I. T. A. No. 592 /Hyd/2015

P. Madhavi Devi (Judicial Member) And S. Rifaur Rahman (Accountant Member)

G. V. N. Hari For the Petitioner :
G. Surya Prasad For the Respondent :

ORDER

The order of the Bench was delivered by

S. Rifaur Rahman (Accountant Member)- This appeal by the assessee is directed against the order dated February 6, 2015 of the learned Commissioner of Income-tax (Appeals)-9, Hyderabad for the assessment year 2011-12.

2. Briefly the facts are, the assessee is a society registered under section12AA of the Income-tax Act, 1961. The assessee filed its return of income on September 7, 2011 declaring "nil" income. The assessee accumulated a sum of Rs. 85,00,000 under section 11(2). As per Form 10 filed along with the return, the assessee stated the purpose of accumulation as "to be utilised for social-economic programmes". The Assessing Officer held that it was not sufficient compliance for the assessee to state a general and vague activity which is not covered by its aims and objectives in the Form 10, that while plurality of purpose was permitted but these purposes had to be specific, realistic and definite and that it was only by mentioning the object specifically would the Assessing Officer be enabled to monitor its utilisation. To come to the aforesaid conclusion, he relied on few case law. The Assessing Officer finally held that in view of the failure of the assessee to furnish specific purpose of accumulation in the Form 10, brought the sum of Rs. 85,00,000 accumulated by the assessee to tax.

3. Aggrieved by the order of the Assessing Officer, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals).

4. In the course of the appellate proceedings, the assessee submitted that the Assessing Officer had failed to interpret the judicial decisions cited by him that in the case of the Trustees of Singhania Charitable Trust, it was clearly held that the Legislature would not have thought of the need for specification of the purpose if it did not have in mind the particulars of purpose, that the expenditure out of the accumulated funds had been totally within the objects of the assessee, that this was clear from the data available as per the return for the succeeding assessment year 2011-12 and that in matters of taxation, substance and not only form, must be looked at for ascertaining the real nature of the transaction. For this proposition, the assessee relied on the decision in the case of CIT v. 21st Society of Immaculate Conception [2000] 241 ITR 193 (Mad).

5. The Commissioner of Income-tax (Appeals) after examining the facts of the case with case law confirmed the action of the Assessing Officer in bringing the amount of Rs. 85,00,000 to tax, by observing as under :

"7.9 In the first place, the copy of the resolution filed along with the Form 10 and the one filed as additional evidence are materially different. The phrase used in the resolution filed as additional evidence is 'to be utilised for the following socio-economic programmes' whereas the phrase used in the resolution filed along with Form 10 was merely 'to be generic description what was to follow'. The phrase used in latter was meant as an end, an object and the purpose in itself. As held earlier, such a generalised purpose amounted to stating that the funds were to be used for charitable purpose and had no meaning rendering the provisions of section 11(2) otiose.

7.10 Secondly, the crucial omission of the word 'following' and the detailed list of purposes for which the funds were to be utilised in the resolution filed along with the Form 10 renders the veracity of the additional evidence suspect.

7.11 Thirdly, the reason put forth by the appellant for the failure to furnish the details of the purpose of utilisation, despite claiming to have included its resolution, is that the appellant could not type all these items in the Form 10. The complete relevant extracts of the resolution, as per the additional evidence filed, has been reproduced above. As can be seen, it barely runs into one typed sheet. The appellant has failed to explain why this could not have been typed, particularly when the appellant has thought nothing of filing grounds of appeal running into seven sheets. Indeed, the appellant had enclosed copy of the resolution to the Form 10. The appellant has failed to explain why a photocopy of the resolution could not have been enclosed.

7.12 Fourthly, Form 10 is meant to assist the Assessing Officer in administering the provisions of the Act smoothly. Form 10 is, there fore, a self-contained document duly setting down the full details of the purposes for which the funds are meant to be utilised. Filing of Form 10 in the cavalier fashion, as done by the appellant, defeats the purpose of filing it since the Assessing Officer cannot then be aware of all that may be recorded in the resolutions but not revealed in the Form, except when the Assessing Officer goes probing it specifically. Had it been the intention of the statute to make the information available to the Assessing Officer only when asked for, there would have been no need to provide for the filing of Form 10 at all."

6. Still aggrieved, the assessee is in appeal before us raising the following grounds of appeal :

"1. The order of the learned Commissioner of Income-tax (Appeals) is contrary to the facts and also the law applicable to the facts of the case.

2. The learned Commissioner of Income-tax (Appeals) is not justified in sustaining the addition of Rs. 85,00,000 made by the Assessing Officer towards denial of exemption under section 11(2) in respect of amount accumulated on the ground that the purposes mentioned in Form 10 are general and not specific.

3. Without prejudice to the above, the learned Commissioner of Income-tax (Appeals) ought to have held that the Assessing Officer is not justified in subjecting the income of the appellant to tax at the maximum marginal rate."

7. The learned authorised representative submitted that the intention of the trust is to utilise the accumulated funds in socio-economical programmes. He explained that the term "socio" denotes the upliftment of socially backward class and "economical" denotes economically backward class, i.e., poor people. Both these are the main objects of the trust. Hence, the term used are perfectly within its objects. The learned authorised representative also submitted that the assessee was regularly following the accumulation and application of funds over a period of time as below :

(a) every financial year, it sets aside unutilised funds during the year by passing resolution in the Committee and filing Form 10 accordingly.

(b) In the next financial year, the whole sum is utilised as application for the objects of the trust.
8. He submitted two years' return of income as proof for such treatment. It also includes the assessment year in question :

Statement of total income for the assessment year 2011-12

Statement of total income for the assessment year 2012-13

9. The learned authorised representative also relied on the decision of the hon'ble Delhi High Court in the case of DIT (Exemption) v. NBIE Welfare Society [2015] 370 ITR 490 (Delhi).

10. The learned authorised representative submitted that the assessment order of the assessment year 2012-13, was accepted by the Department without any adverse observation and, therefore, it is clear that the accumulation was applied to carry out the objects of the trust since the Assessing Officer has passed the 143(3) order. Hence, the assessee has utilised the whole accumulation set apart in the assessment year 2011-12. There is no dispute that the application of the accumulation was only for the carrying out the objects of the trust.

11. The learned Departmental representative relied on the order of the Commissioner of Income-tax (Appeals) and stressed that the purpose of accumulation has to be for specific object of the trust and not on general objects.

12. Heard arguments of both sides. The Assessing Officer and the learned Commissioner of Income-tax (Appeals) have relied on various case law on the aspect of accumulation of funds for carrying out the objects of the trust and the objects has to be spelt out clearly in the Form 10 to be filed by the assessee. There is no doubt that the assessee has filed Form 10 as per procedure and within the time under section 11(2) of the Act. The assessee has to file Form 10 with the clear objects and not with the vague terms. The judgments were in favour of the Department.

13. We are of the view that the trusts are allowed to accumulate funds for creating long term assets to carry out the main objects of the trust like buildings, buying lands/buildings, etc., in such cases, the trust has to specify clearly why they are accumulating huge funds and also over a period of time say 5 10 years. In these cases, the Assessing Officer may not be able to monitor the cases, hence, it is imminent to mention the objects clearly in Form 10.

14. In the present case, as per the records available, the assessee has accumulated the funds and followed the procedure for accumulation as per the provisions of the Act, Since, the object to accumulate the funds were for ancillary objects, which are part of the main objects. It is contended by the learned authorised representative that the assessee was not in a position to spell out every thing in the Form 10. Hence, they have specified as "socio economic" purpose. It is also stated by the learned authorised representative that it is the regular practice of the assessee that it will convene the board of trustees and excess funds which are unutilised in the financial year are accumulated and applied in the immediate following financial year. It is evident from the return of income filed by the learned authorised representative as above. The accumulated funds of the assessment year 2009-10 are applied in the assessment year 2010-11. Similarly, accumulated sum of Rs. 85,00,000 in the assessment year 2011- 12 are applied in the assessment year 2012-13. This was verified and assessment order under section 143(3) was passed in the assessment year 2012-13. It is very clear that the assessee has accumulated funds in the assessment year 2011-12 and applied the same for the objects of the trust in the immediately following assessment year 2012-13. The provisions of section 11(2) read as under :

"11.(2) Where eighty-five per cent. of the income referred to in clause (a) or clause (b) of sub-section (1) read with the Explanation to that sub-section is not applied, or is not deemed to have been applied, to charitable or religious purposes in India during the previous year but is accumulated or set apart, either in whole or in part, for application to such purposes in India, such income so accumulated or set apart shall not be included in the total income of the previous year of the person in receipt of the income, provided the following conditions are complied with, namely :-

(a) such person specifies, by notice in writing given to the Assessing Officer in the 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 ten years ;

(b) the money so accumulated or set apart is invested or deposited in the forms or modes specified in sub-section (5) :

Provided that in computing the period of ten years referred to in clause (a), the period during 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 :

Provided further that in respect of any income accumulated or set apart on or after the 1st day of April, 2001, the provisions of this sub-section 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 sub-clause (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."

15. From the above section, it is evident that the assessee can accumulate the funds for the purpose of utilising the funds for the objects of the trust. It can be for the long term as well as short term like utilising them in immediately following assessment year. The relevant question would be, whether the accumulated funds were applied for the objects of the trust in India. In the present case, the accumulated funds were applied for the objects of the trust.

16. In the case relied upon by the learned authorised representative, i.e., DIT (Exemption) v. NBIE Welfare Society [2015] 370 ITR 490 (Delhi), the hon'ble Delhi High Court has held as under (page 495) :

"9. In the present case, the Assessing Officer himself had noted in the assessment order that the aim and objective of the assessee was to work for the welfare of the employees of New Bank of India. This undoubtedly was the purpose and objective of the society. Therefore, during the course of the assessment proceedings as is apparent from the appellate proceedings, the assessee has clarified and stated that the money in question would only be used for the purpose of making payments to the members or their legal representatives in case of their death, retirement or permanent disability. The Tribunal in the impugned order has also referred to the scheme floated by the respondent assessee under which the employees who were desirous of becoming members had to deposit Rs. 10 as admission fees and thereafter pay Rs. 25 per month for a period of 25 years. The scheme devised provided :

'Present scheme

Membership : Membership of the society shall be open to the permanent employees of New Bank of India. Any employee desirous of becoming member may apply on the prescribed form on payment of Rs. 10 as admission fee, duly recommended by any of the office bearer or managing committee member of the society employees appointed on part-time basis and one-third or two-third salary are not eligible for membership.

Subscription : Under the present scheme, every member shall subscribe a sum of Rs. 25 per month for a period of 25 years.

Benefits : (a) in case of death :

(i) Members in the age group of below 50 years (as on 31-7-85) will be entitled to the following benefits :

(a) A sum of Rs. 500 p.m. shall be paid to the nominee of the deceased member for a period of 15 years.

(b) Lump sum additional payment of Rs. 15,000 shall be made to the nominee of the deceased member in addition in the benefit referred to above if the member dies during the period of service in the bank.

(ii) Members in the age group of above 50 years (as on 31-7- 1985) will be entitled to the following benefits :

(a) A sum of Rs. 500 p.m. shall be paid to the nominee of the deceased member till the age of retirement with a minimum period of 5 years.

(b) A lump sum payment of Rs. 15,000 shall be made to the nominee of the deceased member in addition to the benefit referred above (iia) if the member dies during the period of service in the bank. Other benefits are also there which are in case of retirement and these have been given in part 'B' of this scheme to the extent that a sum of Rs. 500 per month shall be paid to the members as per calculation given in the same. Further, other benefits in the cases of death and permanent disability have also been given. Lastly, benefit have been given on resignation from bank prior to the retirement. The contention of the learned counsel is that this is the only object of the assessee and there are no plurality of the objects and as such if the assessee had mentioned in Form 10 that the accumulation of the funds were for 'further utilisation' the very purpose is to utilise the amount of accumulation for further benefits to be given to the members in the case of death, retirement, permanent disability . . .'

10. Other benefits which were specified in part (b) of the scheme, which stipulated that a sum of Rs. 500 shall be paid to the members on the event specified therein.

11. The aforesaid contention has been accepted by the Tribunal. The findings recorded are in consonance with ratio of several decisions of this court.

12. In view of the factual background, the substantial question of law in terms of the decisions of this court has to be answered in favour of respondent-assessee and against the appellant. The appellant-Revenue, is not entitled to succeed. The appeal is disposed of. There will be no order as to costs."
17. From the above, it is pertinent to note that even in the present case, there is no dispute that the funds accumulated were utilised for carrying out the aims and objectives of the assessee which was to work for the welfare of the economically weaker section of the society and to undertake projects for rural health and sanitation in the needy area. The assessee utilised the accumulated funds as per the minutes of the governing body dated April 22, 2011. This was accepted by the Revenue in the subsequent assessment year which shows that the assessee had utilised the accumulated funds for the aims and objects of the trust in India.

18. Since the assessee has followed the procedure for accumulation except for the technical lapse, which can be condoned and since the assessee has applied the accumulated funds for the objects of the trust in India, we hold that it is eligible to get the benefit under the provisions of section 11(2).

19. In the result, the appeal of the assessee is allowed.

The order pronounced in the open court on 4th November, 2015.