SHREE SUBRAHMANYA TEMPLE ,THOKUR vs. ITO, EXEMPTIONS, WARD-2, MANGALORE

The facts in brief are that the assessee is charitable trust. The assessee during the year has shown receipt of Rs. 45,20,536/- against which claimed application toward charitable purposes which are detailed as under: i. Revenue expenditure Rs. 33,13,891/- ii. Capital expenditure Rs. 45,875/- iii. Bank Deposit Rs. 10,88,080/- Total Rs. 44,47,846/-

The AO in the assessment proceeding found that the bank deposit is not the application of receipt for charitable purposes nor it directly linked to charitable activity.

The AO found that the assessee has not applied its receipt to the extent of 85% for it objective. The assessee also not filed Form 10B suggesting that the amount is accumulated or set apart as per the provision of subsection (2) of section 11 of the Act. Furthermore, the assessee has filed belated return which is in contravention of section 13(9) of the Act and prohibits the benefit of section 11(2) of the Act in case of belated return.

The AO also found that the assessee is not eligible for accumulation of 15% as provided under section 11(1) of the Act. The AO in this regard referred the CBDT circular No. 12-P(LXX-7) of 1968 dated 19-06-1968. In Para 5 of said circular, it is clarified that in case a trust desire to accumulate the profit in excess of the limit allowed i.e. 15% then the condition specified under section 11(2) of the Act should needs to be fulfilled for the entire amount, not only for amount in excess of 15%. If the condition prescribed under section 11(2) of the Act is not complied with then the entire amount shall be liable to tax as income not merely the amount in excess of 15%.

Hence, the AO in view of the above computed the taxable income of the assessee trust at Rs. 11,60,770/- (4520,536 – 33,13,891 -45875) i.e. gross receipt minus revenue expenditure and capital expenditure and added to the total income of the assessee.

The aggrieved assessee preferred an appeal before the learned CIT(A).

Before the learned CIT(A), the assessee submitted that the AO had wrongly disallowed an amount of bank deposit of Rs. 10,88,906/- claimed as application of income. This amount had been invested in capital assets, specifically fixed deposits, which should qualify as application of income under section 11(1)(a) of the AO. The AO had acknowledged that the amount was invested in capital assets, yet treated it as not constituting application of income. The assessee contended that this treatment was contrary to the CBDT Instruction No. 883-CBDT F No. 180/54/72-IT(A1) dated 24-09-1975, which clarifies that . investment of net consideration in fixed deposits should be regarded as investment in new capital assets. Such investments, therefore, should be treated as capital expenditure and allowed as application of income under section 11(1)(a) of the Act.

Additionally, the assessee highlighted that the AO had failed to allow the standard accumulation of 15% of gross receipts (amounting to Rs. 6,78,806) under section 11(1)(a) of the Act, which is permitted without the need for specific intimation or approval. The AO’s denial of this benefit was not justified, as such accumulation is statutorily allowed and does not require any procedural compliance or notification.

Further, the assessee addressed the issue of Form 10B, stating that it was filed during the course of the assessment proceedings. It was argued that even if there was a delay in filing Form 10, this should not result in denial of exemption under section 11(2) of the ACT. In support of this position, the assessee cited the judgment of Hon’ble Rajasthan High Court in the case of CIT v. Anjuman Moinia (280 ITR 56), where the court held that the time limit for filing Form 10 is directory and not mandatory. Therefore, a delay in submission should not disqualify the assessee from claiming the exemption, especially when the form was filed before the completion of the assessment.

Moreover, the assessee relied on the judgment of Hon’ble Gujarat High Court, in the case of ACIT v. Stock Exchange, Ahmedabad (reported in 210 Taxmann 28), held that where an assessee has filed Form 10 under Rule 17 before the completion of the assessment, the requirements of section 11(2) are deemed to be satisfied, and the . assessee is entitled to exemption. Similarly, the assessee also referred the Hon’ble Supreme Court, in the landmark decision of CIT v. Nagpur Hotel Owners’ Association (247 ITR 201), ruled that the income tax rules could not impose a rigid time limit for filing Form 10 and emphasized that the essence of compliance lies in filing it before the conclusion of the assessment.

Based on these facts, CBDT guidance, and judicial precedents, the assessee humbly prayed before the ld. CIT(A) for relief and requested that the exemption under sections 11(1)(a) and 11(2) be allowed, and the disallowance made by the AO be set aside.

The ld. CIT(A) after considering the facts in totality observed that the assessee neither filed its return of income in time nor submitted Form No. 10 within the prescribed time limit. As a result, the appellant was found ineligible for exemption under section 11(2) of the Act. The learned CIT(A) considered the CBDT Circular No. 7 of 2018, which allows for relaxation in filing Form No. 9A and Form No. 10B for Assessment Year (AY) 2016-17 due to the first-time implementation of e-filing. The circular empowers Commissioners to condone the delay if reasonable cause is shown and the income was invested or applied in accordance with the law.

However, the ld. CIT(A) emphasized that exemption provisions must be interpreted strictly, and the burden lies on the assessee to prove the eligibility. The learned CIT(A) in this respect referred the judgment of Hon’ble Supreme Court in the case of CC vs. Dilip kumar and company reported in [2018] 95 taxmann.com 327.

The learned CIT(A) also referred the Hon’ble Supreme Court judgment in the case of PCIT vs. Wipro Ltd. reported in in Civil appeal No. 1449 of 2022 and held that while some statutory timelines may be directory, the conditions for claiming exemptions must be strictly complied with. Hence, since the assessee did not fulfill the filing requirements as per section 11(2) of the Act, the exemption was rightly denied.

Furthermore, learned CIT(A) observed that the appellant cited CBDT Instruction No. 883 dated 24.09.1975, which treats fixed deposits of net consideration from capital assets as valid utilization under section 11(1A) of the Act. But the ld. CIT(A) pointed out that the assessee failed to provide details of what capital asset being transferred or how the net consideration was utilized. Therefore, the ld. CIT-A held that the AO was correct in not allowing accumulation under section 11(1)(a) of the Act.

Lastly, it was noted that the appellant, in Form 10B filed on 09.03.2017, had only set apart Rs. 72,691 for charitable or religious purposes, which was within the 15% limit but still did not satisfy all the statutory conditions. Since the exemption under section 11 was denied, the income over expenditure became taxable. Hence, the ld. CIT(A) concluded that the AO had correctly disallowed the exemption.

Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before Tribunal.

The learned AR before me filed paper book running from pages 1 to 106 and submitted that as per the provisions of section 11(1) of the Act, the assessee can set apart and accumulate the profit to the extent of 15%. The learned AR argued that exemption on such 15% amount income being accumulated, or set apart is unfettered and without any condition. Therefore, the both the assessee and the learned CIT(A) erred in not providing the exemption to the extent of 15% of the income. Regarding the delay in filing of return and Form 10B for accumulation of income as per subsection 2 of section 11 of the Act, the learned AR contended the Form 10B was furnished before the completion of assessment which should have been considered. The learned AR argued that filing of form 10B in prescribed time limit is procedural requirement and purpose of the same is to enable the AO to correctly assess the income. As the same was furnished before the completion of the assessment, the purpose has been achieved. With regard to violation of section 13(9) of the Act, the learned AR placed reliance on the order of Chennai Tribunal in case of Jaya Educational Trust vs. DCIT reported in [2021] 130 taxmann.com 225 and prayed that the assessee should be provided with opportunity to condonation application for delay in filing of return as per section 139(1) of the Act. However, such return was filed well within the time limit allowed under section 139(4) of the Act.

On the other the learned DR vehemently supported the finding of the lower authorities.

I have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, it is noted that the assessee is a charitable trust that earned receipts of .

Regarding the remaining amount that the assessee seeks to set apart under section 11(2) of the Act, the issue is more complex. The AO and CIT(A) denied the exemption because the return was not filed within the time prescribed under section 139(1) of the Act and Form 10B was not timely submitted. However, I note that the assessee’s reliance on judicial precedents, including the Chennai Tribunal’s order in Jaya Educational Trust vs. DCIT (supra), which emphasizes that delays in filing the return should be condoned if the reasons are genuine and reasonable, especially when the return was still filed within the extended time under section 139(4) of the Act.

Therefore, the I set aside this issue to the file of the AO with a direction that the assessee shall be given an opportunity to explain the . reasons for the delay in filing the return under section 139(1) of the Act. If the AO, after examining the explanation, finds the reasons to be genuine and reasonable, then following the principles laid down in Jaya Educational Trust (supra) and other binding precedents, the delay in filing of return and form 10B should be condoned. In that case, the assessee shall be eligible for exemption under section 11(2) of the Act, provided all other conditions under that section are fulfilled.

In view of the above the ground of appeal of the assessee is partly allowed for statistical purposes by granting the statutory 15% accumulation under section 11(1) of the Act and remands the issue of the remaining accumulation under section 11(2) of the Act to the AO for fresh consideration as per the directions above.

In the result appeal of the assessee is partly allowed for statistical purposes.