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TMI Blog2010 (9) TMI 1224X X X X Extracts X X X X X X X X Extracts X X X X ..... arises with the prior permission of the Hon'ble Bench. 2.1 The department has also raised the following additional grounds: 3. On the facts of the case, the trust has transferred a sum of ₹ 2,10,00,000/- to the three trusts in contravention of Rule 177 of Delhi Schools Education Rules 1973. Therefore, the transfer of this amount being prohibited by law could not be allowed as an legitimate deduction and cannot be treated as the application of fund. 4.(i) Without prejudice to the ground No.1, since the gross receipts of the assessee exceeded Rs. One crore, thus the specific provisions of sec. 10(23-C)(vi) and not the general provisions of section 11 were applicable to the facts of the case in view of judicial pronouncement of Hon'ble ITAT Hyderabad Bench 'B' judgment in case of Vodithala Education Society Vs. Assistant Director of Income Tax (Exemptions) II, Hyderabad (ITA Appeal No. 1138 (HYD) of 2006). (ii) Therefore, under the facts and circumstances of the case, the Ld. Commissioner of Income Tax (Appeal) has erred in not considering the applicability of sec. 10(23C)(vi) of the IT Act. 1961 and denying of exemption to the assessee. 3. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing three institutions: 1. R.K. Sons, Rai School Complex R/o 3, Lodhi Road, New Delhi Rs.1,00,00,000/- 2. Rai School Educational Society R/o 3, Lodhi Road, New Delhi ₹ 15,00,000/- 3. Kulwant Rai Educational Society R/o 3, Lodhi Road, New Delhi ₹ 95,00,000 Rs.2,10,00,000 4.1 The Assessing Officer made the addition of ₹ 2,10,00,000/- out of the donations and ₹ 12,78,886/- on account of depreciation by observing as under: 1. For outright exemption the trust or institution has to apply at least 85% of its income for charitable or religious purpose [Sec-II (1) (a)] 2. Where the unutilised amount out of 85% as mentioned above is accumulated and set a part and certain conditions are fulfilled, the assessee is entitled for exemption even without actual utilisation. In other words such accumulation shall be deemed to be utilization for the purpose of Section 11(1) [Section 11(2) 3. With reference to the income accumulated as referred to in sub section(2), any amount credited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e exemption under section 11 of the Income Tax Act, 1961, merely because the donee did not spend the donations during the year of receipt itself. On this issue, the appellant has submitted several case laws which are as under: (i) Ellerman Lines Ltd. Vs. CIT 82 ITR 913 (SC) (ii) TP Kapadia Vs. CIl 87 ITR 511 (Mys.) (iii) Tata Iron Steel Co. Ltd. Vs. NC Upadhyay 96 ITR 1 (Bom) (iv) MM Annaih Vs, CIT 76 ITR 582 (Mys) (v) CIT Vs. Official Liquidator Tax LR 445 (Raj) (vi) CIT Vs. B.M.Edward India Sea Foods; 119 ITR 334 (Ker)and (vii) New Bank of India Ltd. Vs. ITO 136 ITR 679 (Delhi). 5.1 The Learned CIT(A), after considering the submissions of the assessee, deleted the addition by observing as under: 4.3 I have carefully considered the facts of the case as seen from the assessment order as well as the submission of the appellant. I have gone through the Explanatory Notes on the Provisions of Finance Act, 2002 issued vide Circular No.8 of 2002. An amendment was made in clause (d) of subsection (2) and sub-section (3) and proviso to sub-section (3A) of section 11 by the Finance Act, 2002 to provide that the donation made by a registered trust to another cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cumulated profit has been defined in section 2(22)(e) of the Act which states that the word accumulated means the profit earned bit by bit and accumulated therefore, the profits can accumulate even within a single year. The reliance was placed on the judgment of Hon'ble Allahabad High Court in the case of CIT vs. Roshan Lal [1975] 98 ITR 349 (Alld.). 8. In his rival submissions the learned counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the provisions contained in clause (d) to sub section (3) of section 11 of the I.T. Act only bars giving donations to other charitable trusts out of its accumulated income and does not bar giving of donations out of current income. He further submitted that the Explanation appended to clause (d) sub-section (2) in sub-section (3) and proviso in sub-section (3A) of section 11 of the Act were simultaneously introduced by the Finance Act, 2002, w.e.f. April 1, 2003, to provide that if a registered trust made certain donations out of its accumulated funds of earlier years, which have been accumulated and set apart as per the provisions of section 11(2) to another registered trust, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lhi High Court in the case of DIT(E) Vs. Bagri Foundation, order dated 02/07/2010 in ITA No.19/2000, copy of the same was furnished during the course of hearing. As regards to the decision of Hon'ble Jurisdictional High Court relied by the learned CIT, D. R. in the case of CIT Vs. Roshan Lal 98 ITR 349, the learned counsel for the assessee submitted that the said judgment was rendered entirely in different context, viz Section2(22) of the Act. It was contended that the Explanation 2 to Section-2(22) defines accumulated profits to include all profit of the company upto date of distribution or payment of dividend. On the other hand the accumulated profit referred to in Section 11(2) are the profits out of 85% of the income of earlier year which has been accumulated or set apart for specific purposes and are available at the beginning of relevant previous year for such purposes. The learned counsel for the assessee submitted that the profits of the year for relevant previous year cannot by any stretch of imagination, be considered as part of accumulated profits for the purposes of Section 11(2) of the Act. As such the decision of Hon'ble Allahabad High Court relied by the lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to him, the aforesaid donations have been given to the another charitable institution out of the accumulated funds. On the contrary the contention of the assessee is that the donations were given out of the current year s income of the assessee. It is noticed that the Assessing Officer himself admitted in the assessment order dated 24/12/2007 at page No. 2 that a sum of ₹ 2,10,00,000/- has been debited towards expenditure side in the income and expenses account under the head donation which is a part of sums aggregating to ₹ 4,55,50,478/- debited in the income and expenditure account. Therefore, it cannot be said that the assessee gave the donations to three institutions (mentioned in para 4 of the this order) out of the accumulated funds, this fact is also clear from page No. 26 of the assessee s compilation which is the copy of income and expenditure account for the year ended 31/03/2005 wherein total current income has been shown at ₹ 4,88,25,928/- and the donations under the head expenditure had been shown at ₹ 2,10,00,000/- so it is clear that the assessee gave the donation out of the current income and not out of the accumulated surplus. 13. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income. However, if more than 15% of the income is accumulated, under Section 11(1)(a) the same would not be exempt from inclusion in the total income for the relevant year. 8. No conditions are prescribed for the accumulation of up to 15% permitted under Section 11(1)(a). Section 11(2) permits accumulation in excess of 15% also but subject to certain conditions and with which we are not concerned at present. However, the explanation appended w.e.f. 1st April, 2003 to Section 11(2) is as under: Explanation. - Any amount credited or paid, out of income referred to in clause (a) or clause (b) of subsection (1), read with the Explanation to that subsection, 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 1O, shall not be treated as application of income for charitable or religious purposes, either during the period of accumulation or thereafter. 9. What follows is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lause/sub section but when at the bottom of the section, is generally meant to explain the entire section. 12. The question whether the conditions prescribed in Section 11(2) with respect to accumulation in excess of 15%, apply also to accumulation to the extent of 15% under Section l1(I)(a) arose for consideration in Addl. Commissioner of Income Tax v. A.L.N. Rao Charitable Trust [1995] 216 ITR 697 (S.C.). The Supreme Court explained the scheme of Section II (1 )(a) and Section II (2) as under: A mere look at Section 11(1)(a) as it stood at the relevant time clearly shows that out of total income accruing to a trust in the previous year from property held by it wholly for charitable or religious purpose, to the extent the income is applied for such religious or charitable purpose, the same will get out of the tax net but so far as the income which is not so applied during the previous year is concerned at least 25% of such income or ₹ 10,000/- whichever is higher, will be permitted to be accumulated for charitable or religious purpose and it will also get exempted from the tax net. Then follows Sub-section (2) which seeks to lift the restriction or the ceiling imposed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r imposing the restriction as contained in the explanation to the accumulation of up to 15% also when there is no such restriction to donating the entire income of a year to another charitable trust. If the legislature intended to completely ban/discourage inter se donation between trusts, it would have changed the position as existing in law as noticed in the Division Bench judgment of this Court in Shri Ram Memorial Foundation aforesaid. The legislature did not do so. Even after the insertion of the explanation , if a trust donates its entire income for a year to another charitable trust, it would still be entitled to exemption under Section 11(1)(a). It defies logic as to why such donations cannot be permitted out of 15% accumulation permitted under Section 1I(1)(a) itself. There is however rationale for imposing the restriction as contained in the explanation (supra) to accumulations in excess of 15%. Such accumulations, but for the conditions imposed in Section 11(2) and in the explanation aforesaid, would have been eligible to be taxed. One of the conditions in Section 11(2)(a) is that the purpose for which accumulation in excess of 15% is being made is to be notified; a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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