Income Tax Appellate Tribunal - Bangalore
The Secretary, Haveri vs Department Of Income Tax on 25 March, 2009
Page 1 of 12 1 ITA No.589/Bang/2009
IN THE INCOME TAX APPELLATE TRIBUNAL,
BANGALORE BENCH 'B'
BEFORE SHRI GEORGE GEORGE K., J.M. AND
SHRI A MOHAN ALANKAMONY, A.M.
ITA No.589/Bang/2009
(Asst. year 2004-05)
The Income Tax Officer,
Ward-1, Haveri. - Appellant
Vs
The Secretary,
Agriculture Produce Marketing Committee,
APMC Yard, Haveri. - Respondent
Appellant by : Smt. V S Sreelekha,
Respondent by : Shri S Ramasubramanyam
ORDER
PER GEORGE GEORGE K:
This appeal of the revenue is directed against the CIT(A)'s order dated 25.3.2009. The assessment year concerned is 2004-05.
2. The effective grounds raised reads as follows:-
i) The learned CIT(A), Hubli erred in law and on facts of the case in allowing accumulation @ 15% on gross receipts as against 15% of income as laid down in section 11(1)(a).
ii) The learned CIT(A) erred in not considering the fact that Form No.10 as required under Rule 17 has not been filed by the assessee trust within the stipulated time for which disallowance of deduction u/s 11(2) was made.Page 2 of 12 2 ITA No.589/Bang/2009
iii) The learned CIT(A) ought to have followed the case laws relied upon by the AO which were squarely applicable to the case.
iv) The case law of Hon'ble Supreme Court reported in 248 ITR 1 on the basis of which the appeal has been allowed by the CIT(A) is clearly not applicable in this case.
3. The facts in brief are as follows:-
The assessee is an agricultural marketing committee established under Karnataka Agricultural Produce Marketing (Regulation) Act. It is a local authority in status, registered u/s 12A of the I T Act. It filed the return of income on 22.9.2004, declaring NIL income. Return was processed u/s 143(1). Later, the assessment was taken up for scrutiny and assessment u/s 143(3) was completed on 27.10.2008.
4. In the assessment so completed, the Assessing Officer was of the view that assessee's claim of exemption u/s 11(1)(a) of Rs.14,22,876/- on gross receipts is wrong for the reason, accumulation envisaged under the section is with reference to income computed in commercial sense and not with reference to gross receipts. The Assessing Officer, therefore, concluded that the claim of assessee to allow deduction at 15% on Rs.94,85,843/- is not tenable and allowed deduction at 15% on Rs.88,29,648/- which worked out to Rs.13,24,447/- as against the assessee's claim of Rs.14,22,876/-.
5. The Assessing Officer also noticed that assessee have accumulated/set apart Rs.8,37,974/- out of income from property Page 3 of 12 3 ITA No.589/Bang/2009 held under trust for charitable purposes u/s 11(2) of the Act, without furnishing Form No.10 as required under Rule 17 of I T Rules. The Assessing Officer concluded that Form No.10 is to be filed on or before filing of the return as contemplated u/s 139(1) of the Act and in absence of intimation u/s Form No.10, no deduction is allowed in respect of income stated to be set apart/accumulated for charitable purpose.
6. Before the first appellate authority, it was contended that the Assessing Officer erred in interpreting the meaning 'income' u/s 11(1) of the I T Act as to 'gross' or 'net of the receipts'. It was submitted that the claim of the assessee to allow deduction of 15% on Rs.95,85,843/- is wrongly rejected. The deduction of 15% on Rs.88,29,648/- allowed by Assessing Officer is without providing the basis for such computation. Therefore, it was prayed that the claim of Rs.14,22,876/- is to be allowed in full instead of Rs.13,24,447/- allowed by the Assessing Officer. It was further submitted, Form No.10 was not submitted due to ignorance of the management and therefore, Assessing Officer has erred in rejecting the declaration required to be made u/s 11(2) of the Act.
7. The CIT(A) allowed the appeal of the assessee on both the issues mentioned above. The relevant part of the CIT(A)'s order reads as follows:-
"5. I have gone through argument made by AR and seen that in case of carrying forward 15% of trust income for year under consideration. Ruling of Supreme Court Page 4 of 12 4 ITA No.589/Bang/2009 referred above has finally decided issue allowing trust to carry forward remaining balance of 15% after spending income up to 85% for objects of trust and F.No.10 is for carrying forward in respect of capital investment. Therefore, AO is directed to allow assessee to carry forward 15% of current year's income to next year in respect of gross income of Rs.97,30,950/-.
5.1 Expenses held by AO of Rs.9,01,302/- are incidental for objects of trust without which main objects cannot be carried out as discussed above therefore, AO is directed to allow to the same. There is no concept of exemption of capital assets but it is exemption of income of property by trust".
8. The revenue being aggrieved is in appeal before us.
9. The learned DR strongly relied on the finding/conclusion of the Assessing Officer. She also relied on the decision of the Tribunal in the case of Gem and Jewellery Export Promotion Council v ITO 68 ITD 95 (Bom.) for the proposition that income available for accumulation u/s 11(1)(a) is the income as computed in commercial principles and not on the gross receipts.
10. The learned AR supported the finding of the CIT(A) in regard to the claim of exemption u/s 11(1)(a) of the Act. As regards to accumulation/set apart of Rs.8,37,974/- u/s 11(2) without furnishing Form No.10, assessee submitted that Form No.10 was furnished on 14.11.2008. It was submitted that the Assessing Officer was not correct in completing assessment without providing an opportunity to assessee to furnish Form No.10. It was pointed Page 5 of 12 5 ITA No.589/Bang/2009 out that prior to the assessment being completed, the assessee intimated the Assessing Officer that Form No.10 was not filed by oversight and requested, permission to file the same. Copy of the assessee's letter addressed to Assessing Officer was placed on record and the relevant portion of the letter is reproduced below:-
"Submission of Form No.10:
We also request your goodself to kindly permit us to submit Form No.10 as the same was not filed through oversight. The exemption u/s 11(2) may kindly be granted as claimed by the assessee".
10.1 The learned AR also furnished a copy of the Board's instruction No.81/27/65-IT(B) dt.18.5.1995, namely, Administrative Instructions for guidance of Income Tax Officers on matters pertaining to assessment and submitted that the Assessing Officer ought not to have taken advantage of assessee's ignorance and ought to have provided an opportunity to assessee to furnish Form No.10 prior to completion of assessment. He also relied on the decision of the Karnataka HIgh Court in the case of CIT v Ace Multitaxes Systems Pvt. Ltd. 317 ITR 207, the decision of the Gujarat High Court in the case of CIT v Mayur Foundation 274 ITR 562 and the order of the Bangalore Tribunal in the case of M/s Ferro Foundries Pvt. Ltd. in ITA No.328/Bang/2009 dated 18.7.2009 for buttressing his proposition that filing of Form No.10 is only directory and the same can be furnished even before the appellate authority.
Page 6 of 12 6 ITA No.589/Bang/200911. We have heard the rival submissions and perused the materials on record. The Assessing Officer's computation of income available for accumulation u/s 11(1)(a) is correct and is in accordance with law. As rightly pointed out, for accumulation of income u/s 11(1)(a), it is to be computed on commercial principles and not on gross receipts. The learned DR has rightly relied on the order of the Tribunal in the case of Gem & Jewellery Export Promotion Council supra, which in turn, followed the decision of the Hon'ble High Court of Madras in the case of CIT v Rao Bahadur Calavala Cunnan Chetty Charities 135 ITR 485. The words used in section 11(1)(a) is 'income' and not 'gross receipts'. The decision of the Hon'ble Supreme Court relied on by the assessee in the case of CIT v Programme for Community Organisation 248 ITR 1 is misplaced. The Hon'ble Supreme Court has only held that exemption u/s 11(1)(a) is to be computed not with reference to the income left after application but on income before application and nowhere it was held that exemption is to be computed with reference to gross receipt. Therefore, we hold that the Assessing Officer is justified in allowing 15% on Rs.88,29,648/- which works out to Rs.13,24,447/- as against assessee's claim of Rs.14,22,876/- (15% on 94,85,843/).
12. In the result, ground nos.1, 3 and 4 referred above are allowed and we reverse the order of the CIT(A).
13. As regards the issue of accumulation or set apart Rs.8,37,974/- u/s 11(2), the basis on which the CIT(A) allowed the Page 7 of 12 7 ITA No.589/Bang/2009 appeal of the assessee is not clear. The assessee claimed, it has filed Form No.10 belatedly after completion of the assessment order. The Board vide Circular No.273 dated 3.6.1980, had authorized the CIT to condone the delay in filing Form No.10 when certain conditions are satisfied. The Circular reads as follows:-
"Charitable and religious trusts-
Applications for accumulation of income under section 11(2) of the I T Act, 1961 -
Condonation of delay - Regarding -
Charitable and religious trusts are entitled to exemption from income-tax under section 11 to 13. These trusts are allowed to accumulate or set apart income derived by them from property held under trust provided they fulfill the conditions spelt out in section 11(2) read with rule 17 of the IT Rules, 1962, and Form No.10.
Very often trusts are not able to file the application in Form No.10 within the time allowed u/s 139(1)/139(2) as extended by the ITO. The Central Board of Direct Taxes is then approached by these trusts for condoning the delay for filing applications. The Board by virtue of the powers vested in it u/s 119(2)(b) has been condoning the delay in individual cases after satisfying itself that certain conditions are satisfied.
With a view to expediting the disposal of applications filed by trusts for condoning the delay, the Board has passed a general order u/s 119(2)(b) by which the Cs.IT have been authorized to admit belated applications u/s 11(2) read with rule 17 of the I T Rules, 1962. A copy of this order is enclosed. All Page 8 of 12 8 ITA No.589/Bang/2009 applications for condoning the delay u/s 11(2) will henceforth be disposed of by Cs.IT in terms of the enclosed order".
The following is the text of the order u/s 119(2)(b) dated 3.6.1980, as referred to in Circular No.273:-
In exercise of the powers conferred u/s 119(2)(b) of the Income Tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby authorizes the Commissioners of Income Tax to admit applications u/s 11(2) read with rule 17 of the I T Rules, 1962, from persons deriving income from property held under trust wholly for charitable or religious purposes for accumulation of such income to be applied for such purposes in India when the aforementioned applications are filed beyond the time stipulated.
Commissioners of Income Tax will, while entertaining such applications, satisfy themselves that the following conditions are fulfilled:-
a) that the genuineness of the trust is not in doubt;
b) that the failure to give notice to the Income Tax Officer u/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 settler 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 u/s 11(2);Page 9 of 12 9 ITA No.589/Bang/2009
e) that the accumulation or setting apart of income was necessary for carrying out the objects of the trust".
13.1 The learned AR had strongly relied on the decision of the Hon'ble Gujarat High Court in the case of CIT v Mayur Foundation 274 ITR 562 supra. The facts considered by the Gujarat High Court are as follows:-
The assessee was a charitable trust, registered under the provisions of the Bombay Public Trusts Act, 1950. During accounting year relevant to the asst. year 1980-81, the assessee received voluntary contributions amounting to Rs.2,04,468/-. The donations were treated as "income" within the meaning of section 2(24) of the Income-tax Act, 1961, by the Assessing Officer. The assessee contended that the donations of Rs.1,74,432/- and Rs.9,036 included in the total amount of donations were towards the corpus of the trust and in support of the contention, submitted confirmation letters from two donors. The Assessing Officer did not accept this submission and after granting permissible accumulation of 25% held the balance amount of Rs.1,53,351/- liable to tax in the hands of the assessee. The Commissioner (Appeals) confirmed the order. The assessee preferred an appeal before the Income Tax Appellate Tribunal, and during the pendency of the appeal, moved an application before the Commissioner on October, 5, 1989, accompanied by Form No.10 and a copy of the resolution passed by the trustees on August, 22, 1988, to the effect that the donation may be treated as general Page 10 of 12 10 ITA No.589/Bang/2009 donations and the assessee be permitted to accumulate the trust income u/s 11(2) by condoning the delay in filing Form No.10. The resolution passed by the trustees on August 22, 1988, stated that a total sum of Rs.5,09,000 had been set apart by the assessee- trust for purchasing land and constructing an orphanage on the said land. A sum of Rs.1,54,000 was required to be utilized for the purpose on or before March 31, 1990. The Commissioner rejected the assessee's application. The assessee challenged the order of the Commissioner by a writ petition. The High Court directed the Commissioner to reconsider the matter. The Commissioner again rejected the assessee's petition. The assessee thereupon filed an additional ground of appeal before the Tribunal to the effect that the trust was not taxable in view of the resolution of accumulation and the notice thereof to the Income Tax Officer u/s 11(2). The Tribunal admitted the additional ground. On the facts the Tribunal found that the genuineness of the trust was not in doubt; that the trust had set apart the amount of donation for the purpose of purchasing land and constructing an orphanage thereupon; that the funds received by way of donations had been kept apart in fixed deposits of nationalized banks; and that the trustees or the settlers had not benefited by the failure or delay on the part of the trust to give notice of such accumulation. Accordingly, the Tribunal held that the assessee-trust had complied with all the requirements stipulated by the provisions of section 11(2).
13.2 On reference, the Hon'ble High Court held, (i) that the Tribunal was well within its jurisdiction to entertain the new Page 11 of 12 11 ITA No.589/Bang/2009 ground by which the assessee claimed the benefit u/s 11(2) of the Act and adjudicate the tax liability of the assessee. (ii) That the Tribunal was correct in holding that the assessee was entitled to the benefits allowable u/s 11(2).
13.3 From the above, it is clear; the assessee in the case of the Hon'ble Gujarat High Court had applied for condonation of delay in filing Form No.10. The Administrative CIT rejected the application of condonation and assessee moved to the High Court and the Hon'ble High Court directed the CIT to reconsider afresh the condonation application. Thereafter, on rejection of the condonation application by the CIT, the assessee filed an additional ground before the Tribunal and the Tribunal in that case found the funds accumulated are for charitable purpose and the amounts are set apart/accumulated in FD in nationalized bank.
13.4 It is for the Administrative CIT to consider whether the conditions mentioned in Circular No.273 dated 3/6/1980 is fulfilled or not. We are not empowered to consider the condonation petition. Moreover, whether accumulated income (Rs.8,37,974/-) is invested as specified u/s 11(5) are matters to be examined.
Therefore, the assessee shall be at liberty to move the condonation application before the CIT for condoning the delay in filing Form No.10. With these observations, we reverse the order of CIT(A). However, we clarify, if the delay in filing Form No.10 is condoned by the Administrative CIT, this order of ours should not be an impediment for claiming exclusion from the total income as Page 12 of 12 12 ITA No.589/Bang/2009 contemplated u/s 11(2) of the Act. The other decisions relied on by the authorized representative are not applicable to the facts of the case, since in those cases, the issue was, consideration of the claim of deduction u/s 80IA and whether filing of audit report before the statutory time prescribed for filing of the return u/s 139(1) of the Act is directory or mandatory. The Hon'ble High Courts have held, filing of audit report within the due date mentioned is only directory and same can be filed even before the appellate authority. In the case of CIT v Ace Multitaxes Systems Pvt. Ltd. 317 ITR 207 which was considered by the Hon'ble jurisdictional High Court, there was a categorical finding by the Tribunal that audit report was filed before the Assessing Officer prior to the completion of assessment. However, since these decisions do not pertain factually to the instant case, we feel they do not have any application. For the above said reasons, we reverse the order of CIT(A) and allow ground no.2 raised in this appeal.
14. In the result, the appeal filed by the revenue is allowed.
The order is pronounced on 12th April, 2010.
Sd/- Sd/-
(A MOHAN ALANKAMONY) (GEORGE GEORGE K)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Copy to : 1) The Assessee (2) The Revenue (3) The CIT(A) concerned. (4) The CIT concerned. (5) The DR (6) Guard File. (7) Guard File, New Delhi.
MSP/1.4 By Order
Asst. Registrar, ITAT, Bangalore.