2001 (6) TMI 174 - AT - Income Tax

Charitable Trust's Income Accumulation Approved under Tax Act - Compliance with Specific Purposes

The Tribunal held that the Charitable Trust was entitled to accumulate income under section 11(2) of the Income-tax Act as the specified purposes for ... Charitable Or Religious Trust, Exemption Of Income From Property Held Under Issues Involved:1. Whether the accumulation of income by the assessee under section 11(2) of the Income-tax Act is permissible.2. Whether the accumulated amount of Rs. 3,30,000 was applied for the objects of the Trust.3. Whether the CIT(A) erred in allowing the benefit of section 11 despite alleged violations of section 13(1)(c) of the Income-tax Act.Issue-wise Detailed Analysis:1. Accumulation of Income under Section 11(2):The primary issue was whether the assessee, a Charitable Trust, could accumulate income under section 11(2) of the Income-tax Act. The Trust had passed a resolution to accumulate funds for six specific purposes out of the 19 listed in the Trust Deed and had communicated this to the Assistant Director of Income-tax (Exemption) in Form No. 10. The Assessing Officer and CIT(A) denied the benefit, citing that the purposes were not specific enough, relying on the Calcutta High Court decision in Trustees of Singhania Charitable Trust.The Tribunal, after considering the arguments and legal provisions, concluded that the purposes listed by the assessee were specific and concrete. The Tribunal noted that the Trust had specified purposes such as starting schools, colleges, libraries, health centers, hospitals, and constructing dharamshalas, which were definite and precise. The Tribunal distinguished between general objects and specific purposes, emphasizing that the latter were required under section 11(2). The Tribunal also noted that the decision of a High Court other than the jurisdictional High Court is not binding but should be considered. Ultimately, the Tribunal held that the assessee was entitled to accumulate funds under section 11(2).2. Application of Accumulated Amount of Rs. 3,30,000:The second issue was whether the accumulated amount of Rs. 3,30,000 was applied for the objects of the Trust. The assessee had initially intended to use the funds for running a school but faced issues with land acquisition. Subsequently, the assessee sought to use the funds for planting a commemorative forest in Himachal Pradesh and applied for approval under section 11(3A) of the Income-tax Act. Despite continuous correspondence, the department did not grant approval.The Tribunal noted that the assessee had made efforts to utilize the funds for charitable purposes but faced circumstances beyond its control. The Tribunal directed the Assessing Officer to dispose of the application within a reasonable time after hearing the assessee, restoring the matter to the Assessing Officer for further consideration.3. Alleged Violations of Section 13(1)(c):The third issue was whether the CIT(A) erred in allowing the benefit of section 11 despite alleged violations of section 13(1)(c) of the Income-tax Act. The ITO had refused exemption on the grounds of violations of section 13(1)(c), but the CIT(A) had allowed the benefit, and the matter was pending before the High Court.The Tribunal endorsed the view of the CIT(A), following an earlier order of the Tribunal, and dismissed the revenue's appeal on this ground.Separate Judgments by Judges:The Tribunal's decision included separate judgments by the Accountant Member and the Judicial Member. The Accountant Member held that the purposes listed by the assessee were specific and concrete, allowing the accumulation of funds under section 11(2). The Judicial Member disagreed, finding the purposes to be general and vague, and upheld the denial of accumulation. The matter was referred to a Third Member, who agreed with the Accountant Member, concluding that the assessee was entitled to accumulate funds under section 11(2).Conclusion:The Tribunal allowed the assessee's appeal in part for statistical purposes and dismissed the revenue's appeal. The Tribunal directed the Assessing Officer to dispose of the application for approval under section 11(3A) within a reasonable time, restoring the matter for further consideration.