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Facts
The revenue filed an appeal against the order of the CIT(A) concerning the calculation of 15% accumulation of income under Section 11(1)(a) and the allowance of accumulation under Section 11(2) of the Income Tax Act, 1961, for AY 2014-15. The assessee, a charitable institution, argued that accumulation should be calculated on gross receipts, while the AO calculated it on net receipts after deducting expenses. The AO also disallowed accumulation under Section 11(2) due to vague purposes mentioned in Form 10.
Held
The Tribunal held that the 15% accumulation for charitable purposes should be calculated on the gross income and not on the net income after deducting administrative and establishment expenses, citing various judicial pronouncements. Furthermore, the Tribunal found that the assessee had specified a clear objective for accumulation in Form 10, fulfilling the requirements of Section 11(2), and that a specific detailed plan was not necessary.
Key Issues
1. Whether the 15% accumulation for charitable purposes should be calculated on gross receipts or net receipts. 2. Whether the accumulation under Section 11(2) was rightly allowed despite the AO's contention of vague purposes in Form 10.
Sections Cited
11(1)(a), 11(2), 250, 143(3), 143(2), 142(1), 80G, 12A
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Income Tax Appellate Tribunal, KOLKATA ‘B’ BENCH, KOLKATA
Before: SRI SANJAY GARG & SRI Rakesh Mishra
ACIT, (Exemption) Circle-1(1), Kolkata ………. Appellant Vs. Bandhan Konnagar, Hooghly ......... Respondent 99H2, Haran Chandra Banerjee Road, Hooghly, West Bengal-712235 (PAN: AAAAB3429P) Appearances: Appellant represented by : Shri Sailen Samadder, Addl. CIT, Sr. DR Respondent represented by : Sh. A. K. Tulsyan, FCA & Sh. Deepak Mundhra, AR Date of concluding the hearing : February 20, 2025 Date of pronouncing the order : February, 21, 2025 ORDER
Per Sanjay Garg, Judicial Member:
1. The captioned appeal filed by the revenue is directed against the order dated 06.06.2024 of the Commissioner of Income Tax (Appeal), Kolkata-27 [hereinafter referred to as Ld. 'CIT(A)'] passed u/s. 250 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) for Assessment Year (AY) 2014-15.
The revenue has raised the following grounds of appeal for AY 2014-15:
“1. Whether on the facts and circumstances of the case, Ld. CIT(A) has failed to appreciate the findings of the AO to effect that the administrative Assessment Years: 2014-15 Bandhan Konnagar & establishment expenses being attributable to earning income are deductible from gross receipt to determine the net income available for application for charitable purposes for the purpose of calculation of allowable accumulation of 15% under section l1(1)(a) of the I. T. Act. Therefore, Rs. 1,74,95,075/- is treated as charge on income but not as application of income.
2. Whether on the facts and circumstances of the case, Ld. CIT(A) has erred in allowing the accumulation u/s 11(2) of the Act of Rs.l,90,00,000/- despite the fact that no specific purpose for such accumulation has been mentioned in form-10 thereby it and does not satisfy the requirement of section 11(2) of the Act.”
Brief facts of the case are that the assessee is a society, registered under the West Bengal Societies Registration Act, 1961. The assessee is engaged in the business of micro-financing. It has been registered as a Charitable Institution u/s. 12A of the Act and is also approved u/s. 80G of the Act to receive donations. The assessee filed its return of income for the AY 2014-15 on 30.09.2014 declaring total income at Rs. Nil claiming refund. The return was selected for scrutiny and accordingly, notices were issued u/s. 143(2) and 142(1) of the Act. Subsequently, the assessment order was passed u/s. 143(3) making several additions/disallowances to the income of the assessee. Ground no. 1 : 4. In respect of ground no. 1, the Ld. AR has submitted that the AO allowed 15% accumulation u/s. 11(1)(a) after reducing the administrative & establishment expenses of Rs.1,74,95,075/- from the gross receipts/income. The AO worked out accumulation u/s. 11(1)(a) of the Act by taking net receipt in place of gross receipt/income. Before the Ld. CIT(A), the assessee contended that the AO was required to take accumulation u./s. 11(1)(a) of the Act on gross receipt. 5. The Ld. CIT(A), however, allowed the issue in favour of the assessee, observing as under:
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A perusal of the above order of the Ld. CIT(A) reveals that the Ld. CIT(A) has relied on various case laws including the decision of the jurisdictional Calcutta High Court in the case of CIT Vs. Birla Janohit Trust (Supra) to hold that the administrative and establishment expenses incurred by the Assessee were part of the charitable application and, therefore, the accumulation was to be worked out by taking the gross receipts in place of net receipts. The Ld. Counsel has also referred to the copy of the separate orders of even date 30.03.2015 for AY 2011-12, 2012-13 and 2013-14, copy of assessment order dated 24.07.2019 for AY 2017-18, copy of assessment order dated 08.09.2021 for AY 2018-19 and even copy of assessment order for AY 2022-23 dated 20.03.2024 to submit that even in all the aforesaid earlier assessment years and even in subsequent assessment years, the assessee had claimed accumulation out of gross receipts and no disturbance has ever been made in the scrutiny assessment carried out u/s. 143(3) of the Act that there was no reason for the Assessing Officer change its consistent acceptance of computation of deduction/accumulation. The Ld. AR in this respect has also placed reliance on the following case laws to stress the point that the administrative and establishment expenses incurred by the assessee were part of the application of income and, therefore, 15% accumulation is to be allowed out of gross income: 1. Sahara Utsarga Welfare Society vs DCIT(E), dated 22.01.2020, 2. Sahara Utsarga Welfare Society vs DCIT(E), dated 13.07.2020, 3. Sahara Utsarga Welfare Society vs DCIT(E), ITA No. 1804/Kol/2019 dated 08.01.2021, 4. Vidya Bharati Society for Education & Scientific Advancement vs ACIT(E), ITA No. 2397 & 2398/Kol/2017,
Page 10 of 18 Assessment Years: 2014-15 Bandhan Konnagar 5. DCIT (E) vs Maa Saraswati Gyan Mandir, dated 10.01.2020, 6. Bai Sonabai Hirji Agiary Trust vs ITO (2005) ITA No. 6269 (Bom.) of 1985) & 7. CIT vs Birla Janahit Trust (1994) 73 Taxman 465 (Calcutta High Court) 7. The Ld. DR, however, has cited para 11 of the jurisdictional Calcutta High court order in the case of CIT Vs. Birla Janahit Trust (supra) which is reproduced as under: “11. In our view, therefore, the expenditure on salaries and miscellaneous expenses for the purpose of carrying out the objects and purposes of the trust must be considered as application for charitable purposes. However, in this case the quantum of the expenditure for carrying out the objects and purposes of the trust and the expenditure made to earn the income had not been separately allocated or determined. We, therefore, answer the second question by saying that the Tribunal was right in holding that the assessee will be entitled to the benefit of the expenditure made on salaries and miscellaneous expenses for the purpose of carrying out objects and purpose of the trust only; but any expenditure incurred for earning the income from dividend will not qualify as amounts spent for carrying out the object and purpose of the trust.” 7.1. The Ld. DR in this respect has submitted that it has been held in the case of ‘Birla Janahit Trust’ (supra) that any expenditure incurred for earning the income from dividend will not qualify as amount spent for carrying out the object and purpose of the trust. He, however, could not point out that the assessee has spent any amount for earning of dividend and claimed application of the said income for carrying out objects and purpose of the trust. The Ld. DR has pointed out that the assessee has earned certain interest income from bank deposits. The question here is not about income earned by the assessee but, about the expenditure as to whether the administrative and establishment expenses incurred by the assessee shall be treated as part of application of income for charitable activities. The assessee, nonetheless, under the relevant provisions of section 11 is entitled to accumulate 15% of its income for subsequent application and the mode of accumulation has also been provided under the relevant provisions of sec. 11 of the Act and one of the mode is by deposit of the amount with a scheduled bank also. Therefore, there is no dispute relating to the deposit of the amount in the bank or earning of interest in this case. The proposition of law in the Page 11 of 18 Assessment Years: 2014-15 Bandhan Konnagar case of ‘Birla Janahit Trust’ (supra) has been decided in favour of the assessee, therefore, we do not find any reason to interfere with the order of the Ld. CIT(A) on the above issue and the same is hereby upheld. Ground No. 2: 8. Revenue is aggrieved against the action of the Ld. CIT(A) in allowing the accumulation u/s. 11(2) of the Act as against the action of the AO in denying the same on the ground that no specific purpose for such accumulation has been mentioned in form No. 10 by the assessee and, therefore it did not specify the conditions laid down u/s. 11(2) of the Act. We note that the Ld. CIT(A) has decided this issue in favour of the assessee by observing as under: “6.2.1. I have perused the assessment order, as well as the submission of the assessee. On examining the same, it is observed that in relation to the second ground, the AO in the assessment order has rejected the claim of accumulation u/s 11 (2) of the Act of Rs.1,90,00,000/-. For the reason that the from no.10 filed by the assessee is not specific about the purpose of the activity of the trust. The AO stated that the assessee mentioned the purposes in form no.10 are in general in nature and does not satisfy the requirement of sub section (2) of section 11 of the Act and hence, rejected the assessee's claim. 6.2.2. From the facts on record, it appears that the appellant had specified only one objective in his Form 10 i.e. 'For relief, rehabilitation and medical care of poor and weaker section, instead of all the objectives as specified by the AO. Hence, it appears that the assessee had provided specific objective for utilisation of the accumulated amount. Till this extent, it appears that the AO had recorded and observed incorrect facts, which had led to denial of accumulation in terms of Section 11 (2) of the Act. It is noteworthy to mention that Sec 11 (2) of the Act provides that 85% of the income which is not utilized by the Trust for charitable or religious purposes would not be included in the total income of the previous year of receipt of the income provided the conditions laid down in clauses (a) to (c) contained therein are already satisfied. Clause (a) in particular, which is applicable, provides that such person furnishes the statement in the prescribed form and in prescribed manner to the AO saying 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 exceeds five years. Undoubtedly, therefore, the implication of purpose for which the income is being accumulated or set apart is one of the requirements which must be satisfied, so that the assessee can avail the benefit under sub-section (2) of section 11 of the Act.
Page 12 of 18 Assessment Years: 2014-15 Bandhan Konnagar 6.2.3. Actually, the prime requirement of this clause is of stating the purpose for which the income is being accumulated or set apart. In the present case, I am of the view that the assessee in its Form 10 had made clear statement setting out the purpose for which the income was being set apart. It is the common ratio of law that once assessee has accumulated income with a specific purpose and such purpose is specified in the main objects of the trust, then the AO cannot deny such accumulation of income merely for the reason that purpose specified in Form No. 10 is vague and general in nature. As long as objects of the trust provide for such purpose, then the assessee can accumulate funds for the purpose which is specified in trust deed. This ratio of law is invigorated by the decision of the Hon'ble Gujarat High Court in the case of 'CIT (Exemption) v. Bochasanwasi Shri Akshar Purshottam Public Charitable Trust 409 ITR 591', where it was held that "lack of declaration in Form No. 10 regarding specific purpose for which funds were being accumulated by the assessee trust would not be fatal to the exemption claimed u/s. 11 (2) of the Act." Further, the Hon'ble Supreme Court has dismissed the SLP filed by the Department in the above case and has upheld the findings of the Hon'ble Gujarat High Court. 6.2.4. Reliance may also be placed in the judgement of the Hon'ble ITAT, Chandigarh in the case of 'M/s Rogi Kalyan Samiti, vs. The A.C.I.T., where the following was held: "The contention of the Assessing Officer is that these objects are too vague and are not specific. We do not see any reason for not granting assessee the benefit of such accumulation given the fact that the accumulation is sought for the purpose of its objects on the basis of which it was granted registration under section 12A of the Act. We do not even find the objects stated in the Form No.1 0 too vague either, as these are the objects as per the bye laws. Admittedly, the objects stated in Form No.1 0 are not elaborately stated, but that cannot be the reason to deny the said benefit. Our view gets strengthened by the judgment of Hon'ble Delhi High Court in the case of CIT Vs. Hotel & Restaurant Association (supra), on which the learned counsel for the assessee placed reliance. In that case, the object stated for accumulation was to apply the funds in next years to achieve the object, for which it had been incorporated. The Hon'ble High Court held as under: "Held, dismissing the appeal, that it is true that specification of a certain purpose or purposes was needed for accumulation of the trust’s income under section 11 (2) of the Act. At the same time the purpose or purposes to be specified cannot be beyond the objects of the trust. Plurality of the purposes of accumulation is not precluded but it depends on the precise purpose for which the accumulation is intended. In the present case, both the Commissioner (Appeals) and the Appellate Tribunal had recorded a concurrent finding that the income was sought to be accumulated by the assessee to achieve the object for which the assessee was Page 13 of 18 Assessment Years: 2014-15 Bandhan Konnagar incorporated. It was not the case of the Revenue that any of the objects of the assessee-company were not for charitable purpose. The finding by the Tribunal was essentially a finding of fact giving rise to no question of law.” In another case of Delhi High Court in OIT (Exemption) Vs. Daulat Education Society reported in (2006) 278 ITR 260 (Del), it is held that details of plan to be given is not necessary, if the purpose specified is in consonance with the objects. The judgment of Hon'ble Calcutta High Court in the case of Trustees of Singhania Charitable Trust (supra) as relied upon by the learned O.R. is distinguishable on facts as in that case all the objects as per law of the assessee were specified as the purpose of accumulation, which is not the case of the present assessee. In view of the above, we find that there is no vagueness in the purposes specified by the assessee in Form No.10. " 6.2.5. In light of the aforesaid judicial pronouncement as well as the discussions held, the accumulation of Rs.1,90,00,000/- which was earmarked for the purpose of the charitable activities as stated by the assessee in form nO.10 is acceptable. The AO is directed to delete the addition. Therefore, this ground of appeal raised by the assessee is allowed.”
9. A perusal of the above order of the Ld. CIT(A) would reveal that the Ld. CIT(A) has held that the assessee had provided specific objective for utilisation of the accumulated amount. The Ld. CIT(A) had observed that the assessee had not mentioned of the objectives of the assessee society in general, rather only one specific objective in Form No. 10 was mentioned for the utilisation of the accumulated amount which was for relief, rehabilitation and medical care of poor and weaker section. The assessee had duly furnished the requisite statement in Form 10 in this respect. The Ld. CIT(A) relying upon various case laws in deciding the issue in favour of the assessee. The Ld. AR of the assessee has submitted before us that this issue had cropped upon not only in earlier assessment year but also in subsequent assessment proceeding. He in this respect has referred to the copy of the orders for separate assessment years separate orders of even date 30.03.2015 for AY 2011-12, 2012-13 and 2013-14, copy of assessment order dated 24.07.2019 for AY 2017-18, copy of assessment order dated 08.09.2021 for AY 2018-19 and even copy of assessment order for AY 2022-23 dated 20.03.2024. He in this respect has submitted that in identical facts and circumstances the AO has allowed the accumulation u/s. 11(2) of the Act. We note that assessments for all the Page 14 of 18 Assessment Years: 2014-15 Bandhan Konnagar aforesaid assessment years have been carried out scrutiny assessment u/s. 143(3) of the Act and the claim of the assessee for accumulation u./s. 11(2) has been accepted. The Ld. AR has placed on following case laws to stress the point that the department should maintain consistency in its approach on the recurring issues for different assessment years.
1. Copy of Order passed by Hon'ble Calcutta High Court in the case of PCIT vs Salarpuria Simplex Dwelling LLP (455 ITR 712 dated 26.07.2022, 2. Copy of Order passed by Hon'ble Bombay High Court in the case of PCIT vs Quest Investment Advisors (P.) Ltd. 409 ITR 545 dated 28.06.2018, 3. Copy of Order passed by Hon'ble Kolkata ITAT in the case of DCIT vs J. Thomas & Co. P. Ltd. (167 ITD 572 dated 01.11.2017, 4. Copy of Order passed by Hon'ble Kolkata-ITAT in the case of EMC Projects P. Ltd. vs DCIT 209 ITD 411 dated 20.08.2024 & 5. Copy of order passed by Hon’ble Bangalore ITAT in the case of DCIT Vs. CMR Jnanadhara Trust 210 ITD 519 dated 03.12.2024.
The ld. Counsel has further placed reliance on the following case laws to stress the points that the benefit u/s. 11(2) cannot be denied merely because more than one purpose has been specified and details about the plan and such expenditure has not been provided.
Copy of Order passed by Hon'ble Supreme Court in the case of CIT(E) vs Boschasanwasi Shri Akshar Purshottam Public Cable Trust 105 taxmann.com 97 dated 25.03.2019, 2. Copy of Order passed by Hon'ble Gujarat High Court in the case of CIT(E) vs Boschasanwasi Shri Akshar Purshottam Public Cable Trust (409 ITR 591 dated 15.10.2018), 3. Copy of Order passed by Hon'ble Karnataka High Court in the case of CIT(E) vs Gokula Education Foundation (394 ITR 236 dated 11.02.2016, 4. Copy of order passed by Hon’ble Karnataka High Court in the case of Director of Income Tax, Exemptions vs. Envisions 378 ITR 483 dated 13.03.2015 & 5. Copy of Order passed by Hon'ble Chennai ITAT in the case of Arhatic Yoga Ashram Management Trust vs ITO(E) (188 ITD 14 dated 20.01.2021.
Page 15 of 18 Assessment Years: 2014-15 Bandhan Konnagar 11. The Ld. DR, however, has placed reliance on the decision of the Hon’ble Calcutta High Court in the case of Director of Income Tax (Exemptions) Vs. Trustees of Singhania Charitable Trust (1993) 199 ITR 819 (Cal). The ld. DR has invited our attention to the question of law framed by the Hon’ble Calcutta High court in the said case: “1. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in holding that there is nothing illegal on the part of the assessee in giving notice to the Income-tax Officer in Form No. 190 listing all its objects for the purpose of accumulation of income as provided in section 11(2) of the Income-tax Act, 1961, which requires specification of the purposes?”
The Ld. DR has further relied on the findings of the Hon’ble Calcutta High Court in the said case, which for the sake of ready reference is reproduced as under: “11. We, therefore, answer question No.2 in the negative and we decline to answer question no. 1. We remand the matter to the Tribunal and the Tribunal will allow the assessee to adduce fresh evidence whether in the form of any resolution or otherwise showing that the specific purpose for which the trust requires the accumulation of the income exists and, if such resolution or evidence is placed before the Tribunal, the Tribunal will consider whether the obligation cast on the assessee under Section 11(2) has been discharged and the exemption, accordingly, may be granted to the assessee.”
He relying on the aforesaid observations has submitted that the aforesaid question no. 1 framed by the Hon’ble Calcutta High Court has not been answered and the matter has been restored by the Hon’ble High Court to the Tribunal to examine as to whether the specific purpose for which the trust requires the accumulation of income exists ?. The Ld. DR has, therefore, pleaded that the issue in this respect be restored to the file of the Assessing Officer.
We are not convinced with the above argument of the ld. DR. The appeal before the Hon’ble Calcutta High Court was relating to an order passed u/s. 263 of the Act and further the question was as to whether the assessee was justified in listing all its objects and purposes as mentioned in the trust deed in Form 10 for the purpose of accumulation of income as provided u/s. Page 16 of 18 Assessment Years: 2014-15 Bandhan Konnagar 11(2) of the Act. However, in the case in hand as observed the Ld. CIT(A) has categorically observed that though the assessee has many objects but the assessee had mentioned only a specific object i.e. for rehabilitation and local care of poor and weaker section. The ld. CIT(A) has held that the assessee had made clear statement and set out the purpose for which the income is to be set apart. The Ld. CIT(A) has relied upon various case laws to the effect that it was enough if the assessee mentioned a specific object regarding accumulation of income and it is not necessary to give a detailed plan as to how and in what manner the said expenditure will be incurred. Even the Hon’ble Calcutta High Court in the said case of Director of Income Tax (Exemption) Vs. Trustees of Singhania Charitable Trust (supra), relied upon by the Ld. DR has specifically held that a charitable trust in no circumstances can apply its income, whether the current or accumulated, for any purpose other than the objects for which it stands. It has been further held that the accumulation u/s. 11(2) of the Act requires specification of the purpose out of multiple purposes for which the trust stands. What has been held in the said case is that the assessee trust cannot simply claim to accumulate income for objects of the trust in general in blanket manner. The aforesaid case law is, therefore, supports the case of the assessee. In view of this, there is no merit in the submissions of the Ld. DR.
In view of this, we do not find any infirmity in the order of the Ld. CIT(A) on this issue and the same is hereby upheld. In view of our observation above, we do not find any merit in the appeal of the revenue and the same is accordingly, dismissed.