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Facts
The assessee, a trust, had accumulated funds under Section 11(2) of the Income Tax Act for specific purposes. The Assessing Officer initiated reassessment proceedings under Section 147, alleging that unutilized accumulated amounts were deemed income under Section 11(3) of the Act for the relevant assessment years.
Held
The Tribunal held that the AO's reopening of assessment was valid. However, the issue of when the unutilized accumulated funds become taxable under Section 11(3) and whether this was correctly applied in the assessment year requires further verification.
Key Issues
Whether the reassessment proceedings initiated under Section 147 were valid and whether the unutilized accumulated income was correctly taxed in the assessment year as per Section 11(3) of the Income Tax Act.
Sections Cited
147, 143(3), 11(2), 11(3), 148, 11(1)(a), 12AA, 10(23C), 12AB, 10
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Income Tax Appellate Tribunal, “B” BENCH, AHMEDABAD
Before: DR. BRR KUMAR & SHRI T.R. SENTHIL KUMAR
IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, AHMEDABAD BEFORE DR. BRR KUMAR, VICE PRESIDENT & SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER & 958/Ahd/2015 Asst. Years : 2008-09 & 2011-12 GMDC Science & Research Income Tax Officer Centre, C/o. GMDC Ltd., (Exemption) “Khanji Bhavan”, University Palanpur Vs Road, 132 Ft. Ring Road, Ahmedabad [PAN No.:AAATG1304R] (Appellant) (Respondent) Appellant by : Shri Manish J. Shah, Shri Jimi Patel & Shri Rushin Patel, Ars Respondent by: Shri Ankit Jain, Sr. DR Date of Hearing: 23.04.2025 Date of Pronouncement: 18.07.2025 O R D E R PER T.R. SENTHIL KUMAR, JUDICIAL MEMBER:
These two appeals are filed by the Assessee as against separate appellate orders both dated 23-01-2015 passed by the Commissioner of Income Tax (Appeals)-9, Ahmedabad arising out of the assessment orders passed under section 147 and 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Years 2008-09 and 2011-12 respectively. Since common issues are involved in both the appeals, the same are disposed of by this common order. relating to the Asst. Year 2008-09 is taken as the lead case. Brief facts are the assessee is a trust formed with the object to provide financial assistance to public bodies like Gujarat A.Ys. 2008-09 & 2011-12 2 University, RRL, Trivandram, Ahmedabad Management Association and also got registered u/s.12AA of the Act from 16-12-1997. For the Asst. Year 2008-09 the assessee filed its Return of Income on 22-01- 2009 declaring total income of Rs.6,25,729/=. The return was processed u/s.143[1] of the Act accepting the declared income. Subsequently, on verification of the record it is noticed that the assessee trust had accumulated/set apart an amount of Rs.7,02,66,000/- under section 11(2) of the Act which was accumulated from Financial Years 1998-99 to 2006-07 for the purpose as mentioned below:
FY of accumulation Amount accumulated Purpose of accumulation 1998-99 72,50,000 1999-00 1,16,00,000 Investigation 2000-01 1,65,00,000 activity fund 2001-02 1,38,00,000 2002-03 1,60,00,000 2003-04 44,00,000 2006-07 7,16,000 Total 7,02,66,000 2.1. Out of the total accumulation/set apart no such amount was applied during the F.Y. 2007-08 and earlier years (as detailed in Schedul-l of the Return of Income). Further, the accumulated amount of Rs.2,98,00,000/- pertaining to F.Y. 2001-02 and 2002-03 was also not applied for the objects of the purpose, though the period of five years was expired on 31st March, 2008. Therefore, in view of section 11(3) of the Act, unspent amount Rs.2,98,00,000/- was being deemed income for the Asst. Year 2008-09. In view of the above fact, the Assessing Office held that income chargeable to tax has escaped assessment for the A.Y.2008-09, accordingly a notice u/s.148 of the Act dated 07-03-2013 was issued and served upon the assessee. In A.Ys. 2008-09 & 2011-12 3 response, the assessee requested to treat the original return as the return filed in response to the 148 notice. 2.2. Thereafter the assessee requested for reasons recorded for reopening of assessment, the same was communicated to the assessee and notices u/s.143(2) of the Act dated 13.06.2013 was served upon the assessee. In response, the assessee filed a detailed reply explaining the amounts accumulated in the past assessment years u/s.11(2) and not utilized till the expiry of accumulation period and the previous year immediately following the expiry of the period aforesaid and added u/s.11(3) to the income of the Assessment Year 2011-12 and paid tax on the same with interest as shown below:
Sl. Financial Year of Amount accumulated and disclosed No. Accumulation as income in Asst. Year 2011-12 1. 1999-2000 1,16,00,000,- 2. 2000-2001 1,65,00,000/- 3. 2002-2003 1,60,00,000/- 4. 2003-2004 44,00,000/- TOTAL 4,85,00,000/= 2.3. Thus, the assessee claimed that tax on Rs.4,85,00,000/- is already paid by it with interest thereon. Copy of the statement of income for Asst. Year 2011-12 was filed. The assessee also agreed to offer the balance amount of accumulated income u/s.11(2) and not spent for Asst. Year 1999-2000 to the extent of Rs.50,000/- and for Asst. Year 2002-03 Rs.1,38,00,000/- which was already disclosed while filing return of income for Asst. Year 2012-13 filed on 08-01- 2013. Copy of the statement of Income for Asst. Year 2012-13 is filed. As regards accumulation of Rs.7,16,000/- in F.Y. 2007-08 relevant to Asst. Year 2008-09, same will be offered for taxation in A.Y. 2014-15 being the year following the expiry of the period of accumulation. &958/Ahd/2015 A.Ys. 2008-09 & 2011-12 4 3. The Ld. AO considered the submission of the assessee and held that the accumulated amount of Rs.2,98,00,000/- pertaining to the F.Y. 2001-02 and 2002-03 was also not applied for the objects of the purpose, though the period of five years was expired on 31-03-2008. Therefore, in view of section 11(3) of the Act, unspent amount Rs.2,98,00,000/- was being deemed income for the A.Y.2008-09 and demanded tax thereon.
Aggrieved against the additions, the assessee filed an appeal before CIT[A] who upheld the reopening of assessment as valid in law and also confirmed the addition made by the AO by observing as follows: “… 2.1. I have considered the facts of the case. The appellant has challenged the reassessment proceedings carried out in this case on the ground that the notices u/s.148 has been issued on account of change of opinion at the level of AO. In this case, notice u/s.148 was issued on 7.3.2013, which was duly served upon the appellant. The copy of the reasons recorded was provided to the appellant wide AO's letter dated 13.06.2013. Subsequently, on the appellant’s objection on the issue of notice u/s.148, the AO vide letter dated 13.06.2013 disposing of the objections raised by the appellant against the issuance of notice u/s.148 of the Act. Thus, every procedure has been complied by the AO before completing the assessment and as such, there was no default or irregularity not only in initiating the proceedings u/s.147 but in completing the reassessment proceedings. The appellant has not given any details fresh documents in support as to how the change of opinion has taken place in the reassessment proceedings. No scrutiny assessment in this case has taken place in the past, and the question of examination of the issue does not arise at all. In view of the aforesaid discussion, the reopening proceedings completed u/s.147 of the Act is correct and justified. And the same is confirmed. Thus, the ground of the appellant is dismissed. … 3.3. In view of detailed discussion and interpretation of law on this issue by Hon’ble Bombay High Court in the case of The Trustees, The B.N. Gamadia -Vs- Asst Director of Income Tax on 12 April, 2001 [2002] 77 TTJ Mumbai 274 and the Circular No. 29, dated 23-8-1969, issued by the Central Board of Direct Taxes A.Ys. 2008-09 & 2011-12 5 wherein the Board expressed the opinion that the assessee would not be entitled to the benefits of accumulation of 25 per cent of income which is brought to tax under section 11(3) of the Act. I am of the considered opinion that the Id.AO is correct in determining the deemed income of the appellant in the assessment order. In the present case the deeming income under section-11(2) of Income Tax Act which is not applied for charitable or religious purposes within the time allowed shall be deemed to be the income of such person of the previous year. The appellants income held under trust would have to be arrived at in the normal commercial manner without reference to the provisions which are attracted by other regular sections of Income tax Act. Therefore, I am inclined to agree with the addition made by the A.O. of Rs.2,98,00,000/- on account of accumulation of income unspent in F.Y. 2001-02 & 2002-03 till the expiry of accumulation period. Therefore, appeal on this ground is dismissed.”
Aggrieved against the appellate order the assessee is in appeal before us raising the following Grounds of Appeal; “1. The C.I.T. (Appeals) ought to have held that section 147 / 148 notice dated 07/03/2013 is bad in law as also on facts and so also the reassessment order dated 23/12/2013.
2. The C.I.T. (Appeals) erred in upholding the order of Assessing Officer not granting deduction u/s. 11(1)(a) of 15% of Rs. 2,98,00,000/- added by him to total income. The appellant craves leave to add, amend or alter the aforesaid grounds of appeal at the time of hearing if the need arise.”
6. Ld. Counsel Mr. Manish Shah appearing for the assessee filed a written submission stating that on perusal of Pre-Amended Provision contained in Section 11(3) is applicable before 01.04.2023, it can be seen that charge was not created for non-utilisation of the amount within the period specified in Section 11(2) or further period provided in Section 11(3)(c) of the Act. On closer scrutiny of the provision as it A.Ys. 2008-09 & 2011-12 6 stands in the statute book till 31.03.2023, it can be seen that charge is created to tax the accumulation which was mis-utilised/mis- applied [Section 11(3)(a)] or accumulation which ceases to remain invested in form or modes specified in sub-section (5) [Section 11(3)(b)] or accumulation which was credited or paid to any trust or institution (12AA or 10(23C) referred institutions) [Section 11(3)(d)]. Thus, it can be seen that no similar charge was created for accumulation which was not utilised in the period specified in Section 11(2) or further period provided u/s.11(3)(c) of the Act. In other words, no charging provision was created to tax the accumulation which was found to be in violation as per provision contained in Section 11(3)(c) of the Act. It is apposite to note that to overcome this aforesaid glaring lacuna by bringing amendment in Finance Act, 2022 by modifying the provisions of section 11[3][c] and deleting “or in the year immediately following the expiry thereof” with effect from 01-04-2023. 6.1. Ld Counsel further submitted that perusal of Section 11(3)(c) of the Act, it can be seen that accumulation which was not utilised within the period specified in Section 11(2) i.e. period of 5 years and further period of one year as provided under Section 11(3)(c) by employing language " .......during the period referred to in clause (a) of that sub-section [or in the year immediately following the expiry thereof.......shall be deemed to be the income of such person.....of the previous year immediately following the expiry of the period aforesaid". shall become taxable in the Seventh Year. Thus it can be inferred that the period referred to in clause (a) of 11(2) is five year and year immediately following the expiry of above period is 6th Year and hence, it shall become income of the trust of the previous year immediately following the expiry of the period aforesaid i.e. Expiry of 6th year and hence, it can be chargeable to tax in the 7th Year alone. In this view &958/Ahd/2015 A.Ys. 2008-09 & 2011-12 7 of the matter, accumulation, which was set-apart for AY 2002-03 and which could not be utilised, could be charged as income in the Assessment Year 2009-10. Similarly, accumulation which was set- apart for AY 2003-04 and which could not be utilised, could be charged as income in the Assessment Year 2010-11. Thus, it is most humbly submitted that notice issued u/s.148 for AY 2008-09 to charge the un-utilised accumulation of AY 2002-03 and AY 2003-04 is bad in law, in the absence of any escapement of income for the year under consideration i.e. A.Y. 2008-09. In other words, it is most humbly submitted that there cannot be reason to believe that any income has escaped assessment, hence the action of assessing officer to tax untilised accumulation of A.Y. 2002-03 and A.Y. 2003-04 in the single year i.e. A.Y. 2008-09, itself makes it empathetically clear that AO while re-opening the assessment and issuing notice u/s 148 for the A.Y. 2008-09 is not sure about the year of taxability of transaction. Hence, this indecisiveness on the part of assessing officer makes the reasons recorded bad in law and consequent to which reassessment notice issued u/s 148 for AY 2008-09 is bad in law and liable to be quashed.
6.2. Further the AO has added un-utilised accumulation of A.Y. 2002-03 and 2003-04 in Asst Year 2008-09 which is legally not sustainable on any interpretation. It is therefore submitted that even if worst case against the assessee is taken and it is held that unutilised accumulation is taxable in the sixth year then also in the Assessment Year 2008-09, the unutilised accumulation of AY 2002- 03 only can be added as deemed income u/s 11(3) and whereas the unutilised accumulation of AY 2003-04 cannot be added as deemed income u/s 11(3) of the Act in the Asst. Year 2008-09 and therefore A.Ys. 2008-09 & 2011-12 8 requested to allow the appeal and delete the additions made by the Ld AO.
Per contra, Shri. Ankit Jain, Ld. Sr. DR submitted that the amendment made to Section 11(3) of the Act was applicable from Asst. Years 2023-24 and accordingly the additions made by the lower authorities are correct in law and strongly supported the orders passed by the lower authorities and requested to dismiss the appeal filed by the assessee.
We have considered the rival submissions and perused the materials available on record and paper books filed by the assessee. Regarding the first Ground of Appeal namely reopening of assessment is bad in law is not acceptable for the simple reason that No regular assessment made under section 143[3] of the Act against the return of income filed for the asst. year 2008-09. Hence there is no question of forming any opinion on the Return of income filed by the assessee. Further it is admitted by the assessee that the unutilised accumulation of Asst. Year 2002-03 only can be added as deemed income u/s 11(3) of the Act which is taxable in the sixth year namely in the Assessment Year 2008-09. Therefore, for all these reasons the reopening of assessment is valid in law and ground no.1 raised by the assessee is liable to be dismissed.
9. Regarding Ground no. 2, the assessee had accumulated fund of Rs.7,02,66,000/- in the F.Y. 2007-08. As per provisions of Section 11(2) of the Act, a trust is required to apply 85% of income during any previous year to charitable or religious purposes. However, if it is not able to apply 85% of its income during the previous year, it is allowed to accumulate such income for the period of five years. In fact, the time limit of accumulation was earlier ten years, which was restricted A.Ys. 2008-09 & 2011-12 9 to five years w.e.f. 01.04.2016. The provision of Section 11(3) of the Act stipulates that if the income so accumulated is not utilised within the prescribed period, it shall be subjected to tax at the end of such period. In this regard, it is relevant to reproduce the Section 11(3) of the Act at the relevant point of time which reads as under:-
(3) Any income referred to in sub-section (2) which— (a) is applied to purposes other than charitable or religious purposes as aforesaid or ceases to be accumulated or set apart for application thereto, or (b) ceases to remain invested or deposited in any of the forms or modes specified in sub-section (5), or (c) is not utilised for the purpose for which it is so accumulated or set apart during the period referred to in clause (a) of that sub-section [or in the year immediately following the expiry thereof], (d) is credited or paid to any trust or institution registered under section 12AA 73[or section 12AB] or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub- clause (vi) or sub-clause (via) of clause (23C) of section 10, [shall be deemed to be the income of such person of the previous year in which it is so applied or ceases to be so accumulated or set apart or ceases to remain so invested or deposited or credited or paid or, as the case may be, of the previous year immediately following the expiry of the period aforesaid].
Words "or in the year immediately following the expiry thereof" shall be omitted by the Act No. 6 of 2022, w.e.f. 1-4-2023. 9.1. As per the sub-clause (c) of Section 11(3), the accumulated amount shall be deemed to be the income of the assessee, if it was not utilised within the period of five years as mentioned in Section 11(2)(a) of the Act, or “in the year immediately following the expiry thereof”. Thus, the assessee had time limit of five years and one additional year to utilise the accumulated funds. Since the funds were accumulated in this case in the F.Y. 2007-08, the extended time period for utilisation of fund was till the end of the F.Y. 2008-09. In the present A.Ys. 2008-09 & 2011-12 10 case, the assessee had utilised funds to the extent of Rs.2,60,00,000/- in the additional one-year period and accordingly claimed the deduction in the return for A.Y. 2008-09. 9.2. The contention of the assessee that the amended provision would create an impossible and absurd situation as the assessee would be left with no time to utilise the funds accumulated in F.Y. 2002-03 is legally not correct. Since, as per the unamended provision, the assessee had additional one year to utilise the funds and the above one year period was omitted vide Finance Act 2022 with effect from 01-04-2023 only.
9.3. Therefore, in the above circumstances of the case, we deem it fit to setaside this issue to the file of Jurisdictional Assessing Officer to verify the claim made by the assessee trust by giving proper opportunity of hearing to it and then pass order in accordance with the provisions of law. The AO shall verify the year-wise accumulation and ensure that deemed income u/s 11(3) is taxed only in the 6th year after the expiry of the 5-year accumulation period. AO shall also examine whether any income has already been offered to tax in a later year to avoid double taxation. Thus, the Ground No. 2 raised by the assessee is partly allowed.
In the result, the appeal filed by the assessee is Allowed for Statistical purpose.
Asst. Year : 2011-12
For the Asst. Year 2011-12 the assessee filed its Return of Income on 12-10-2011 declaring total income of Rs.3,69,62,660/=. The return was taken scrutiny assessment and order u/s.143[3] of the Act was passed after reducing Rs.1,60,00,000/= which was taxed A.Ys. 2008-09 & 2011-12 11 in the assessment order u/s.147 relating to the A.Y.2008-09 and also excess set apart of Rs.72,57,449/= and demanded tax thereon. On appeal before CIT[A] who has confirmed the addition. Aggrieved against the appellate order the assessee is in appeal before us raising the following Grounds of Appeal and Additional Grounds:
1. The C.I.T. (Appeals) erred in upholding the order of Assessing Officer not granting deduction u/s. 11(1)(a) of 15% of Rs. 6,99,88,048/- equal to Rs. 1,04,97,007/-. The appellant craves leave to add, amend or alter the aforesaid grounds of appeal at the time of hearing, if the need arise.” Additional Ground 1. The Assessing Officer and Commissioner of Income Tax (A) erred in holding that Rs.2,15,97,051/- is taxable under section 11(3)(c) of the Income Tax Act, 1961.”
12. There is no change in facts of the present case with that of the addition made on account of the accumulated unutilised funds as done in the Asst. Year 2008-09. Since we have held in that taxation under Section 11(3)(c) must be in the correct year, and this amount was already offered to tax in Asst Year 2011-12, the matter requires fresh verification.
12.1. Therefore, in the above circumstances of the case, we deem it fit to setaside this issue to the file of Jurisdictional Assessing Officer to verify the claim made by the assessee trust by giving proper opportunity of hearing to it and then pass order in accordance with the provisions of law. The AO shall verify the year-wise accumulation and ensure that deemed income u/s. 11(3) is taxed only in the 6th year after the expiry of the 5-year accumulation period. AO shall also A.Ys. 2008-09 & 2011-12 12 examine whether any income has already been offered to tax in a later year to avoid double taxation. Thus, the Ground raised by the assessee is partly allowed.
In the result, the appeal filed by the assessee is Allowed for Statistical purpose.