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TMI Blog2015 (11) TMI 173X X X X Extracts X X X X X X X X Extracts X X X X ..... ) shall be deemed to be income applied for such purpose and exempt from tax only if the conditions stipulated in sec 11(2) of the Act are complied with. 4. The Commissioner of Income Tax (Appeals) ought to have appreciated that the appellant has carried forward the surplus income only for application as required under Explanation to sec.11(1) of the Act and hence filing of application in the prescribed form as per Section 11(2) is not necessary. 5. The Commissioner of Income Tax (Appeals) erred in not appreciating the difference between the provisions of sec 11(1) and sec. 11(2) of the At and thereby erroneously denying the accumulation properly applied by the assessee. 6. The Commissioner of Income Tax (Appeals) ought to have appreciated that the appellant has duly invested the surplus funds strictly as per requirement of sec 11(5) of the Act. 7. The Commissioner of Income Tax (Appeals) erred in not following the ratio laid down in the following decisions: (i) CIT vs. G.R. Govindarajulu & Sons Charities 144 Taxman 300 (Mad). (ii) Addl CIT vs. ALN Rao Charitable Trust 216 ITR 697 (SC). (iii) CIT vs. Trustees of Bhat Family Research Foundation 195 ITR 5332 (Bom)". 3. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sioner of Income Tax (Appeals). 4. The Commissioner of Income Tax (Appeals) observed that a perusal of Form No.10B filed along with the return reveals that a sum of E3,91,54,093/- only was applied to charitable purpose during the assessment year 2011-12 by the assessee against the amount of E5,69,76,691/- to be spend/applied during the assessment year 2011-12. The sum of E5,69,76,691/- to be applied during assessment year 2011-12 consisted of E4,74,80,952/- pertaining to assessment year 2011-12 and E94,95,739/- relates to assessment year 2009-10 as per the utilization statement furnished by the assessee. The unspent amount worked out by the assessee was E1,78,22,598/-. The sum of E1,78,22,598/- was sought to be accumulated under clause(2) of explanation to sec. 11(1) of the Act. For this purpose, letter of resolution dated 15.09.2011 and letter of option dated 27.09.2011 were enclosed with the return of income. In this case, the assessee invokes Explanation (2) to sec.11(1) of the Act for accumulating E1,78,22,598/- by filing letter of option and letter of resolution alongwith the return of income. It is pertinent to observe that the sum to be spent/applied includes E94,95,739/- b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... haritable 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 fifteen per cent of the income from such property. (b) to (d) xxx Explanation.- For the purposes of clauses (a) and (b),- (1) in computing the fifteen 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 15%; (2) exemption of balance income of income (after income applied, deemed to be applied and accumulation not exceeding 15%). 7. Section 11(1)(a) of the Act and considering the procedure laid down by the Hon'ble Apex Court in the case of Addl. C.I.T vs. A.L.N.Rao Charitable Trust (SC) 216 ITR 69, 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 fifteen per cent of the income. 8. 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come 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 85% 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 books of account, financial statements and other documents filed along with the return of income. If, combinedly, 85% of income including income applied, deemed to be applied and accumulation not exceed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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