2016 (6) TMI 295 - AT - Income Tax

Tribunal grants trust accumulation benefit under Section 11(2) emphasizing substantial justice over technicalities.

Shri Ram Nagar Trust Versus DDIT (Exemp) –I (1), Mumbai

The Tribunal allowed the appeal, granting the assessee-trust the benefit of accumulation under Section 11(2) for Rs. 1,89,10,525/-. The decision ... Entitlement for benefit u/s 11(2) of the Act of the accumulation of funds - Held that:- Merely because the Resolution is passed after the end of the previous year relevant to the assessment year will not be sufficient to disentitle the assessee-trust of its claim for accumulation of fund u/s 11(2) of the Act as the assessee-trust has demonstrated that it was in-fact in the process of setting up hospital on its 10 acre plot of land at Jogeshwari for which Maharashtra Government has allowed the earmarking of land for hospital project as set-out above for which accumulation of funds u/s 11(2) of the Act was proposed keeping in view preponderance of probabilities and human conduct and also it is well settled proposition of law that when technicalities are pitted against the substantial justice, the course which advances substantial justice is to be preferred The assessee-trust has duly established its claim for eligibility for grant of the benefit of accumulation u/s 11(2) of the Act which cannot due to the reasons cited by the authorities below be denied to the assessee-trust. In our considered view, the assessee-trust is entitled for the benefit of accumulation of funds u/s 11(2) of the Act to the tune of ₹ 1,89,10,525/- as claimed by the assessee-trust. - Decided in favour of assessee Issues Involved:1. Timeliness of filing Form No. 10 for accumulation of income under Section 11(2) of the Income Tax Act.2. Specificity of the resolution for accumulation of income under Section 11(2).3. Deduction of 15% of the gross total income under Section 11(1)(a).4. Taxability of Rs. 2 Crores received from Om Vishal Nagar Co-op. Housing Society Ltd.Issue-wise Detailed Analysis:1. Timeliness of Filing Form No. 10:The assessee-trust filed Form No. 10 belatedly during the assessment proceedings but before the completion of the assessment. The AO denied the benefit of accumulation under Section 11(2) due to the late filing. The CIT(A) upheld this decision. The Tribunal, however, noted that the form was filed before the conclusion of the assessment proceedings and referenced judicial precedents, including CIT v. Nagpur Hotel Owners Association and CIT v. Moti Ram Gopi Chand Charitable Trust, which support the acceptance of Form No. 10 if filed before the assessment is completed. Consequently, the Tribunal allowed the assessee-trust's benefit of accumulation under Section 11(2).2. Specificity of the Resolution for Accumulation:The AO and CIT(A) found the resolution for accumulation vague and general, lacking a specific purpose. The Tribunal, however, considered the assessee-trust's detailed project report for a hospital and educational institution, which aligned with the trust's objectives. The Tribunal found that the term 'future project' in the resolution should be read in conjunction with the hospital project underway, thus meeting the requirement for a definite and concrete purpose. Citing decisions like DIT v. Mitsui & Co. Environmental Trust and Bhartiya Kalyan Pratisthan v. DIT(E), the Tribunal held that the accumulation was valid.3. Deduction of 15% of the Gross Total Income:The CIT(A) and AO rejected the assessee-trust's plea for a 15% deduction under Section 11(1)(a) of the Income Tax Act. The Tribunal's decision to allow the accumulation under Section 11(2) implicitly supports the trust's broader claim for exemptions under Section 11, though the specific issue of the 15% deduction was not separately detailed in the final ruling.4. Taxability of Rs. 2 Crores Received:The assessee-trust argued that the Rs. 2 Crores received from Om Vishal Nagar Co-op. Housing Society Ltd. was a capital receipt, not taxable as income. The CIT(A) ruled it as revenue income, taxable under commercial principles. The Tribunal noted that the assessee-trust treated the amount as income but claimed it was for a capital project. Given the Tribunal's decision to allow the accumulation under Section 11(2), it did not explicitly resolve the capital receipt issue but kept the question open, focusing on the broader exemption eligibility.Conclusion:The Tribunal allowed the appeal, granting the assessee-trust the benefit of accumulation under Section 11(2) for Rs. 1,89,10,525/-. The decision emphasized the importance of substantial justice over technicalities and recognized the trust's ongoing hospital project as a valid basis for accumulation. The issue of the Rs. 2 Crores as a capital receipt remains open for further adjudication. The appeal was allowed, setting aside the orders of the CIT(A) and AO.