanation.-Any amount credited or paid, out of income referred to in clause (a) or clause (b) of sub-section (1), read with the Explanation to that sub-section, which is not applied, but is accumulated or set apart, to any trust or institution registered under section 12AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, shall not be treated as application of income for charitable or religious purposes, either during the period of accumulation or thereafter. 8. From the provisions of section 11(1)(a) it is clear that in a case where the trust or institution applies 85 per cent of income for its objects, the entire income shall be exempt from tax. In other words the law provides a conditional exemption that in a case if the assessee applies 85 per cent of its income for its objects during the year, the whole of the income shall be exempt. However, in a case where assessee does not apply any amount of income for its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions laid down by section 11(2). Section 11(2) while enlarging the scope of exemption by removing the restriction imposed by section 11(1)(a) was held not to take away the exemption allowed by section 11(1)(a). Hon'ble Delhi High Court has, thus, in Bagri Foundation's case (supra) has held that the additional condition by way of section 11(2) inserted with effect from 1/04/2003 is intended only to apply in respect of accumulation in excess of 15 per cent and not to accumulation upto 15 per cent under section 11(1)(a) of the Act. In view of the decision of Hon'ble Delhi High Court it is held that the income applied u/s 11(1)(a) and accumulated u/s11(2) taken together should 85% in order to claim 100% exemption of the income derived by the assessee u/s section 11 of the Act. Any portion of income fall short of 85% will be liable to tax. Consequently in a case where neither any income is applied u/s 11(a) nor accumulated under section 11(2) entire income will be liable tax on the ground that exemption to be allowed is conditional one subject to fulfillment of certain condition of application/accumulation of the income. Otherwise it would lead to an absurd situation where an assessee w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt is needed for meeting the cost of project falling within the objects of the trust or institution accumulation of income to meet the cost of such project is permitted. Our view is supported by the decision of Hon'ble Calcutta High Court in the case of DIT [Exemption] v. Trustees of Singhania Charitable Trust [1993] 199 ITR 819 wherein it has been held that the purpose of accumulation to be specified should be a concrete one, an itemized purpose or a purpose instrumental to the implementation of its object or objects. The provision of sub section (2) is a concession provision to enable a trust to meet the contingency where the fulfillment of any object within its object or objects needs heavy outlay calling for accumulation to amass sufficient money to implement it. Hence, the charitable trust cannot list all its objects as purposes for accumulation of income under section 11(2). In the case before us since the AO himself has allowed accumulation of income for general public utility to be applied in next five succeeding years, in our considered opinion, accumulation of amount for all the objects of the trust is not permitted in law and will not constitute a precedent to be follow ..... X X X X Extracts X X X X X X X X Extracts X X X X
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