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TMI Blog2011 (5) TMI 640X X X X Extracts X X X X X X X X Extracts X X X X ..... riting given to the assessing officer in prescribed manner, the purpose for which the income is being accumulated or set apart and the period for which the income is to be accumulated or set apart, which shall, in no case exceed 10 years. However, matter is send to AO to verify whether money so accumulated or set apart is invested or deposited in the form or mode specified in sub-section (5) of section 11 - Decided partly in favor of assessee for statistical purpose X X X X Extracts X X X X X X X X Extracts X X X X ..... restriction or the ceiling imposed on such exempted accumulated income during the previous year and also brings such further accumulated income out of the tax net if the conditions laid down by sub-s(2) of s.11 are fulfilled meaning thereby the money so accumulate is set apart to be invested in the Government securities etc., as laid down by cl.(b) of sub-s.(2) of s.11 apart from the procedure laid down cl.(a)of s.11(2) being followed by the assessee-trust. Therefore, the exemption u/s.11(1)(a) is unfettered and not subject to any conditions. In other words it is an absolute exemption. Therefore, when these conditions of section 11 are satisfied, no income can be brought to tax. In the case of C.I.T. v. Nagpur Hotel Owners Association (247 ITR 201, 165 CTR 1), the Hon'ble Supreme Court has held that it is abundantly clear from the wordings of sub-s.(2) of s.11 that it is mandatory for the person claiming the benefit of s.11 to intimate to the assessing authority the particulars required, under r.17 in Form No.10. If during the assessment proceedings the A.O. does not have the necessary information question of excluding such income from assessment does not arrives at all. But if th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er wherein it was submitted as follows: "a. The A.O. observed that on the face of the return of income filed on 03-09-1996, under the column 'statement or documents enclosed', the appellant mentioned at (e) 'Form No.10' as one of the enclosures, but the same was not found as an enclosure. The A.O. further stated that, subsequently, during the course of original proceedings, by a letter dated 22-07-1999, the Form No.10 dated 21-07-1999 was furnished with a remark "Form No.10 attached herewith (Ann.-1). Due to oversight the same has not been enclosed which may pleased be condoned'. The A.O. concluded that, as the date of Form No.10 was 21-07-1999, and it was submitted only on 22-07-1999, it was clear that the appellant did not furnish the Form No.10 along with the return of income, ass required u/s.11(2) of the Act. b. To the A.O., the appellant, by a letter dated 11-08-1999, intimated that no Board resolution was passed regarding accumulation of surplus account. The purpose behind such resolution and declaration is to check the application of funds for the objects of the Trust, in a specified manner and time-frame, so, if the resolution was not passed immediately and if after a ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... furnishing Form No.10 within stipulated time limit, nor did set apart 25% of the receipts to meet the objects of the trust by making specified investment as per the requirement of provisions of section 11(5) of the Act. The C.I.T.(A) distinguished the judgments cited by the assessee, viz., Addl. CIT v. A.L.N. Rao Charitable Trust [1995] 216 ITR 697/83 Taxman 252 (SC), CIT v. G.R. Govindarajulu & Sons Charities [2004] 271 ITR 145/[2005] 144 Taxman 300 (Mad.), CIT v. Mayur Foundation [2005] 274 ITR 562 (Guj.) and CIT v. Nagpur Hotel Owners Association [2001] 247 ITR 201/114 Taxman 255 (SC) to hold that the assessee-trust neither filed return u/s 139(1) nor u/s.139(4) of the Act. The return filed by the assessee was beyond the limitation prescribed in sections 139(1) and 139(4) and therefore, had to be regularized by issue of notice u/s.148. The assessee did not file Form No.10 along with the return of income. So, the CIT(A) held that the assessee's attempt to draw inference on the above judgments where Form No.10 was filed in the course of assessment proceedings, was held to be incorrect. The C.I.T.(A) also did not accept the contention of the assessee that the assessee had applied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Sec.11(2) and laid down the law that Sec.11(2) does not restrict operation of Sec.11(1)(a) and that accumulated income exempted under Sec.11(1)(a) need not be invested in Government securities. Additional accumulated income beyond 25% can also get an exemption if invested as laid down in Sec.11(2) of the Act. The Ld. A. R. also relied upon the judgment in the case of CIT v. Programme for Community Organisation [2001] 248 ITR 1/116 Taxman 608 (SC) wherein it has been held that on plain language of section 11(1)(a) of the Act, the assessee was entitled to accumulate 25% of the income. The Ld. A. R. has also relied upon a decision of ITO v. Shri Mahakal Mandir Prabandh Samiti [2010] 131 TTJ (Ind.) (UO) 66. 8. The Ld. D. R, on the other hand, relied upon the order of A.O. and C.I.T.(A) and submitted that the ITAT has given clear direction that the case is required to be decided afresh only if the assessee filed Form No.10 along with return of income. The assessee did not file Form No.10 along with the return of income which is an admitted fact, and therefore, the claim of the assessee has been rightly rejected. The ld. D.R. submitted that while deciding the issue, the ITAT is boun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wners Association (supra) wherein it has been held that it is mandatory for the person claiming the benefit of Sec.11 to intimate to the assessing authority the particulars required under Rule 17 in Form No.10 applicable at the relevant time. It is further held that if during the assessment proceedings, the A.O. did not have the necessary information, question of excluding such income from assessment does not arise at all. It is further held that if Form No.10 is available then no income can be taxed and the assessee is entitled for deduction. After these discussions, the ITAT sent back the matter to the file of the A.O. to decide the issue afresh, in view of provisions of Sec.11(1)(a) and 11(2)(b) and also that if the assessee filed Form No.10 along with the return of income. To be more specific, the direction of the Tribunal reads, thus - "Therefore, we reverse the finding of the C.I.T.(A) and restore the matter to the file of the Assessing Officer to decide the issue afresh keeping in view the provisions of Sections 11(1)(a) and 11(2)(b) and if the assessee has filed form No.10 along with the return of income, the Assessing Officer is directed to reframe the assessment as per la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions of Sec.11(1) (a) reads as under:- "11.(1)(a) Income derived from property held under trust wholly or charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which income so accumulated or set apart is not in excess of twenty-five per cent of the income from such property. (b) to (d) ** ** ** Explanation.- For the purposes of clauses (a) and (b),- (1) in computing the twenty-five per cent of 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 seventy-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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the income could not be applied for the purpose for which it is so accumulated or set apart, due to an order or injunction of any court, shall be excluded." On a plain reading of above section we find that following income of a charitable or religious trust shall not be included in the total income - (1) to the extent of income - (a) applied; (b) deemed to be applied for the object of the trust; and (c) accumulation of income not exceeding 25%; (2) exemption of balance income of income (after income applied, deemed to be applied and accumulation not exceeding 25%). 14. Section 11(1)(a) of the Act and considering the procedure laid down by the Hon'ble Apex Court in the case of A.L.N. Rao Charitable Trust (supra), we find that following income shall not be included in the total income of the previous year of the trust in receipt of the income.:- (1) the income applied for charitable or religious purposes in India plus (2) the income which is accumulated or set apart for application to such purposes in India not exceeding twenty-five per cent of the income. 15. Thus, it is clear that income earned by the trust during the previous year are given exemption from income-ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d at para 3 of this order. 16. A charitable or religious trust have to apply 75% of income for the object of the trust so as to qualify for exemption u/s 11 of the Act. Income not exceeding 25% of income is allowed to be accumulated under this section 11(1)(a) of the Act. This accumulation is automatic and does not call for any statutory stipulation. Explanation to section 11(1) provides deemed application of the income. The said Explanation deals with a situation where income applied to charitable or religious purpose falls short of 75% of the income for the reason that the income was not received during that year or for any other reason, the trust have to exercise in writing for accumulation in accordance with Explanation to section 11(1) of the Act. It is pertinent to mention that filing of Form 10 u/s 11(2) of the Act and exercising in writing before the expiry of the time allowed under sub-section (1) of section 139 while furnishing the return of income Explanation to section 11(1) of the Act is different. For exercising in writing it is not required to file any prescribed form. It could be on simply application or it could be exercised by passing accounting entries in the bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under: Income applied for the object of the trust Rs. 3,84,34,356 Add : 25% of income Rs. 1,32,69,429 Rs. 5,17,03,785 The balance of (Rs. 5,30,77,705 (-) Rs. 5,17,03,785) = Rs. 13,73,920 The above income of Rs. 13,73,920 qualifies for exemption if the trust satisfies the conditions laid down in section 11(2) of the Act including filing of Form 10 and investing the amount in the specified securities. 18. In respect of ground No.2 of the appeal which is related to allowance of deduction over and above 25% of the income, for which the assessee is to satisfy the conditions laid down in section 11(2) of the Act. As per the discussion made above, the requirement of section 11(2) is that if such income is accumulated or set apart, then such income shall not be included in the total income of the previous year if such person specifies by notice in writing given to the assessing officer in prescribed manner, the purpose for which the income is being accumulated or set apart and the period for which the income is to be accumulated or set apart, which shall, in no case exceed 10 years. The money so accumulated or set apart is invested or deposited in the forms or modes specified in s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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