2016 (5) TMI 65 - AT - Income Tax

Tribunal Grants Benefit to Assessee Under Section 11(2) Despite Technical Lapse

Presentation Social Service Centre Versus Deputy Director of Income-Tax (Exemptions) -II

The tribunal allowed the appeal, granting the benefit under Section 11(2) to the assessee. It held that although there was a technical lapse in specifying ... Entitlement to exemption u/s 11(2) - Held that:- 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. 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). - Decided in favour of assessee. Issues Involved:1. Compliance with Section 11(2) of the Income-tax Act, 1961.2. Specificity of the purpose of accumulation in Form 10.3. Justification for the denial of exemption under Section 11(2).4. Application of accumulated funds for the objectives of the trust.5. Treatment of income subject to tax at the maximum marginal rate.Issue-wise Detailed Analysis:1. Compliance with Section 11(2) of the Income-tax Act, 1961:The assessee, a society registered under Section 12AA, filed its return of income declaring 'nil' income and accumulated Rs. 85,00,000 under Section 11(2). The Assessing Officer (AO) found the purpose of accumulation stated in Form 10 as 'to be utilised for socio-economic programmes' to be too vague and general. The AO emphasized that specific, realistic, and definite purposes must be mentioned to enable monitoring of the utilization of the funds.2. Specificity of the Purpose of Accumulation in Form 10:The AO and the Commissioner of Income-tax (Appeals) (CIT(A)) both held that the purpose mentioned in Form 10 was not specific enough. The CIT(A) noted discrepancies between the resolution filed with Form 10 and an additional resolution filed later, questioning the veracity of the latter. The CIT(A) also criticized the assessee for not providing detailed purposes in Form 10, which is necessary for the AO to administer the provisions smoothly.3. Justification for the Denial of Exemption under Section 11(2):The CIT(A) upheld the AO's decision to bring the accumulated amount to tax, citing that the general description of the purpose rendered the provisions of Section 11(2) otiose. The CIT(A) stressed that Form 10 should be a self-contained document with full details of the purposes for which the funds are meant to be utilized.4. Application of Accumulated Funds for the Objectives of the Trust:The assessee argued that the accumulated funds were utilized for socio-economic programs, which align with the trust's main objectives of uplifting socially and economically backward classes. The assessee provided evidence of following a regular practice of accumulating unutilized funds and applying them in the subsequent financial year. The assessee also cited the assessment order for the assessment year 2012-13, which was accepted by the Department without adverse observations, indicating that the accumulated funds were applied for the trust's objectives.5. Treatment of Income Subject to Tax at the Maximum Marginal Rate:The assessee contended that the CIT(A) was not justified in subjecting the income to tax at the maximum marginal rate. The assessee's representative argued that the term 'socio-economic' was within the trust's objects and that the accumulated funds were utilized for the trust's aims in the subsequent year.Conclusion:The tribunal held that the assessee had followed the procedure for accumulation as per the provisions of the Act, and the accumulated funds were applied for the trust's objectives in India. The tribunal noted that the technical lapse in specifying the purpose in Form 10 could be condoned since the funds were utilized for the trust's objects. The appeal of the assessee was allowed, and the benefit under Section 11(2) was granted.Pronouncement:The judgment was pronounced in the open court on 4th November 2015.