M/S VALLIAMMAL EDUCATIOANL TRUST,CHENNAI vs. DCIT (EXEMPTIONS),CHENNAI, CIRCLE, CHENNAI

This appeal filed by the assessee is directed against the order passed by the Commissioner of Income-tax, National Faceless Appeal Centre (NFAC), Delhi dated 30.01.2023 and pertains to assessment year 2013-14.

The brief facts of the case are that, the assessee is a charitable trust registered u/s. 12AA of the Income-tax Act, 1961 (hereinafter referred to as “the Act”). The trust is imparting education and running three educational institutions namely Valliammal College for Women, Valliammal Matriculation Hr. Sec School and Valliammal Primary School. The assessee has filed its return of income for the assessment year 2013-14 on 05.08.2013, declaring nil income after claiming exemption u/s. 11 of the Act. During the financial year 2013-14, the assessee has received gross income from property held under trust at Rs.9,96,94,523/-. The assessee had applied Rs. 4,98,78,031/- as application of income for objects of the trust. The assessee had also accumulated Rs. 3,48,62,614/- u/s. 11(2) of the Act and set a part of income for specified purpose by filing Form no. 10, along with the purpose for which said income has been accumulated. The case was selected for scrutiny and during the course of assessment proceedings, the Assessing Officer noticed that the :-4-: ITA. No: 411/Chny/2023 assessee has accumulated income u/s. 11(2) of the Act, by filing Form no. 10 of the Act, but if you go through the purpose specified in Form no. 10, income has been accumulated without any specific purpose in a routine manner for activities which are to be carried out as part of its day-to-day operations. Therefore, taking into account relevant reasons given by the assessee and also by following certain judicial precedents including the decision of Hon’ble Kerala High Court in the case of CIT vs Sree Seetharama Anjaneya Veda Kendra 92008) 174 Taxmann 523 (Ker), rejected accumulation of income u/s. 11(2) of the Act and determined taxable income of Rs. 3,48,62,610/-. The relevant findings of the Assessing Officer are as under: 4. Accumulation of Rs.3,48,62,317 under Section.11{2) of the I.T. Act. 1961: 4.1 It was noticed that the trust had filed Form No.10 along with the return of income on for an accumulation of a sum of Rs,3,48,62,317 under section 11(2) of the I. T Act, 1961. It was seen from the above referred Form No.10, that the accumulation is for the following purposes: i) Purchase of car, van, bus or other vehicles for the trust institutions; ii) Renovation, interiors, repairs of several building in the schools, College and at other trust properties; iii) Revamping the computer labs at the college/school with latest hardware, software; iv) Providing scholarships for deserving students; :-5-: ITA. No: 411/Chny/2023 v) Construction of a new building in the school, college and at other places subject to the approval by CMDA/Chennai Corporation. vi) Construction at Thirumazhisai Trust property; and vii) Purchasing new furniture, electrical & electronic equipment for the school/college. The assessee was asked to file details regarding the utilization of accumulation amount claimed for which the assessee replied as under 5.History of the Assessee: 5.1 It may be seen from the above purposes that none of the purposes is specific in nature. In fact, the trust has accumulated the sum of Rs.3,48,62,317, for activities which are to be carried out as part of its day-to-day operations; for instance, the trust has accumulated for purposes such as, 'providing scholarships for deserving students' 'renovation, interiors, repairs of several building in the schools, College and at other trust properties', 'revamping the computer labs at the college/school with latest hardware, software· etc. Further, it is also noticed that the purposes mentioned in the Form No. 10, filed for this assessment year, is merely a repetition of the purposes specified in Last assessment year's Form No.10. Meaning and Scope of accumulation: 5.2 By virtue of the Finance Act, 2002, 85 per cent of the income needs to be applied for charitable purposes in India during the previous year in which the income is derived. Under the provisions of section 11(1)(a), an organization can accumulate 15 per cent of its income without any condition for applying such income in future for charitable purposes. In case an organization is una e o apply per cent and wants to set apart Or accumulate the income for future application, the organization may still be entitled to exemption, provided it satisfies the conditions under section 11(2). When income is not applied in a year and the excess of income over expenditure remains with the organization, in whatever form, it tantamount to accumulation of income, 5.3 This, it is seen that the assessee trust has adopted the modus of filling Form No.10 in a routine manner, once it is not able to apply its income for the objects mentioned in its trust deed, in the relevant previous year. This is just to avoid :-6-: ITA. No: 411/Chny/2023 taxation of the surplus amount which has not been applied towards its objects in the corresponding accounting period. 5.4 The exemptions availed on accumulated income will be withdrawn under the following circumstances under section 11 (3): (a) If they are applied for purposes other than for which they were accumulated. [Section 11(3)(a)]. (b) If the accumulated income ceases to remain in any of the modes of investment prescribed under section 11(5). [Section 11 (3)(b)]. (c) If the accumulated income is not utilized within the period of accumulation. [Section 11(3)(c)]. Before proceeding further, it is necessary to understand the intention of the legislature " .... The Legislature could not have thought of the need of specification of the purpose if it did not have in mind the particularity of the purpose or purposes falling within the ambit of the objects clause of the trust deed. When sub-section (2) of section 11 requires specification of the purpose, it does so having in mind a statement of some specific purpose or purposes out of the multiple purposes for which the trust stands. Were it not so, there would have been no mandate for such specification. For, a charitable trust, in no circumstances, can apply its income, whether current or accumulated, for any purposes other than the objects Which it stands. The very fact that the statute requires the purpose for accumulation to be specified implies such a purpose to be a concrete one, an itemized purpose or a purpose instrumental or ancillary to the implementation of its object or objects. The very requirement of specification of purpose predicates that the purpose must have an individuality. The provision of sub-section (2) is a concession provision to enable a charitable trust to meet the contingency where the fulfillment of any project within its object or objects needs heavy outlay to call for accumulation to mass sufficient money to implement it. Therefore, specification of purpose as required b y section 11(2) admits of no amount of vagueness about such purpose." Section 11(2) accumulation should not be done on regular basis 36.18 In the case of CITv. Sree Seetharama Anjaneya Veda Kendra [200B] 174 Taxman 523 (Ker.), it was held that the carry forward of :-7-: ITA. No: 411/Chny/2023 income up to 85 per cent, though permitted under section 11(2) of the Act, should not be adopted on a routine basis and if it is done, then the very purpose of the trust will be defeated. In fact, section 112) providing for carry over up to 85 per cent is an exception and if it is followed from year to year, then the genuineness of the activities of the trust itself should be examined by the Assessing Officer. The relevant extract is as under : "Learned Standing Counsel for the department rightly pointed out that the approach of the Tribunal is technical and the Assessing Officer is justified in going into the question whether the objects of the trust are really accomplished which alone will entitle the assessee for claiming exemption. Priina facie, we are of the view that the carry forward of income up lo 7 5 per cent, though permitted under section 11(2) of the Act, should not be adopted on a routine basis and if it is done, the very purpose of the trust will be defeated, In fact, section 11(2) of the Act providing for carry over up to 75 per cent is an exception and if it is followed from year tu year, then the genuineness of the activities of the trust itself should be examined by the Assessing Officer. In any case, we feel that since the assessment pertains to the years 1995-96 and 1996- 97, the Assessing Officer had occasion lo consider the facts pertaining to subsequent years. Since another 12 years have passed from the relevant assessment years, we feel that the Assessing Officer should examine the matter with reference to the activities of the assessee for subsequent years, the orders passed for those years and pass fresh orders. In fact, we are of the view that a detailed investigation is required about the activities of the trust and the expenditure it incurred so far to achieve the objects of the trust and diversions, if any made. We therefore set aside the order of the Tribunal and all the authorities below and remand the matter back to the Assessing Officer for fresh consideration with reference to subsequent assessments and after conducting enquiry and if necessary, after conducting a local inspection in the premises of the assessee about the activity being carried by the Trust."

Being aggrieved by the assessment order, the assessee preferred an appeal before the ld. CIT(A). Before the ld CIT(A), the assessee submitted that when the trust has accumulated income by filing Form no.10, specifying the purpose for which such income has been accumulated and also :-8-: ITA. No: 411/Chny/2023 filed relevant Form no. 10 along with return of income, the Assessing Officer ought to have allowed exemption u/s. 11 of the Act. The ld. CIT(A), after considering relevant submissions of the assessee and also taken note of reasons given by the Assessing Officer to deny benefit of exemption u/s. 11 of the Act observed that, there is no error in the reasons given by the Assessing Officer to reject accumulation of income u/s. 11(2) of the Act and thus, rejected arguments of the assessee and sustained additions made towards income computed by rejecting exemption claimed u/s. 11 of the Act. Aggrieved by the CIT(A) order, the assessee is in appeal before us.

The Ld. Counsel for the assessee, submitted that the ld. CIT(A) is erred in sustaining income computed by the Assessing Officer by disallowing accumulation of income amounting to Rs. 3,48,62,614/-, without appreciating fact that the Act does not mandates accumulation of income for a specific purpose. Further, when the assessee accumulated income for specific purpose and such purpose is as per the objects of the trust, then the Assessing Officer cannot deny the benefit of exemption u/s. 11 of the Act. The Ld. Counsel for the assessee, referring to plethora of judicial precedents :-9-: ITA. No: 411/Chny/2023 and also statement of income accumulated and application of income in subsequent assessment years submitted that appellant has spent total sum accumulated for objects of the trust in assessment year 2018-19 and said sum has not been spent for the purpose for which income has been accumulated. Therefore, the observation of the Assessing Officer that income has not been accumulated for specific purpose is devoid of merits.

The ld. DR, present for the revenue supporting the order of the Assessing Officer and CIT(A)submitted that, the CIT(A) has brought out clear facts that, the assessee is accumulating income u/s. 11(2) of the Act from year on year without any specific purpose, for which such income has accumulated. Further, if you go through the purpose specified in Form no. 10, the assessee has accumulated income for day-to-day operations of the trust, which includes providing scholarships for deserving students, renovation of building, repairs of building etc. The purpose of providing exemption u/s. 11(2) of the Act, to income of the trust is to give benefit to the trust, in a case where the trust is not able to spent income for the purpose of objects during the year. But, in the present case, if :-10-: ITA. No: 411/Chny/2023 you go through facts brought on record by the Assessing Officer, it is very clear that the assessee is accumulating income as and when it arrived surplus income in a routine manner, without specifying the purpose for which such income has been accumulated. The Assessing Officer, after considering relevant facts has rightly rejected accumulation of income and their order should be upheld.

We have heard both the parties, perused materials available on record and gone through orders of the authorities below. There is no dispute with regard to the fact that the assessee trust is registered u/s. 12AA of the Act and also entitled for exemption u/s. 11 of the Act. It is also not in dispute that the assessee has filed Form no 10 along with return of income filed for the impugned assessment year and also specified the purpose for which such income has been accumulated. We have gone through the purpose specified in Form no. 10 filed along with return of income for accumulation of income, and we find that the assessee has accumulated income for various purposes including acquisition of capital assets and for running and maintenance expenses of schools, colleges run by the trust and said purpose is as per the objects :-11-: ITA. No: 411/Chny/2023 of the trust. To this extent there is no dispute, in fact the Assessing Officer never disputed the fact that the assessee as accumulated income u/s. 11(2) of the Act, for the purpose of objects of the trust as held in the trust deed. But, the only reason given by the Assessing Officer to reject accumulation of income u/s. 11(2) of the Act, is that the assessee does not specified the specific purpose for which such income has been accumulated. We find that the assessee has accumulated income right from assessment year 1998-99 and up to assessment year 2012-13 and claims that income accumulated u/s. 11(2) of the Act, has been spent for the purpose for which such income has been accumulated. We further noted that, the assessee has accumulated income for assessment year 2009-10 to 2011-12 and claimed that said income has not been spent up to assessment year 2013-14. It is also further noted that the assessee has accumulated Rs. 3,48,62,317/- for assessment year 2013-14 and claims to have spent the income for the objects of the trust in assessment year 2017- 18. From the details filed by the assessee, there is no clarity as to whether the assessee has spent income accumulated u/s. 11(2) of the Act for earlier assessment years. Further, although the assessee claims to have utilized income :-12-: ITA. No: 411/Chny/2023 accumulated for assessment year 2013-14 in financial year 2016-17, there is no finding from the Assessing Officer on this aspect. No doubt, if assessee satisfies conditions prescribed u/s. 11(2) of the Act, then the question of taxability of un- spent amount out of income accumulated u/s. 11(2) of the Act has to be examined by the end of the assessment year, for which said period expires. However, in the present case the assessee routinely accumulated income year on year and claims to spend for objects of the trust. Therefore, we are of the considered view, that the issue needs to be re-examined by the Assessing Officer in light of claim of the assessee for income accumulated u/s. 11(2) of the Act has been spent for the objects of the trust and said objects are clearly specified in Form no. 10 along with return of income filed for the impugned assessment year. Thus, we set aside the order passed by the ld. CIT(A) and restore the issue back to the file of the Assessing Officer and direct the Assessing Officer to re- examine the claim of the assessee, in light of relevant Form no. 10 filed along with return of income and also objects of the trust. In case, the assessee accumulated income u/s. 11(2) of the Act, for a specific purpose and said purpose is specified in :-13-: ITA. No: 411/Chny/2023 objects of the trust, then the Assessing Officer is directed to allow exemption u/s. 11 of the Act.