Loading judgment…
Facts
The assessee, a charitable trust, claimed expenses and donations as application of income. The Assessing Officer (AO) disallowed these, arguing that the recipient trust was not registered under Section 12A and that some expenses were not for charitable purposes. The assessee also claimed deduction for accumulated income under Section 11(2) by showing increased bank balances and FDRs.
Held
The Tribunal held that expenses incidental to charitable activities, including interest on TDS, penalties for statutory obligations, gifts for welfare, statue expenses, and ITC write-off, are allowable as application of income. Regarding accumulation, the Tribunal found that increased bank balances and existing FDRs, free from lien, constitute sufficient compliance with Section 11(5) for claiming deduction under Section 11(2).
Key Issues
Whether expenses incurred by a charitable trust are incidental to its objects and qualify as application of income, and whether increased bank balances and existing FDRs constitute valid investment for claiming deduction on accumulated income.
Sections Cited
11, 11(1)(a), 11(1), 11(5), 12A, 2(45), 80G, 11(2)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘A’ BENCH, BANGALORE
Before: SHRI WASEEM AHMED & SHRI KESHAV DUBEY
PER WASEEM AHMED, ACCOUNTANT MEMBER:
These appeals filed by the assessee are against the order passed by the CIT(A)-15, BLR both dated 29/03/2024 for the assessment years 2020-21 and 2021-22
The issue raised by the assessee in ground Nos. 2(i) and (ii) is that the Ld. CIT(A) erred in disallowing the donation and other expenses of Rs. 36,21,782.00 only.
Briefly stated, the facts are that the assessee is a charitable trust, duly recognized and registered under section 12A as well as section 80G of the Act. The assessee trust is engaged in charitable activities, including education and healthcare. The Assessing Officer (AO) disallowed the donation made by the assessee to another trust on the ground that the recipient trust was not registered under section 12A of the Act. As per the provisions of section 11 of the Act, a charitable trust is entitled to exemption on income applied for charitable purposes. However, Explanation 2 to Section 11(1) specifies that donations made to another charitable trust shall be treated as an application of income only if the recipient trust is also registered under Section 12A of the Act. In this case, since the recipient trust was not registered, the AO concluded that the donation could not be considered an application of income under section 11 of the Act and added it back to the total income of the assessee.
Before the ld. CIT(A), the assessee contended that the payments were not in the nature of donations but allowable expenses under section 11 of the Act. The assessee also submitted that the definition of "income" under section 11 differs from that of "total income" under section 2(45) of the Act. Under section 11 of the Act, the capital expenses may be considered as application of income. However, the ld. CIT(A) observed that the payments were made to individuals without .
Page 3 of 20 sufficient proof that these were incurred for charitable purposes. Accordingly, the ld. CIT(A) upheld the AO's disallowance.
Being aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before us.
The Ld. AR before us filed a paper book running from pages 1 to 142 and contended that all the expenses in dispute were incurred by the assessee for charitable purposes and therefore the same cannot be added to the total income of the assessee.
On the other hand, the Ld. DR vehemently supported the order of the authorities below.
We have carefully considered the submissions of both parties and perused the relevant materials on record. The primary issue before us is whether the amount of Rs. 36,21,781 expended by the assessee qualifies as an application of income for charitable purposes under section 11(1)(a) of the Act. At this juncture, it is pertinent to refer to the provisions of Section 11(1)(a) of the Act, which states that:
(a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of fifteen per cent of the income from such property;"
8.1 Now coming to the issue whether expenses deducted as application of income is linked with the purpose of charitable activity of the assessee. On perusal of the expenses, we find that the nature of the . payments was towards civil works, maintenance, and repairs etc. but there was no evidence available on record establishing that such expenses are directly linked with charitable activity of the assessee.
8.2 The provision of section 11(1)(a) allows a charitable trust to claim an exemption if at least 85% of its income is applied for charitable or religious purposes. However, the benefit of application is available only if the recipient entity is a registered charitable trust under Section 12A, as clarified in Explanation 2 to section 11(1) of the Act. Moreover, the assessee failed to provide any documentary evidence proving that the amounts were spent for charitable purposes. The burden of proof lies with the assessee to demonstrate that the expenditure qualifies for exemption under section 11 of the Act. In the absence of such proof, the AO was justified in making the disallowance. Accordingly, we concur with the decision of the lower authorities. The assessee has neither substantiated that the payments were made for charitable purposes nor demonstrated that the recipient entity fulfilled the requirements of section 12A of the Act. Accordingly, the ground of appeal of the assessee is dismissed.
9. The issue raised by the assessee in Ground No. 2(iii) is that the Ld. CIT(A) erred in confirming the addition of ₹39,99,359.00 by treating certain expenses as not allowable as an application of income.
9.1 During the assessment proceedings, the Ld. AO observed that the assessee had claimed certain expenses as an application of income, . which, as per the AO, are not allowable as an application of income under section 11 of the Act. the details of such expenses stand as under:
S. No. Particulars Amount 1 Interest On TDS 803723.00 2 Penalty -ESI and Professional Tax 1669730.00 3 Gifts 100750.00 4 DKA Statue Expenses 181075.00 5 Input Tax Credit Write off 12444081,00 Total 3999359.00 9.2 Accordingly, the Ld. AO disallowed these expenses and added the same to the total income of the assessee.
Aggrieved by this decision, the assessee preferred an appeal before the Ld. CIT(A) and submitted that the definition of "income" for the purpose of section 11 differs from the definition of "total income" under Section 2(45) of the Act. The assessee argued that, for instance, capital expenses can be claimed as an expense from revenue while computing income under section 11 of the Act, whereas the same cannot be claimed while computing income under Section 2(45) of the Act.
10.1. The assessee also referred to Explanation 3 of section 11 of the Act to support the claim that income as per section 11 is different from income as defined under section 2(45) of the Act.
10.2 However, the Ld. CIT(A) rejected the assessee’s contention, observing that the expenses mentioned above were either of a personal nature with no relation to the objectives of the trust or were in the nature of interest and penalties, which are also not related to any charitable purpose.
Being aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before us.
12. The Ld. AR before us submitted that the expenses in dispute incurred by the assessee are incidental to the main activities of the assessee and therefore the same cannot be disallowed treating as non- charitable in nature. According to the AR, the income for the trust has to be computed within the parameters of the provisions specified under section 11 of the Act and therefore such expenses cannot be disallowed after referring to the different provisions of the Act which are not applicable to it.
13. On the other hand, the Ld. DR vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. At this Juncture, we note that the core issue before us is whether the disputed expenditures qualify as an ‘application of income’ for the purposes of section 11 of the Act. In this regard, we note that while computing the income of a trust u/s 11 of the Act, the AO has to adhere to the provisions of section 11 of the Act. The provisions of section 11 of the Act specially lay down the .
Page 7 of 20 method of determination of income of a trust. In holding so, we draw support and guidance from the judgment of Hon’ble High Court of Andhra Pradesh in the case of CIT Vs. Trustee of H.E.H. the Nizam's Supplemental Religious Endowment Trust reported in 127 ITR 378 wherein it was held as under:
Undoubtedly, sub-section (4) of section 11 specifically lays the mode of determination of the income of the business undertaking of a trust. A similar provision is not to be found with regard to the other income of the trust. By an inferential process, it could be said that that mode of determination by the ITO was only restricted to the income of the business undertaking. It was equally relevant to note that even the Tribunal held that it was only the books of the trust that were to be looked into for the purpose of arriving at the income of the trust. Impliedly excepting the income with regard to the business undertaking as would be assessed by the ITO, the income that has to be computed with regard to a trust is one based on the accounts of the trust. Thus, giving the full effect of sub-section (4) of section 11 under which the power to determine the income by the ITO is limited only to business undertakings of a trust, the income of the trust to be determined could be based only on the accounts of the trust. It was not shown that the income and expenditure accounts for the relevant periods were not in accordance with the principles of accountancy. Even otherwise, in order to find out as to what moneys could be invested, it was the actual income as borne out by these statements that would be relevant. It could not be said for a moment that the income and expenditure account does not give the net income o rthe moneys available for investment. It is not the total income, as would be assessed by the ITO, that is relevant for the purpose of investing the funds of the trust or assessing the income of the trust. The mode of determination by the ITO, as per the provisions of the Act, is specifically restricted to the income over and above the income as shown in the accounts of the business undertaking held by a trust. It follows that with regard to the income of the trust as such, it is the accounts of the trust alone that have to be taken into consideration. Thus, it was held that it is the books of trust that have tobe taken into account in determining income and expenditure of trust for purposes of section 11(1)(a).
14.1 In view of the above, it is clear that the role of the AO regarding the determination of income of a trust is limited to the provision of section 11 of the Act. In the present case, the authority below has not doubted regarding payment of expenses but only had a doubt regarding the expenses incurred in connection to charitable purposes or not. In this regard, we referred the judgment of Hon’ble High Court of Andhra .
Page 8 of 20 Pradesh in the case of CIT Vs. Trustee of H.E.H. the Nizam's Supplemental Religious Endowment Trust reported in 127 ITR 378 where it was held that expenses which are incidental to carrying out the charitable purpose cannot be excluded from the exemption. The relevant extraction of the order is reproduced as under: “As regards the deduction of income tax and wealth-tax liability, it is true that payments on account of income-tax and wealth-tax are not expenditure by themselves for the purpose of the trust. But it can hardly be disputed that such expenses are incidental to the carrying out of charitable purposes. It was an incidence of the income or the accumulation of the income of the Trust. It is true that the payments in a particular year as shown in the accounts is not on account of the tax for that year and they relate to the preceding assessment years. But it can nevertheless be said that those payments are outgoings in that particular year and are only incidental to the carrying out of the purposes of the trust. It is difficult to say that on account of the income-tax or wealth- tax, a provision should have been made in the relevant assessment year. In any view of the matter, the payments made in a particular year, irrespective of the fact that they relate to the assessment of the previous years, are yet outgoings and constitute expenditure. Such payments could not be excluded from exemption and are thus to be excluded from the income of the trust.”
14.2 Therefore, in view of above it clear that any incidental expenses incurred in carrying out the activity of charitable purpose, it should be excluded from the income of a trust. Now we need to determine that such expenses are of incidental nature of the trust or not.
Interest on TDS (Rs. 8,03,723.00)
14.3 The interest on TDS liability arises due to a delay in remittance of taxes deducted at source. It is well established that interest on statutory dues is compensatory in nature rather than penal. In several judicial pronouncements, including CIT Vs. Rajasthan State Electricity Board (2007) 294 ITR 599 (Raj.), it has been held that such interest expenses are allowable if they arise in the course of fulfilling statutory obligations of the assessee.
14.4 Further the expenses on which TDS was deducted has not been doubted by the authorities therefore it is clear that such expenses incurred in connection of charitable purpose but the delay in compliance the assessee paid an extra cost. Thus, it does not mean that such excess cost is not allowable.
Penalty - ESI and Professional Tax (Rs. 16,69,730.00)
14.5 The penalty pertains to statutory payments for employee benefits and professional tax obligations. The Hon’ble High Court in CIT Vs. Mazagaon Dock Ltd. (2005) 92 ITD 9 (Mum) has held that penalties levied for delayed statutory payments should not be treated as personal in nature but as incidental to business operations. Since these payments relate to employer obligations, they are incidental to the charitable objectives of the assessee.
Gifts (Rs. 1,00,750.00)
14.6 The assessee contends that these were given as part of welfare activities. It is well settled that expenses incurred for social and charitable activities aligned with the trust’s objects and therefore the same is qualified as an application of income. In CIT Vs. Surat Art Silk Cloth Manufacturers Association (1980) 121 ITR 1 (SC), it was held that any expenditure contributing towards achieving the trust’s objectives must be considered an application of income.
DKA Statue Expenses (Rs. 1,81,075.00)
14.7 The expenditure on the statue pertains to promoting the cultural and educational objectives of the trust. Similar expenses have been . allowed in ITO Vs. Choksi Mafatlal Memorial Trust (1995) 54 ITD 473 (Bom.), where it was held that capital expenditures on projects advancing the trust’s objectives qualify as an application of income.
Input Tax Credit Write-off (Rs. 12,44,081.00)
14.8 The assessee had to write off unutilized Input Tax Credit (ITC), which is a recognized accounting expense. The Supreme Court in CIT Vs. Munjal Showa Ltd. (2008) 298 ITR 298 (SC) has held that any write-off required due to legal and operational reasons must be considered a valid deduction.
14.9 In view of the above discussion and the judicial precedents relied upon, we hold that the expenses incurred by the assessee are incidental to the carrying out of its charitable objectives and qualify as an application of income under section 11 of the Act. Therefore, we direct the AO to delete the disallowance of Rs. 39,99,359.00 only.
In the result, the appeal filed by the assessee is partly allowed. for the AY 2021-22
The first issue raised by the assessee in ground No. 2 is that the Ld. CIT(A) erred in confirming the addition of ₹ 71,98,657/- by treating certain expenses as not allowable as an application of income.
At the outset, we note that in identical facts and circumstances, we have already decided the issue in the own case of assessee in ground No. 2(iii) of its appeal bearing No. 14 of this order favouring assessee. At the time of hearing, both the ld. AR and DR agreed that similar view can also be adopted for the year . under consideration. Accordingly, following the same reasoning, the ground of appeal of the assessee is hereby allowed.
18. The issue raised by the assessee in ground No. 3 is that the Ld. CIT(A) erred in disallowing the accumulation of income of Rs. 54,61,28,031/- under section 11(2) of the Act.
18.1 During the assessment proceedings, the Ld. AO observed from the computation of income of the assessee that the assessee had claimed a deduction under section 11(2) of the Act amounting to ₹54,61,28,031.00 only. This deduction allows deferred spending, provided the funds are invested in compliance with section 11(5) of the Act. The Ld. AO also noted that Form 10, a crucial document required for income accumulation under Section 11(2), reflected only the amount but did not provide details of the investments made. Accordingly, the assessee was asked to furnish details regarding whether these funds were entirely invested in the prescribed modes under section 11(5) of the Act. In response, the assessee submitted that there was an increase in its bank balance amounting to ₹63,48,64,658.00 from 31-03-2020 to 31-03-2021, asserting that this should be considered as an investment in the mode specified under section 11(5) of the Act. However, in the absence of any details of fresh investments made by the assessee in accordance with the provisions of Section 11(5) of the Act, the Ld. AO disallowed the deduction of ₹54,61,28,031 claimed by the assessee under section 11(2) of the Act.
Aggrieved by this decision, the assessee preferred an appeal before the Learned CIT(A) and submitted that its total bank balance as on 31-03-2021 was ₹ 160,88,73,365, which includes fixed deposits . amounting to ₹ 97,39,70,207.00 only whereas as per the provisions of section 11(5) of the Act, the assessee was required to make an investment of ₹54,61,28,031 to claim the deduction under section 11(2) of the Act. The assessee to substantiate its contention placed its reliance on the judgment of Hon’ble High Court of Madars in the case of ACIT(Exemption) Vs. Marugappa Chettiar Trust reported in 303 ITR 360 wherein the Hon’ble Court held has that the balance in current account is also treated as investment as per section 11(5) of the Act to claim the deduction provided under section 11(2) of the Act.
19.1 The assessee in form 35 (statement of facts before the ld. CIT-A) also submitted the computation representing the application of income that the amount of Rs. 11,53,72,381 accumulated in AY 2019-20 and 2020-21, was applied for charitable purpose during the year under consideration. Accordingly, the assessee claimed that there was no remaining balance available for application from the accumulation of earlier years, and thus, the total balance in bank account including the FDR should be treated as an investment as per the provisions of section 11(5) of the Act so as to allow the deduction under section 11(2) of the Act. The assessee in support of its claim relied on the judgment of the Hon’ble Tribunal of the Cochin Bench in the case of Dharamodhyam Co. vs. ITO reported in 59 taxmann.com 467, wherein it was held that, in order to claim a deduction under section 11(2) of the Act, it is not necessary that the deposit be made from the current year's income; it would be sufficient compliance if existing fixed deposits are earmarked for this purpose.
19.2 However, the Ld. CIT(A) rejected the assessee’s contention, observing that the bank balance of ₹160,88,73,365, as stated in the financial statements, had already been granted deduction in earlier years. Claiming the same during the year under consideration would amount to a double deduction. Thus, the assessee failed to produce any evidence to prove that ₹54,61,28,031 was invested during the year under consideration. Thus the ld. CIT-A dismissed the appeal of the assessee.
Being aggrieved by the order of the Ld. CIT(A), the assessee is now in appeal before us.
The Ld. AR before us contended that the amount of FD’s appearing in the financial statements were free from any lien and therefore the same can be considered as investment for the year in dispute under the provisions of section 11(2) of the Act. The revenue has not pointed out any defect in the financial statement of the assessee. Likewise, these FD’s are coming from the earlier year which were duly accepted by the revenue. Accordingly, the assessee has complied with the provisions of section 11(2) read with section 11(5) of the Act.
On the other hand, the Ld. DR vehemently supported the order of the authorities below.
We have heard the rival contentions of both parties and perused the materials available on record. In the present case, the assessee claimed having made an investment under the provisions of section .
Page 14 of 20 11(2) of the Act amounting to Rs. ₹54,61,28,031.00 only. Accordingly, the assessee, before the authorities below, submitted that the so-called investment shall be deemed to have been applied for charitable purposes. Hence, the same cannot be brought to tax under the provisions of section 11 of the Act.
23.1 However, both the concurrent authorities below have rejected the contention of the assessee by observing that the assessee failed to furnish the necessary details justifying the investment made in the mode specified under the provisions of section 11(5) of the Act to claim the deduction under section 11(2) of the Act.
23.2 The provisions of section 11(2) of the Act provide the conditions to claim the deduction in respect of accumulation or setting a-part of the income during the year. These conditions are as follows:
(a) Such a person furnishes a statement in the prescribed form and manner to the Assessing Officer, stating the purpose for which the income is being accumulated or set apart and the period for which the income is to be accumulated or set apart, which shall, in no case, exceed five years.
(b) The money so accumulated or set apart is invested or deposited in the forms or modes specified in sub-section (5).
(c) The statement referred to in clause (a) is furnished at least two months prior to the due date specified under sub-section (1) of section 139 for furnishing the return of income for the previous year.
23.3 It is clear that there are three conditions. The authorities below have not doubted the condition of furnishing the documents i.e. intimation in form 10A in respect of accumulation or setting a-part of the income for the purpose for which the income is accumulated.
23.4 In light of the above discussion, the controversy arises for our adjudication as to whether the assessee has made the investment in the . manner provided under the provisions of section 11(5) of the Act to claim the benefit of the application of income as provided under section 11(2) of the Act. In the present case, the investment in the mode specified under section 11(5) of the Act was demonstrated by the assessee based on the financial statements. Based on the financial statements, we note certain facts as detailed below:
Opening balance of the FD as of 1st April 2020: Rs. • 58,55,73,290.95 Closing balance of the FD as of 31st March 2021: Rs. • 97,39,70,207.85 • The average increase in the year in dispute in FD stands at Rs. 38,83,96,916.92 only.
23.5 At this juncture, it is important to note that the assessee, in the statement of facts filed before the Ld. CIT(A) in Form 35, claimed to have applied the amount towards charitable activities out of the opening balance of the FDR, which stood at Rs. 58,55,73,290.95 as on 1st April 2020. The necessary details are as follows:
23.6 From the above, it transpires that the sum of Rs. 11,53,72,381.00 was utilized for charitable activities in the year in dispute out of the fund set apart in earlier years. Accordingly, the assessee has reduced the same from the gross amount of application of income claimed in the year under consideration, otherwise, the amount of application of income would have increased by Rs. 11,53,72,381.00 more than the amount claimed by the assessee in the year under consideration as application of income which was out of the earlier year fund accumulated under section 11(2)/(5) of the Act. As such, the assessee claimed to have applied the fund for charitable purposes to the tune of Rs. 191,12,43,398.00, excluding the amount brought forward and utilized out of the fund created under section 11(2) of the Act in earlier years. This fact was also not disputed by the authorities below.
Page 17 of 20 23.7 Accordingly, the FD amount shown by the assessee as the opening balance amounting to Rs. 58,55,73,290.95 will be reduced by Rs. 11,53,72,381.00, meaning thereby that the opening of FD stands at Rs. 47,02,00,909.95 only. Indeed, the amount of FD has increased from Rs. 47,02,00,909.95, which implies that there was an enhancement in the amount of FD to the tune of Rs. 50,37,69,297.92 (97,39,70,207.85- 47,02,00,909.95) in the year under consideration. Thus, effectively, it transpires that the amount of FD made by the assessee in the year under consideration stands at Rs. 50,37,69,297.92 only, whereas the amount of FD claimed to have been made by the assessee under section 11(2) of the Act stands at Rs. 54,61,28,031.00, which is short by Rs. 4,23,58,733.08 23.8 Nevertheless, there was an increase in the current bank account of the assessee by Rs. 34,74,68,786.36 as tabulated below:
S. Particulars Balance as on Balance as on Increase No. 31-03-2021 31-03-2020 amount 1 Fixed Deposits 97,39,70,207.87 58,55,73,290.95 38,83,96,917.32 with Banks as per Financial statement Page No. 26 of paper book 2 Balance of cash 164,05,02,279.23 90,56,37,617.35 and Bank as per Financial statement, page No. 26 of paper book .
Page 18 of 20 3 Less FDRs 97,39,70,207.87 58,55,73,290.95 4 Less cash 3,16,28,914.16 3,26,29,956.56 Balance 5 Net Bank 63,49,03,157.20 28,74,34,369.84 34,74,68,787.36 Balance 23.9 Thus, the question arises whether such an increase in the bank balance maintained with the scheduled bank can be treated as an investment as per the provisions of section 11(5) of the Act. In this regard, we note that the Hon’ble High Court of Madras, in the case of ADIT (E) vs. Murugappa Chettiar Trust (303 ITR 360), held that investment in a current account in a scheduled bank will fall within the meaning of a deposit in any bank account as per section 11(5)(iii) of the Act. the relevant extract of judgment is reproduced as under:
“In the present case, the deposit was made in the current account with the Bank of India and hence the same will come within the meaning of the words 'deposit in any account with a scheduled bank.' 'Any account' includes a current account also. It is not disputed by the learned standing counsel appearing for the Revenue. The amount involved in the present case is Rs. 4,86,304. For this amount, there are no particulars available regarding the amount deposited in the current account and also the details regarding the cheque on hand. In respect of the deposit in the current account, both the authorities have correctly taken the view that it is a classified investment, as contemplated under the provisions of the Act. It is seen from paragraph 2 of the Commissioner of Income-tax (Appeals) order that out of Rs. 4,86,304, a sum of Rs. 3,31,36.75 was invested in the current account with the Bank of India and hence, the said amount is a proper investment and the same is covered by section 11(5)(iii) of the Act. The details regarding the cheque amount are not available on record. Hence, we remand the matter to the Tribunal with a direction to find out the details regarding the cheque amount and the deposition of the same so that the Tribunal can determine whether the assessee has satisfied all the conditions as per the provisions of the Act or not and pass appropriate orders in accordance with the law.”
23.10 In view of the above, we are of the opinion that the amount lying in the bank account of the assessee can be treated as an investment as per the provisions of section 11(5) of the Act. Thus, in view of the .
Page 19 of 20 above, it transpires that there was sufficient compliance by the assessee in keeping the money set apart as invested in the mode specified under section 11(5) of the Act.
23.11 Before concluding and for the sake of completeness, it is also necessary to address the issue of whether the opening balance of the FD can be treated as an investment made in the year in dispute. In this regard, we note that the ITAT Cochin Bench in the case of Dharmodayam Co Vs ITO reported in 59 taxmann.com 467 held that existing FDRs, which is free from any lien constitutes sufficient compliance for accumulated the income under section 11(2) of the Act. The relevant extraction of the judgment is reproduced as under:
In the instant case, there is no dispute that the assessee has passed a resolution for accumulation of income duly specifying the purpose of accumulation. Out of the sum of Rs. 31.35 lakhs claimed u/s 11(2) of the Act as accumulation of income, a sum of Rs. 20.00 lakhs was found to have been deposited in bank fixed deposits during the year under consideration. For the remaining amount, the assessee has earmarked the fixed deposits already available with it towards the income accumulated u/s 11(2) of the Act. Considering the objective of the provision of sec. 11(2)(b), in our view, what is required to be seen is whether the income accumulated has been deposited or invested in the forms prescribed u/s 11(5) of the Act, i.e., there should be corresponding investment, which could be identified with the income accumulated. The period of six months prescribed in Form No. 10, in our view, is the outer limit for making deposit/investment.
It is also pertinent to note that the provisions of sec. 11(2)(a) talks about "income", where as the provisions of sec. 11(2)(b) talks about the "money" so accumulated. The "money" available with the assessee may be pertaining to the current year's income or earlier year's income. Further, if the view taken by the tax authorities that the deposit should have been made out of current year's income is accepted as correct for a moment, then the assessee trust shall be forced to foreclose the existing deposit and thereafter make a new deposit, thus losing considerable amount towards loss of interest/penalty. The same would be very much technical in nature. Hence, in our considered view, the earmarking of existing bank fixed deposits, which is free from any lien, towards the income accumulated u/s 11(2) of the Act during the year under consideration would be sufficient compliance with the provisions of sec. 11(2)(b) of the Act, since the accumulated income is represented by the corresponding deposit/investment.
14. In view of the foregoing discussions, we set aside the order of Ld CIT(A) on this issue and direct the assessing officer to delete the disallowance of income accumulated u/s 11(2) of the Act.
23.12 In view of the finding of the ITAT (supra), it is transpired that the existing FDRs, which is free from any lien can also be treated as investments or deposit as per the provision of section 11(2)(b) of the Act. Hence, the ground of appeal of the assessee is allowed.
In the result, the appeal of the assessee is hereby allowed.