9911796707
TMI Blog2011 (5) TMI 640X X X X Extracts X X X X X X X X Extracts X X X X ..... Government of India. This is a second round of litigation, in the first round of litigation, the A.O. found that the assessee did not comply with provisions of Sec.11 and also did not file the prescribed form within the time allowed under the law. The A.O. made the assessment on 21-02-2000. Matter was carried before the C.I.T.(A) who partly allowed the appeal and held that the income accumulated or set apart which was in excess of 25% would form part of the total income of the previous year of the assessee. However, the C.I.T.(A) directed that the executive authority may, after considering the facts and circumstances of the case, condone the delay in submitting the prescribed Form 10. The issue was taken up before the ITAT. The ITAT vide its order dated 10-08-2005 restored the issue back to the file of the A.O. with certain directions. The relevant finding of the ITAT read as below:- "The assessee is an Institution which is registered u/s.12A of the I.T.Act. As per sec.11(1)(a) of the IT Act, if the accumulated funds are used towards the object as per the provisions of section 17 of the Act, the income cannot be taxed. Moreover as per section 11(1)(2), 25% of the accumulated incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25% of the income. 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 law." 3. While complying with the direction of the ITAT, the A.O. passed fresh order dated 31-12-2006. While doing so, he concluded that the assessee did not satisfy the conditions laid down u/s.11 (2) of the Act read with Rule 17 of the I.T. Rules. The A.O. held that since Form No.10 was not filed with the return of income, the assessee institute has not satisfied the condition laid down in provisions of section 11(2) of the Act read with rule 17 of IT Rules so as to avail the exemption provided under section 11 of the Act. Accordingly the surplus amount of Rs. 1,46,43,350/- was taxed. The computation resorted to by the assessing officer reads, thus- Receipts as per statement) a. Interest and dividend. Rs. 2,14,40,907 b. Rent. Rs. 3,28,411 c. Levy Rs. 3,12,39,890 d. Others. Rs.&nb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ree years, Form No.10 was furnished, that too, without passing any Board resolution, then the purpose behind the inclusion of such condition will never be fulfilled. c. The A.O. further contended that, as per the provision of section 11(2), the appellant was required to mention the purpose for which such excess fund or an amount set apart or kept for use in future. The amount was accumulated in general reserve fund only. Thus, as per A.O., the appellant failed on both the accounts. d. Before A.O., the A.R. argued that the issue of condonation of delay in filing Form No.10 was still pending before the C.I.T., Rajkot, so that the matter might be kept in abeyance till 15-11-2006, until the date the order was passed on 30-12-2006. The remarked that the application of the appellant regarding condonation of delay had not been decided. Finally, the A.O. closed the matter by saying - "........, it is clear that the Form No.10 was not filed with return of income, so the assessee-institute has not satisfied the conditions laid down u/s.11(2) of the Act and Rule-17 of the IT Rules. So, the excess amount of Rs. 14643350/- being 25% of the receipt is not used by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of delay in filing Form No.10 before the C.I.T. by observing that this plea would not go to help the assessee inasmuch as that the C.I.T has no power to condone the delay in filing form 10 prescribed in Rule 17 of I.T. Rules. After examining the relevant provisions in the I.T. Act and the judgments as also Rule-17 of IT Rules, the C.I.T.(A) held that words "shall be delivered" conveyed a strict mandatory direction and that by no stretch of imagination, the word "shall" could be read as directory in nature. In view of these findings the ld.CIT(A) finally concluded that the assessing officer was justified in holding that the assessee did not comply with provisions of section 11(2) so as to claim exemption under that section of the Act. The addition of surplus amount over the expenditure of Rs. 1,46,43,350 was thus confirmed. 6. The Ld. A.R. after briefing the facts of the case submitted that A.O. and C.I.T.(A) have not correctly appreciated the direction of the ITAT. The ITAT has clearly stated after discussion that the assessment is required to be made afresh in accordance with law. Therefore, the A.O. has misread the direction of the ITAT that the case has to be decided afresh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... original order of the ITAT. The Ld. D. R. further submitted that sections 111(1)(a) and 11(2) are very clear that it is mandatory to ascertain the purpose of creation of the and the status of the surplus fund, the utilization of the funds towards the object of the trust. In the instant case the assessee trust has violated all these requirements. The surplus funds were not utilised in the three subsequent years by the assessee. The Ld. D. R. submitted that C.I.T.(A) has also considered the alternative submission of the assessee regarding filing of Form No.10 and the condonation application filed before CIT. Firstly, Form No.10 was not filed along with the return of income and secondly, the return filed by the assessee was belated which was regularized by issuing u/s. 148 of the Act. However, the Ld. D.R. admitted that if the surplus of the expenditure is less than 25% there is no statutory requirement in filing Form No.10. 9. In the rejoinder, the Ld. A. R. submitted that Form No.10 can be filed in the course of assessment proceedings even in a case where the return is regularized by issue of notice u/s 148 of the Act. He submitted that submission of Form No.10 is a procedural req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing officer had to reframe the assessment order in accordance with law only, albeit all other directions, whatever may there be. In the conjoined direction issued by the Tribunal, the words "reframe the assessment as per law" prevail over all other directions. In nutshell, whatever may be the other directions of the Tribunal, still, finally, the assessing officer was directed to frame the assessment as per law only. So skirting the direction only to the extent of "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", in our opinion, would go to show that the department wanted to recognize and accept the direction only to the extent which was suitable to them. This is not in accordance with the law propounded by the judiciary. The direction of the Tribunal has to be read as a whole. 11. Be that as it may, with regard to issue of filing Form No.10, the admitted facts noticed by us from the A.O.'s order dated 30-12-2006 at para-4.1 on page 3 that the assessee has submitted Form No.10 on 22-07-1999 and that the original assessment was made by the A.O. on 21-02-2000. In other words, Form No.10 wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp;(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 derived as does not exceed the said amount. May, at the option of the person in receipt of the income (such option to be exercised in writing before the expiry of the time allowed under sub-section (1) of section 139 for furnishing the return of income) be deemed to be income applied to such purposes during the previous year in which the income was derived; and the income so deemed to have been applied shall not be taken into account in calculating the amount of income applied to such purposes, in the case referred to in sub-clause (i), during the previous year in which the income is received or during the previous year immediately following, as the case may be, and, in the case referred to in sub-clause (ii), during the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty-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-tax to the extent of that part of the income which is actually spent for charitable or religious purposes plus accumulated income not exceeding 25% of the income. Clause (a) of Section 11(1) of the Act permits automatic accumulation of income up to 25% without any pre-condition set. Once the operation of Sec.11(1)(a) exhausted, then follows sub-section (2) of Section 11 of the Act, which deals with the question of investment of the balance of accumulated income over and above 25% accumulated income which has still not qualified for exemption under clause (a) of sub-section 11(1) of the Act. That balance accumulated income can also qualify for exemption from income-tax meaning thereby the ceiling or the limit of exemption of accumulated income from income-tax as imposed by clause (a) of sub-section (1) of section 11 would get lifted if the additional accumulated income beyond 25% as the case may be, is invested as laid down by section 11(2) after following the procedure laid down therein. Therefore, sub-section (2) will operate for the entir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 books of account, financial statements and other documents filed along with the return of income. If, combinedly, 75% of income including income applied, deemed to be applied and accumulation not exceeding 25% are less than 75% still the trust is eligible for exemption from income u/s 11(2) of the Act. In other words, it can be said that a chartable or religious trust can claim exemption from income even no income is applied for the object of the trust during the year, the remaining 75% of the income will be allowed exemption u/s 11(2) of the Act provided the statutory requirements for filing Form 10 and investing the amount in specified securities are fulfilled by the assessee. To be more explicit, we may explain it with the help of the following examples: Examp.1 Examp.2 Examp.3 Gross receipt of trust Rs. 100 100 100 Amount applied for objects of the trust Rs. 80 60 Nil Calculation of exemption available u/s 11(1)(a) & 11(2) would be as under: Gross income of the trust Rs. 100 100 100 Less : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 sub-section (5) of section 11 of the Act. As regards the condition in respect of furnishing of prescribed form 10 we have given the finding that form No.10 submitted before the completion of the assessment is required to be considered if the condition as laid down in section 11(2)(a) is satisfied. However, as regard the condition (b) of section 11(2) that the money so accumulated or set apart is invested or deposited in the form or mode specified in sub-section (5) of section 11 is subject to verification. We, therefore, think proper to send this issue to the file of the assessing officer with a direction to verify the said condition of clause (b) of section 11(2) of the Act as to whether the assessee has made investment in the prescribed securities or not. The assessing officer will decide this issue after providing opportunity of hearing to the assessee.
19. In the result, the appeal of the assessee is treated as partly allowed, for statistical purpose. X X X X Extracts X X X X X X X X Extracts X X X X
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