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TMI Blog2014 (7) TMI 91X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 - even assuming that there is no valid limitation prescribed under the Act and the Rules even then, it is reasonable to presume that the intimation required under s. 11 has to be furnished before the assessing authority completes the concerned assessment because such requirement is mandatory and without the particulars of this income the assessing authority cannot entertain the claim of the assessee under s. 11, therefore, compliance of the requirement of the Act will have to be any time before the assessment proceedings. - Form 10 can be filed before the conclusion of the assessment proceedings - the AO did not call upon the assessee to show cause regarding non-furnishing of Form 10 - Even the CIT in the proceedings u/s. 263 of the Act did not afford opportunity to the assessee to file Form 10 – thus, the order of the CIT is set aside and the matter is remitted back to the AO for adjudication – Decided partly in favour of Assessee. - ITA No.1151/Bang/2012 - - - Dated:- 22-1-2014 - N Barathvaja Sankar And N V Vasudevan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ption of income u/s. 11 of the Income Tax Act, 1961. According to CIT, the assessment records showed that the assessee has not applied 85% of income towards charitable or religious purpose in India during the previous year and has accumulated the income. It has not submitted Form No. 10 and has not specified by notice in writing given to the Assessing Officer in the prescribed manner, the purpose for which the income is being accumulated or set a part and the period for which the income is to be accumulated or set a part. 2. Further the CIT also noticed that following deposits were made into the bank accounts. Bank fixed deposit fresh (under KGJNL funds account) Rs. 10,00,000 Bank fixed deposit fresh (under corner plot account Rs.9,95,00,000 Bank fixed deposit fresh (under site cost account) Rs.2,65,00,000 Redeposit of accrued interest banks (under KBJNL funds account) Rs. 3,33,669 Redeposit of accrued interest banks(under corner Plot account) Rs. 97,39,628 Redeposit o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so one of the objects of the assessee. 8. The CIT, however, did not agree with the submissions made on behalf of the assessee. He held non-furnishing of Form No.10 for accumulation of income which have been deposited in FDs and redeposits with accrued interest amounting to Rs.15,80,86,596/-, has not been explained by the Assessee. The assessee has not complied with various conditions required to be fulfilled as per section 11(2) of the I.T. Act. The assessee has remained silent on the issue raised in the notice u/s 263 for accumulating profits to the extent of Rs.15,80,86,596/- without giving notice in writing to the Assessing Officer in the prescribed manner (Form No.10) and without specifying the purpose for which the income was being accumulated or set apart and the period for which the income was accumulated or set apart as per section 11(2) of the I.T. Act. The CIT held that as per rule 17 of the I.T. Rules if such trust/institution was intending to accumulate profit beyond the prescribed limits, it was required to give notice to the Assessing Officer in Form No.10 on or before the due date of furnishing the return of income. The CIT further held that Form No.10 was not fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his order. 10. Aggrieved by the order of the CIT u/s. 263 of the Act, the assessee has preferred the present appeal before the Tribunal. 11. The ld. counsel for the assessee submitted that as per the KIBA, all monies received have to be applied for the purpose for which the assessee was created and therefore there cannot be any dispute with regard to application of income for charitable purpose. It was further submitted that the assessee was controlled and supervised by the State Govt. and wholly financed by the State Govt. The interest income which the assessee earned on deposits which were again redeposited and reflected as redeposit of accrued interest totaling to Rs.15,80,86,596 and referred to in the show cause notice issued by the CIT would not constitute income of the assessee at all, in view of the decision of the Hon ble Karnataka High Court in the case of CIT v. Karnataka Urban Infrastructure Development Finance Corporation,[KUIDFC] 284 ITR 582 (Kar), wherein the Hon ble High Court held that interest income earned by parking of funds received from the Government for execution and development of urban infrastructure in Bangalore city had to be applied only for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 39(2) of KIBA, the fund has to be applied only in the administration of the Act viz., the purpose for which the assessee was established which has been recognized by the revenue as charitable purpose. Therefore, the interest income ought to be excluded from the income of Rs.47,66,36,982. To this extent, the order of the CIDT will stand modified. Consequently, 85% of the income which was arrived by the CIT in his order u/s. 263 of the Act at Rs.40,51,41,434 will stand modified. The application of income by the assessee for charitable purposes has been accepted by the CIT to be at Rs.31,85,50,386. Consequently, the amount of Rs.8,65,91,048 determined by the CIT in the impugned order as sum assessable u/s. 11(2) of the Act will also stand revised. The AO is directed to do the revised computation as indicated above. For better appreciation of the figures, the income and application of income statement of the assessee for the previous year is given as ANNEXURE-I to this order. 16. With regard to the failure on the part of the assessee to file From 10, we shall first notice the following legal provisions:- I. Section 11 of the Income Tax Act, 1961: Sec.11 :Income from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny income accumulated or set apart on or after the 1st day of April, 2001, the provisions of this subsection shall have effect as if for the words ten years at both the places 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 subclause (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. II. RULE 17 of the Income Tax Rules, 1962: Notice for accumulation of income by charitable or religious trust or institution or association referred to in clauses (21) and (23) of section 10. The notice to be given to the Assessing Officer or the prescribed autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons are fulfilled : (a) that the genuineness of the trust is not in doubt; (b) that the failure to give notice to the ITO under s. 11(2) of the Act and investment of the money in the prescribed securities was due only to oversight; (c) that the trustees or the settlor have not been benefited by such failure directly or indirectly; (d) that the trust agrees to deposit its funds in the prescribed securities prior to the issue of the Government sanction extending the time under s. 11(2); and (e) that the accumulation or setting apart of income was necessary for carrying out the objects of the trust. [Reported in 126 ITR (St) 27] 17. A reading of Sec.11(1) would show that income of the previous year to the extent it is applied for charitable purpose in India would not form part of the total income under the Act and would be exempt. Sec.11(2) mandates that 85% of the income of the previous year has to be applied for charitable purpose and the charitable institution is allowed to accumulate upto 15% of the income of the previous year for application for charitable purpose in future. One of the condition to be fulfilled for getting the benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not contemplate such reopening of the assessment. 19. The Hon ble Gujarat High Court in CIT vs. Mayur Foundation (2005) 194 CTR (Guj) 197 : (2005) 274 ITR 562 (Guj), after considering the decision of the Hon ble Supreme Court in the case of Nagpur Hotel Owner s Association (supra) has held that assessment proceeding can be said to be pending till the appeal is heard and disposed of by the Tribunal and the order of the Tribunal is given effect to and, therefore, Tribunal was well within its jurisdiction to entertain the new ground by which the assessee-trust claimed the benefit under s. 11(2) during pendency of the appeal and in allowing the benefit of s. 11(2) to the assessee-trust once it found that the assessee-trust had complied with all the requirements of s. 11(2). 20. In Kerala Rural Employment Welfare Society vs. Asstt. Director of IT Anr. (2009) 312 ITR 51 (Ker), it has been held that notice for accumulation of income in Form No. 10 has to be delivered before the expiry of time allowed under s. 139(1); in view of the fact that the petitioner is a State Government undertaking and has been registered under s. 12A for quite some time and that the notice in Form No. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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