THE COMMISSIONER OF INCOMETAX, TVM. vs. M/S.SREE SEETHARAMA ANJANEYA VEDA KENDRA
What did the High Court hold?
The High Court set aside the orders of the Tribunal and all lower authorities, remanding the matter to the Assessing Officer for fresh consideration. The Court agreed with the revenue that the Assessing Officer was justified in scrutinizing the genuineness of the trust's activities and whether its objects were being accomplished. The Court noted that while carrying forward up to 75% of income is permitted under Section 11(2), this should not be done routinely, as it could defeat the trust's purpose. The Court emphasized that if such carry-forward is done year after year, the genuineness of the trust's activities should be examined. Given that 12 years had passed since the assessment years, the Assessing Officer was directed to examine the matter with reference to subsequent years' activities and orders, conduct further inquiries, and potentially a local inspection. A detailed investigation into the trust's activities, expenditures, and any diversions of funds was deemed necessary. The operative direction was to remand the matter for fresh assessment.
What were the facts?
The appeals were filed by the Commissioner of Income Tax against the orders of the Income Tax Appellate Tribunal (ITAT) which upheld the assessee's claim for exemption under Section 11(2) of the Income Tax Act for assessment years 1995-96 and 1996-97. The assessee, Sree Seetharama Anjkaneya Veda Kendra, is a charitable institution for imparting education in Vedas and Upanishads. The Assessing Officer (AO) observed that the assessee regularly carried forward over 75% of its income for 10 years, primarily engaging in asset creation. An inquiry revealed a lack of regular courses, a decline in student numbers, and vague purposes for income accumulation. The AO also noted a construction contract that might consume accumulated funds, questioning the trust's ability to fulfill its objects. The appellate authority confirmed the AO's order, but the ITAT ruled in favor of the assessee, focusing on the technical compliance of accumulating income and investing it as per Section 11(2).
What were the issues?
1. Whether the Tribunal was justified in upholding the assessee's claim for exemption under Section 11(2) of the Income Tax Act for assessment years 1995-96 and 1996-97, despite the Assessing Officer's doubts about the genuineness of the trust's activities and the vagueness of the accumulation purposes. Assessee's Contention: The Tribunal held that the assessee accumulated only 75% of the income annually and invested it in specified investments qualifying for deduction under Section 11(2). Revenue's Contention: The Assessing Officer was justified in examining whether the trust's objects were actually being accomplished, as this is a prerequisite for claiming exemption. The routine carry forward of income, even if permitted, could defeat the trust's purpose. The Tribunal's approach was considered technical.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Cause title — parties, addresses and appearances
JUDGMENT C.N. Ramachandran Nair, J. The appeals filed under Section 260-A of the Income Tax Act, are against the orders of the Income Tax Appellate Tribunal upholding the respondent/assessee's claim for exemption under Section 11(2) of the Act for the assessment years 1995-96 and 1996-97. The assessee is a charitable institution formed with the object of imparting education in Vedas and Upanishads. In the course of assessment for the assessment years concerned, the assessing officer noticed that the assessee was carrying over 75% of the income from year to year for 10 years every year on a regular basis and the assessee was only engaged in creation of assets. On enquiry conducted by the Inspector of Income Tax, it was found that there was no regular course study for Vedas and Upanishads and the Inspector noticed substantial reduction in student numbers in the course of time. Two teachers appeared to have been found with some students from Maharashtra. Even though notice for accumulation of income was given, the assessing officer doubted whether the respondent/assessee is capable of achieving the -2- objects stated in the trust deed. The assessing officer also found that the purpose for which accumulation was made as stated in the prescribed form under Section 11(2) is vague. He also took into account the contract the assessee has, with another company for construction of buildings, though for the purpose of the trust. If the projects have to be funded with the income accumulated, then it is not known whether the assessee will have any surplus fund to spend for the objects of the trust after meeting the huge project cost in the construction activity undertaken by the assessee. The appellate authority also confirmed the order of the assessing officer. However, the Tribunal took the view that the assessee has accumulated only 75% of the income every year and the amount so accumulated is invested in the specified investments qualifying for deduction under Section 11(2) of the Act.
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. Primafacie, we are of the view that the carry forward of income upto 75%, 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 upto 75% is an exception and if it is followed from year to year, then the -3- 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 to 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 orders 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 on by the Trust.
The appeal is disposed of in the above terms. (C.N. Ramachandran Nair, Judge.) (T.R. Ramachandran Nair, Judge.) kav/
More judgments on Section 11(2)
- Kammavari Sangham (Regd), Bengaluru vs Deputy Commissioner of Income Tax…ITA 1181/BANG/2026[2015-16]Status: Disposed30 Sept 2026AY 2015-16
- Indian Roads Congress, New Delhi vs Income Tax Exemption, Ward 1(2), New DelhiITA 1516/DEL/2026[2012 - 2013]Status: Disposed29 Sept 2026
- Rkkr Foundation, Chandigarh vs DCIT, Exemption Circle 1, ChandigarhITA 477/CHANDI/2024[2018-19]Status: Disposed28 Sept 2026AY 2018-19
- Rkkr Foundation, Chandigarh vs DCIT, Exemption Circle 1, ChandigarhITA 477/CHANDI/2024[2018-19]Status: Disposed28 Sept 2026AY 2018-19
- Imc Society of Iti Govt Central Crafts… vs Income Tax Officer, Exemption Ward…ITA 1850/CHANDI/2025[2017-18]Status: Disposed24 Sept 2026AY 2017-18
Recent GST High Court judgments
Search GST case law →- Capri Global Capital LTD Through Represented By Its Law Officer Mr. Varun Kaljoria vs. The State Of Madhya Pradesh Through Principal SecretaryMadhya Pradesh · 26 Oct 2026
- Sri Tatiparthy Venkata Swamy vs. The State Of Andhra PradeshAndhra Pradesh · 25 Oct 2026
- Piyush Shantilal Veera vs. State Of U.P.Allahabad · 23 Oct 2026
- Tvl. Pooja Shri Traders vs. The Deputy State Tax Officer - 1Madras · 23 Oct 2026
- Aashutosh vs. The State Of Madhy PradeshMadhya Pradesh · 23 Oct 2026
