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Income Tax Appellate Tribunal, JODHPUR BENCH, JODHPUR
Before: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM
(Virtual Hearing) Assessee By Shri Mohit Soni Revenue By Shri S.M. Joshi, JCIT-DR Date of hearing 13/07/2023 06 /10/2023 Date of Pronouncement O R D E R PER: Dr. S. Seethalakshmi, JM
The assessee has filed an appeal against the order of the National Faceless Appeal Centre, Delhi [herein after “NFAC/Ld.CIT(A)”] dated 26.10.2022 for the assessment year 2015-16. 2. The assessee has raised the following grounds of appeal:-
1. That on the facts and in the circumstances of the case and in law the ld. CIT (A) erred in not accepting Form 10 during the appellate stage filed electronically on dated 10.05.2017 by the assessee trust without appreciating the judgment of Hon'ble Supreme Court in the case of Nagpur Hotel Owners' Association
Umed Hospital Medicare Relief Society and appreciating that assessee trust satisfies the without conditions for availing such exemption. Therefore the appellant appeals for deletion of addition made of Rs. 7200000.
That on the facts and in the circumstances of the case and in law the ld. CIT(A) erred in assuming and holding that (a) The AO, CPC has denied the claim u/s 11(2) of Rs. 72,00,000/- on the ground. that the appellant has failed to submit Form 10B within the due date (Para 2 of the order)
(b) The CPC, Bangalore while processing the Return of income u/s 143(1)(a) of the Act for AY 2015-16 has denied the exemption claimed u/s 11 of the act for non filing of Form 10B. (Para 5 of the order)
(c) The assessee failed to file electronically the audit report in prescribed format, therefore, exemption claimed u/s 11 and 12 of the Act is disallowed.(Para 5.3 of the order)
(d) The assessee trust has contravened the provisions of section 11(2) of the IT Act and consequently nothing contained in the provisions of Section 11 and 12 shall apply to the case of assessee.(Para 5.8 of the order)
Therefore the appellant appeals for set aside the impugned order dated 26.10.2022 and order for allowing the exemption u/s 11(2) of the IT Act, of Rs.7200000/-.
3. That on the facts and in the circumstances of the case and in law the ld. CIT (A) legally not correct while passing the order u/s 250 for AY 2015-16 under the presumption that the assessment order relates to AY 2016-17. The CIT (A) himself observed that the amendments as stated in his order will take effect from AY 2016-17. Thus, Ld. CIT erred in passing the Umed Hospital Medicare Relief Society order under the presumption that the assessment relates to AY 2016-17. Therefore the appellant appeals for deletion of addition made of Rs. 7200000.
That the appellant appeals for allowing consequential relief from interest charged u/ss. 234A, 234B and 234C of the IT Act, 1961.
5. That the appellant craves leave to add, amend, alter vary and/or withdraw any or all the above grounds of Appeal at or before the time of hearing.
6.That the appellant prays for justice and relief.”
Brief facts of the case are that the assessee is a charitable trust. It is registered u/s 12A of the Income Tax Act while processing u/s 143(1) of the Act and the AO has not granted deduction u/s 11 of the Act for want of audit report in form 10B. The assessee filed its return of income belatedly on 29.03.2016, while processing the return of income, the AO, CPC has denied the claim u/s 11(2) of Rs. 72 lakhs on the grounds that the assessee has failed to submit the Form No. 10B within due date.
4. Aggrieved, from the said order of assessment the assessee has filed an appeal before the ld. CIT(A). The ld. CIT(A) after hearing the Umed Hospital Medicare Relief Society contention of the assessee dismissed the appeal of the assessee by giving following findings on the issue:- “ Decision: The assessee has filed return of income and claimed exemption u/s 11 of the Income tax Act. The assessee is a Charitable society having its main object of providing investigation facilities of high quality to patients at reasonable cost and providing free medicines, investigations and counseling to AIDS patients. The society was granted registration under Section 12AA of the Act it is also noticed that the CPC, Bangalore while processing the return u/s 143(1)(a) of the Act for A.Y 2015-16 has denied the exemption Claimed u/s. 11 of the Act by the assessee trust for non filing of Form no. 10B. 5.1 The provisions of section 12A reads as under: 12A [(1)] The provisions of section 11 and 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely:- (a).... (b) where the total income of the trust or institution as computed under this Act without giving effect to [the provisions of section 11 and 12 exceeds the maximum amount which is not chargeable to income tax in any previous year). the accounts of the trust or institution for that year have been audited by an accountant as defined in the Explanation below sub-section (2) of section 288 and the person in receipt of income furnishes along with the return of income for the relevant assessment year the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescnbed.] 5.2 The proviso to rule 12(2) reads as under: "Provided that where an assessee is required to furnish a report of audit specified under sub-clause (iv), (v), (vi) or (via: of clause (23C) of section 10, section 10A [section 10AA], clause (b) of sub-section (1) of section 12A section 44AB [section 44DA, section 50B). section 80-1A, section 80-1B, section 80-IC. section 80- ID
Umed Hospital Medicare Relief Society section 80JJAA, section 80LA, section 92E. [section 115JB or section 115VW] for to give a notice under Clause (a) of sub-section (2) of section 11] of the Act, he shall furnish the same electronically.]" 5.3 On perusal of the provision of section 12A read with rule 12(2), it is clear that audit report must be obtained by an assessee, if the total income of the assessee as computed under the Act (without giving effect to the provisions of section 11 and 12 of the Act) exceeds the maximum amount which is not chargeable to income tax in any previous year, and the assessee desired to Claim exemption u/s 11 and 12 of the Act. Further, the report must be filled up by a chartered accountant and the same shall be submitted electronically. However, the assessee failed to file electronically the audit report in prescribed format, therefore, exemption claimed u/s 11 and 12 of the Act is disallowed. 5.4 In view of the above facts and provisions of the Act, entire exemption of Rs 72.00.000/-claimed by the assesse trust is disallowed. The assessee has filed its return of income belatedly on 29.03.2016 and Form 10 on 10.05.2017. It means assessee has filed Form 10 after the due date prescribed u/s 139(1) of the Act and not as per the date prescribed by the income Tax act and Rules 5.5 Rule 17(2) of the Income-tax Rules, 1962 says that: (2) The statement to be furnished to the Assessing Officer or the prescribed authority under sub-section (2) of section 11 or under the said provision as applicable under clause (21) of section 10 shall be in Form No 10 and shall be furnished before the expiry of the time allowed under sub-section (1) of section 139 for furnishing the return of income. 5.6 Rationalisation of provisions of section 11 of the Income-tax Act relating to accumutation of income by charitable trusts and institutions 5.61 Under the provisions of section 11 of the Income-tax Act, the primary condition for grant of exemption to trust or institution in respect of Income derived from property held under such trust is that the income derived from property held under trust should- be applied for charitable purposes in India. Where such income cannot be applied during the previous year, it has to be accumulated and applied
Umed Hospital Medicare Relief Society for such purposes in accordance with various conditions provided in the section. While 15% of the income can be accumulated indefinitely by the trust or institution, 85% of income can only be accumulated for a period not exceeding 5 years subject to the conditions that such person submits the prescribed Form 10 to the Assessing Officer in this regard and the money so accumulated or set apart is invested or deposited in the specified forms or modes. If the accumulated income is not applied in accordance with these conditions, then such income is deemed to be taxable Income of the trust or institution. 5.6.2 In order to remove the ambiguity regarding the period within which the assessee is required to furnish Form 10, and to ensure due compliance of the above conditions within time, the Income-tax Act has been amended to provide that the Form 10 shall be furnished before the due date of furnishing the return of Income specified under section 1:9(1) of the Income-tax Act for the fund or Institution. In case the Form is not submitted Form 10 along with return of income, then the benefit of accumulation would not be available and such income would be taxable at the applicable rate. Further, the benefit of accumulation would also not be available if return of income is not furnished before the due date of furnishing the return of income. 5.6.3 Under section 11 of the Income-tax Act, it has also been provided that if the Income from the property held under trust and applied to charitable or religious purposes falls short of 85% of the income derived during the previous year for the reason that the income has not been received during that year or any other reason, then on exercise of the option by the trust/institution in writing on or before the due date of furnishing the return of income, such income shall be deemed to have been applied for charitable or religious purpose. There was no standard format for exercising the option. Accordingly, the provisions of section 11 have also been amended to prescribe a format for exercise of option by the trust/institution for the purposes of clause (2) of the Explanation to sub-section (1) of section 11 of the income-tax Act.
Umed Hospital Medicare Relief Society 5.6.4 Applicability These amendments take effect from 1st April, 2016 and will accordingly, apply in relation to the assessment year 2016-17 and subsequent assessment years. 5.7 From the analysis of section 11(1), 11(2) & 11(3) and the functioning of trust where all the main decisions are taken by the Trustees and are to be recorded in minutes that it comes out that for claim of exemption/s 11(2) of the IT Act 1961: i) The Trustees should have a specific purpose in mind which will require accumulation of income to be spent over a long period. ii) Such specific purpose for which the accumulation is done is to be decided by the trustees in their meeting by adopting a resolution because such important decision can only be taken be trustees formally. iii) On the basis of such resolution, the claim u/s 11(2) can be granted if Form No 10 is also filed and submitted within the prescribed time. The amount should be invested in the prescribed mode u/s 11(5) of the IT Act, 1961. iv) On the basis of such resolution the auditors will also specify the sum accumulated u/s 11(2) of the IT. Act in audit report in Form No 10B. 5.8 In view of the same, it is held that the assessee trust has contravened the provisions of section 11(2) of the IT Act and consequently nothing contained in provisions of section 11 and 12 shall apply to the case of the assessee Accordingly no exemption is granted u/s 11(2) of the IT Act for the year under consideration In result the appeal of the appellant is dismissed.”
As the assessee did not receive any favour from the appeal filed before ld. NFAC/ CIT(A). The present appeal filed against the said order of the ld. NFAC dated 26.10.2022 before this tribunal on the grounds as reiterated in para 2 above. To support the grounds so raised the ld. AR appearing on behalf of the assessee has placed their written submission which is extracted in below:-
Umed Hospital Medicare Relief Society “MAY IT PLEASE YOUR HONOUR: 1] That the appellant is a society formed by the State Government managed by the committee which is headed by the Divisional Commissioner, Jodhpur including District Collector, Superintendent Government Hospital and other senior government doctors, and registered u/s 12A of the Income Tax Act having its main objects of providing medical and healthcare facilities to the public at large. 2] The appellant trust filed the return of income u/s 139(4) of the Act on 29.03.2016 along with audit report in Form 10B.[PB Page No. 5. to 35]. 3] That on 27.03.2017, CPC had processed the return of income u/s 143(1) of the Act and disallowed the amount accumulated and set apart u/s 11(2) of the Act for non-filing of Form 10 within due date u/s 139(1) of the Act. 4] That during the year under consideration the appellant had accumulated or set apart Rs. 72,00,000/- u/s 11(2) of the Act for purchase and installation of lifts and CCTV cameras in the Hospital Premises, in compliance of which the appellant trust had filed the form 10 electronically on 10.05.2017.[PB Page No. 37 to 39] 5] That on 17.08.2018 the appellant trust had filed an application u/s 154 of the Act before ITO, Exemption, Jodhpur seeking to rectify the intimation u/s 143(1) of the Act along with Form 10 and resolution passed requesting to accept the Form 10, which is pending adjudication till date. [PB Page No. 40] 6] That Ld. CIT(A) vide order dated 26.10.2022 had disallowed the claim of exemption u/s 11(2) of the Act on the following two grounds: i. Non filing of Form 10B electronically along with return of income. ii. Non filing of Form 10 before due date of filing the return of income u/s 139(1) of the Act. Having discussed the facts of the case, I would like to submit as under: A. That the Ld. CIT(A) grossly erred in not accepting Form 10 filed during the appellate proceedings: i. That during the course of appellate proceedings before Ld. CIT(A). the appellant had submitted Form 10 along with the resolution requesting to accept the same. Further, the genuineness of claim of exemption u/s 11(2) of the Act was not disputed and the entire
Umed Hospital Medicare Relief Society basis for denial of exemption u/s 11(2) of the Act was non filing of Form 10 along with the return of income. ii. It is submitted that the from a bare perusal of Form 10 r.w. Rule 17 of Income Tax Rules, 1962 it can be seen that for claiming the benefit u/s 11 it is necessary to intimate to the Assessing Authority at any time during the assessment proceedings [CIT vs. The Nagpur Hotel Owner's Association Appeal(Civil) 1662 of 1994]. iii. Further, reliance is placed on CIT vs. Mayur Foundation(2005) 194 CTR Guj 197, 2005; 274 ITR 562 (Guj.), wherein Hon'ble Gujrat High Court has taken the view that application for accumulation of income is entertained even during the course of appeal because the proceedings are meant to correctly assess the tax liability of an assessee. The relevant extract of the judgment is reproduced below:[PB Page No. 53] “The question, therefore, that arises is when can an assessment be said to be complete or till what point of time the assessment proceedings can be said to be alive. In the case of Rambhai Jethabhai Patel v. CIT [1977] 108 ITR 771, this court was called upon to decide the question as to till what point of time an assessment can be said to be pending. This court referred to various interpretations of the word "pending" at page 784 of the reported decision, and ultimately, relied upon the decision of the apex court in the case of Asgarali Nazarali v. State of Bombay, AIR 1957 SC 503, to hold that it can safely be said that a matter can be said to be pending in a court of justice when any proceedings can be taken in it and that is the test to be applied. In Stroud's Judicial Dictionary, Fourth Edition, Volume 4, at page 1975, it is stated: "A legal proceeding is 'pending' as soon as commenced and until it is concluded, i.e. so long as the court having original cognizance of it can make an order on the matters in issue, or to be dealt with, therein." Applying the aforesaid principle, can it be stated that when the matter is pending before the Tribunal by way of an appeal, the assessment proceeding is pending? The answer has to be in the affirmative. The assessing authority is empowered and is duty bound, to pass an order giving effect to the order of the Tribunal for the purposes of assessing the tax liability of the assessee for the assessment year which was under consideration before the Tribunal In these circumstances, it cannot be contended on behalf of the Revenue that the assessment proceedings come to an end when the assessment order is framed. The Umed Hospital Medicare Relief Society contention on behalf of the Revenue to equate the assessment order with assessment proceeding is based on a fallacious premise." B. That the Ld. CIT(A) erred in assuming and holding the appellant trust had failed to submit Form 10B electronically. i. That the Ld. CIT(A) in its order, had also formed the basis for making the impugned disallowance on the ground that the appellant trust has failed to file audit report in Form 10B along with return of income electronically.[Para 53] ii. It is submitted that the assumptions of the Ld. CIT(A) are factually incorrect, as the appellant trust had duly filed the audit report in Form 10B electronically along return of income. [PB Page No. 36] iii. Further also, Ld. CIT(A) had formed the basis of impugned disallowance under the presumption that the assessment year in the case of appellant trust related to AY 2016-17 whereas the impugned disallowance relates to AY 2015-16.[Para 5.6] Therefore, in view of the above Ld. CIT(A) erred in not accepting the Form 10 and resolution submitted during the appellate proceedings. It is humbly prayed before your lordships that Form 10 and the resolution may kindly be accepted at this stage so that the appellant trust can claim the exemption u/s 11(2) of the Act.”
Per contra, the ld. DR relied upon the orders of the ld. CIT(A).
We have heard both parties and perused the materials available on record. The Bench noted that assessee is a charitable trust. It is registered u/s 12A of the Income Tax Act while processing u/s 143(1) of the Act and the AO has not granted deduction u/s 11 of the Act for want of audit report in form 10B. The assessee filed its return of income belatedly on 29.03.2016, while processing the return of Umed Hospital Medicare Relief Society income, the AO, CPC has denied the claim u/s 11(2) of Rs. 72 lakhs on the ground that the assessee has failed to submit the Form No. 10B within due date. The bench noted that Central Board of Direct Taxes (CBDT) vide Circular No. 6/2020 issued directions to the Department that with a view to prevent hardships to the assessee in exercise of the powers conferred u/s 119(2)(b) of the Income Tax Act, 1961. The Board decided that where the application for condonation of delay has been filed and the return of income has been filed on or before 31st March of respective assessment years the Board directed to condone the delay admitted to such belated such application for condonation of delay in filing such Form/ return of income for the assessment year for the assessment year 2016-17,2017-18 & 2018-19. The bench noted that in the order of the ld. CIT(A) at page following non disputed facts emerges: “5.6.3 Under section 11 of the Income-tax Act, it has also been provided that if the Income from the property held under trust and applied to charitable or religious purposes falls short of 85% of the income derived during the previous year for the reason that the income has not been received during that year or any other reason, then on exercise of the option by the trust/institution in writing on or before the due date of furnishing the return of income, such income shall be deemed to have been applied for charitable or religious purpose. There was no standard format for exercising the option. Accordingly, the provisions of section 11 have also been amended to prescribe a format for exercise of option by the trust/institution for the purposes of clause (2) of the Explanation to sub-section (1) of section 11 of the income-tax Act.
Umed Hospital Medicare Relief Society 5.6.4 Applicability:- These amendments take effect from 1st April, 2016 and will accordingly, apply in relation to the assessment year 2016-17 and subsequent assessment years.”
Thus, when the amendment is made applicable to 2016-17 onward there is no reason to reject the benefit to the assessee and even the similar lapse has been considered to be condoned if the said form and ITR is filed before 31st March then considering that board instruction and to the fact that the amendment made in the law is not applicable for the year under consideration and therefore, we direct the lower authorities to accept the Form No. 10 belatedly filed by the assessee and grant the consequential relief to the assessee.