IT : Irregularity and delay in filing form No. 10 for claiming exemption under section 11 can be condoned and exemption can be allowed to assessee society, where amount of investment in next year exceeds unspent amount
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[2013] 37 taxmann.com 12 (Delhi - Trib.)
IN THE ITAT DELHI BENCH 'E'
Moti Ram Gopi Chand Charitable Trust
v.
Additional Commissioner of Income-tax, Range-2, Muzaffarnagar*
RAJPAL YADAV, JUDICIAL MEMBER
AND T.S. KAPOOR, ACCOUNTANT MEMBER
AND T.S. KAPOOR, ACCOUNTANT MEMBER
IT APPEAL NO. 4667 (DELHI) OF 2011
[ASSESSMENT YEAR 2008-09]
[ASSESSMENT YEAR 2008-09]
JUNE 14, 2013
Section 11 of the Income-tax Act, 1961 - Charitable or religious trust - Exemption of income from property held under [Conditions precedent] - Assessment year 2008-09 - Assessee society filed a letter conveying its intention of exercising option of carrying forward of unspent funds in next year and claimed exemption under section 11 - Assessing Officer and Commissioner (Appeals) disallowed claim on ground of technical default - Assessee contended that it had utilized much more than unspent balance in next year - Whether, where amount of investment exceeded unspent amount within prescribed period in next year, irregularity and delay in filing prescribed form could be condoned and exemption could be allowed under section 11 - Held, yes - Whether where fact of assessee having spent significant amount in next year was not examined by Assessing Officer, matter was to be remitted back - Held, yes [Para 10][In favour of assessee]
FACTS
| ■ | The assessee society was registered under section 12A and was engaged in running a school. The assessee spent a part of its income for charitable purpose and for the remaining amount it filed a letter conveying its intention to carry forward the unspent amount in next year for spending in the next year and claimed exemption under section 11. | |
| ■ | The Assessing Officer denied exemption on account of technical default by the assessee of not conveying its intention in the prescribed form No. 10 and signed by authorized person. | |
| ■ | On first appeal, the Commissioner (Appeals) confirmed the action of the Assessing Officer. | |
| ■ | On second appeal: |
HELD
| ■ | The Jammu & Kashmir High Court in the case of CIT v. Zirat Mir Syed Ali Hamdani [2001] 114 Taxman 642 has held that provisions of section 11(2) regarding requirement of exercising the option within the specified time is directory and the assessing authority has the power to condone the delay in exercise of the option if he is satisfied about the sufficiency of the cause shown for the delay. In the present case, the option was filed with the Assessing Officer during the course of assessment proceedings though the same was not in the prescribed form, yet the intention was duly conveyed. Moreover, the assessee had filed form No. 10 duly signed by the secretary of the Society during appellate proceedings. Moreover, it is also observed that 15 per cent of the income can be carried forward in the next year even without conveying any option under section 11(2). The Commissioner (Appeals) did not give credit for the same which is not justified especially keeping in view the fact that assessee had claimed to have utilized much more than the unspent balance in the next year. From the paper book filed by assessee it appears that assessee had filed audited balance sheet for the assessment year 2009-10 before the Assessing Officer claiming that unspent amount was spent in this prescribed period but neither the Assessing Officer nor the Commissioner (Appeals) commented about it. It is also apparent that fact of the assessee having spent significant amount in next year was not examined by the Assessing Officer. Therefore, it is deemed appropriate to remit the file to the office of the Assessing Officer to examine the books of account of the assessee for the assessment year 2009-2010 to ascertain the amount of spending in next year within prescribed period as laid down by law and if the amount of investment exceeds unspent amount within prescribed period, in next year then the Assessing Officer should condone the delay and irregularity in filing Form No. 10 and should allow the exemption if found to be eligible otherwise. [Para 10] |
CASES REFERRED TO
CIT v. Zirat Mir Syed Ali Hamdani [2001] 114 Taxman 642 (J & K) (para 8) and CIT v. Nagpur Hotel Owners Association [2001] 247 ITR 201/114 Taxman 255 (SC) (para 8).
V.K. Chadha for the Appellant. Sanjat Pandey for the Respondent.
ORDER
TS Kapoor, Accountant Member - This is an appeal filed by the assessee against the order of Ld CIT(A) dated 3.8.2001. The grounds of appeals taken by the assessee are as under:—
| '1. | That the Ld CIT(A) erred in law and on facts in confirming the addition of Rs. 42,75,263/- out of income assessed by the Ld Adll. CIT, Range-2, Muzaffarnagar at Rs. 1,00,73,695/- against admitted by the appellant at Nil. | |
| 2. | That the Ld CIT(A) erred in law and on facts in confirming the Assessing Officer's action of not accepting the 'Notice under section 1(2) of the Income Tax Act, 1961 read with Rule 17 of the IT Rules, 1962 for accumulation of income" filed before the Assessing Officer. | |
| 3. | That the appellant also filed Form No.10 duly signed by the Managing Trustee before the Ld CIT(A) Muzaffarnagar rectifying the bona fide omission of mentioning the Form No.10 on the Notice filed before the ld Assessing Officer but the same has been rejected without any valid reasons. | |
| 4. | That the authorities below erred in law and on facts in not granting the benefit of exemption of income of the appellant charitable trust u/s 11(1) and u/s 11(2) of the Income Tax Act, 1961 in spite of the filing of the 'Notice u/s 1(2) of the Income Tax Act, 1961 read with Rule 17 of the IT rules, 1962b for accumulation of income", without prejudice the lower authorities are not justified in law in not allowing the general exemption of 15% of 'Income from property held for charitable or religious purposes' having regard to the provisions of sec. 1(1) of the Act. | |
| 5. | That the assessment order u/s 143(3) of the Income Tax Act, 1961 dated 1.4.2010 and the appellate order dated 3.8.2001 are against the law and facts.' |
2. The brief facts of the case are that the assessee is a society registered under the Societies Act and also registered u/s 12A of the Income Tax Act, 1961. The society is running MG Public School at Circular Road, Muzaffarnagar. The assessee filed its return of income declaring nil income as per computation of income as under:—
| By Income as surplus from MG Public School. | Rs.,100,74,289.00 |
| Less: being excess of income over expenditure Account of the trust Moti Ram Gopi Chand Charitable Trust. | Rs. 594.00 |
| Rs. 1,00,73,695.00 | |
| Less: Funds to be utilized 100% for Charitable trust purposes. | Rs. 1,00,73,695.00 |
3. However, the Assessing Officer observed that assessee had not utilized funds for charitable purpose as per the provisions of the Act and held as under:—
'Again from perusal of the return it is noticed that the total receipts of the assessee is Rs. 1,97,84,94/- which included sale of land for Rs. 24,01,245/- becomes total receipts of Rs. ,2,21,86,240/-. The total application of funds as indicated in Income & Expenditure account is Rs. 97,10,705/-. The expenditure on capital asset is at Rs. 81,99,026/-made up of the following. Thus total application of fund is at Rs. 1,79,09,731/- i.e. (Rs. 97,10,705/- + Rs. 81,99,026/-). In brief out of total receipts of Rs. 2,21,86,240/-, the application of fund is only to the extent of Rs. 1,79,09,731/- which is only at 80.72%.
As the application of funds is less than 85% and there is no application u/s 11(2) along with the return, the exemption u/s 1 of the Income Tax Act, 1961 is not available to the assessee. Accordingly, vide notice dated 18.12.2009 and dated 29.12.2009 the assessee was required to explain why the exemption u/s 11 may not be disallowed. Vide letter dated 4.3.2010, the assessee furnished its reply as under:-
"That the Trust is carrying on activity of providing education to the children irrespective of caste and creed and mainly on charitable purposes. In the year under consideration, the return of income has been filed along with the audit report in Form No.10B along with application for allowability of accumulated funds of Rs. 24,04,624/- to be used in the next year. The copy of application is being enclosed for your ready reference. The exemption u/s 11 of the Income Tax Act, 1961 cannot be denied while the funds accumulated have been kept in bank as per provision of section 1(5)(iii) with Schedule-I."
Along with this reply, the assessee also filed notice u/s 11(2) (A) of the IT Act read with Rule 17 of IT Rules, 1962 for accumulation of income. The letter is addressed to Addl. CIT.'
4. The Assessing Officer, however, did not consider the contention of the assessee and made the disallowance because of the following:—
| (i) | The notice u/s 11(2)(a) is not in a specified form as per Rule 17 of IT Rules, 1962. The prescribed form is Form No.10. | |
| (ii) | The letter states that amount of Rs. 24,04,624/- shall be utilized in the next year and it does not state the purpose for which it is being accumulated. | |
| (iii) | The application dated 26.9.2008 is filed on 21st October, 2008 and therefore cannot be considered as notice as it should have been filed before expiry of time allowed u/s 139 for furnishing of return of income which is 30th September of each year. | |
| (iv) | The notice is signed by Shri Dinesh Mohan, Advocate and not by Secretary or the President of the Society. |
5. Dissatisfied with the order, the assessee filed appeal before Ld CIT(A) who after going through the submissions and on the basis of material on record, allowed the benefit of capital expenditure of Rs. 81,99,026/- and reduced the taxable income to Rs. 42,75,263/- by making the following calculation.
| Net income as Per P&L A/c. | Rs. 1,00,74,289/- |
| Add: Capital receipt on account of sale of land | Rs. 24,00,000/- |
| Rs. 1,24,74,289/- | |
| Less: capital expenditure. | Rs. 81,99,026/- |
| Rs. 42,75,263/- |
6. Aggrieved the assessee filed appeal before us.
7. At the outset, the Ld AR submitted that assessee is a registered society under the provisions of section 12A of the Income Tax Act, 1961. He further relied upon the written submissions dated 20.12.2012. The crux of the written submissions is as under:-
8. That though Form No.10 was not filed in the prescribed form but its intention to carry out the amount for utilizing in next year was conveyed through a letter and in this respect our attention was invited to the paper book page 10 wherein a copy of letter u/s 11(2A) received by the Department on 21st October, 2008 was placed." It was further argued that contents of letter contained all the particulars required to be filed in Form No.10 and purpose of accumulating funds was also stated in the said letter. As regards the signature on the above letter by the counsel of assessee, the Ld AR submitted that mistake was rectified during appellate proceedings before Ld CIT(A) and even Form No.10 signed by the Managing Trustee of Society was also filed. It was further submitted that Assessing Officer did not allow the exemption and Ld CIT(A) also upheld the part disallowance of exemption on account of non filing of Form No.10 and on account of non-signing by the authorized person. It was submitted that the assessee has made investment in land in the next year amounting to Rs. 1,25,17,086/- and that investment in assets is for charitable purposes and therefore the purpose of provisions of the Act has been achieved and therefore the rejection of claim of the assessee on account of technical reasons of not filing form No.10 is not justified. Reliance in this respect was placed on the judgment of Hon'ble High Court of Jammu & Kashmir in the case law of CIT v. Zirat Mir Syed Ali Hamdani , [2001] 114 Taxman 642 Srinagar wherein the Hon'ble Court had held that requirement of exercising the option in writing under clause (2) of Explanation to section 11(1) of the Act is directory in nature and was not mandatory. The Court further held that the Assessing Officer has the power to condone the delay in exercise of the option if he is satisfied about the sufficiency of cause shown for the delay. In his written submissions, it was also argued that notice u/s 11(2) was filed on 21st October, 2008 before completion of assessment proceedings and was fully covered in its favour by the Hon'ble Supreme Court decision in the case of CIT v. Nagpur Hotel Owners Association [2001] 247 ITR 201/114 Taxman 255. It was further submitted that Assessing Officer has wrongly contended that there is no mention of the purpose of accumulation and mode of investment thereof inasmuch as notices states the purpose as under:-
"The accumulated funds kept in the bank and will be used for the purpose of purchase of land for educational institution.
It was further argued that through written submissions that unused funds were used in the next year towards purchase of land.
9. The Ld DR, on the other hand, relied upon the order of Ld CIT(A).
10. We have heard the rival submissions of both the parties and have gone through the material available on record. We find that assessee is running a school and is registered under the provision of the IT Act for claiming exemption u/s 11 of the Act. During the year under consideration, the assessee spent a part of its income for charitable purpose for which there is no dispute and for the remaining amount it had to file Form No.10 conveying its intention to carry forward the funds for spending in next year. However, it did not file Form No.10 and instead during assessment proceedings filed a letter conveying its intention to carry forward the unspent amount in next year for spending in the next year. The contents of Form No.10 are similar to the contents of letter sent by the assessee. The Assessing Officer denied the exemption on account of technical default by the assessee of not conveying its intention in the prescribed form and signed by authorized person. The Hon'ble Jammu & Kashmir High Court in the case of Zirat Mir Sayed Ali Hamdani (supra) has held that provision of section 11(2) regarding requirement of exercising the option within the specified time is directory and the assessing authority has the power to condone the delay in exercise of the option if he is satisfied about the sufficiency of the cause shown for the delay. In the present case, the option was filed with the Assessing Officer during the course of assessment proceedings though the same was not in the prescribed form, yet the intention was duly conveyed. Moreover, the assessee had filed form No.10 duly signed by the Secretary of the Society during appellate proceedings. Moreover, we also observe that 15% of the income can be carried forward in the next year even without conveying any option u/s 11(2) of the Act. The Ld CIT(A) did not give credit for the same also and he allowed exemption only in respect of capital expenditure which is not justified especially keeping in view the fact that assessee had claimed to have utilized much more than the unspent balance in the next year. From the paper book filed by assessee it appears that assessee had filed audited balance sheet for assessment year 2009-10 before Assessing Officer for claiming that unspent amount was spent in this prescribed period but neither Assessing Officer nor Ld CIT(A) commented about it. It is also apparent that fact of the assessee having spent significant amount in next year was not examined by Assessing Officer. Therefore, we deem it appropriate to remit the file to the office of Assessing Officer to examine the books of account of assessee for assessment year 2009-10 to ascertain the amount of spending in next year within prescribed period as laid down by law and if the amount of investment exceeds unspent amount within prescribed period, in next year then the Assessing Officer should condone the delay and irregularity in filing Form No.10 and should allow the exemption if found to be eligible otherwise.
11. In view of the above circumstances, the appeal filed by the assessee is allowed for statistical purposes.
Regards
Prarthana Jalan
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