M/S URSULINE FRANCISCAN CONGREGATION ,MANGALORE vs. THE INCOME TAX OFFICER (EXEMPTION) WARD-1 , MANGALORE

“The CIT (Appeals) erred in not treating the fixed deposits amounting to Rs.1,47,42,765/- kept as deposit in State Bank of India though as accumulation for application of income as provided under Section 11(2) of the Act though the said amounts of fixed deposits were claimed as accumulation for application of income in the return of income filed on 25.09.2012 under Section 139(4A) of the Act.

The learned CIT (Appeals) erred in not deleting the addition of fixed deposits made by the AO as not amounting to accumulation for application of income as provided under Section 11(2)(b) read with Section 11(5) of the Act though in the scrutiny assessment for AY 2011-12 such fixed deposits were treated as accumulation for application of income.

The above said grounds give rise to following two issues:-

The assessee is a Charitable Trust. During the year under consideration, the assessed claimed a sum of Rs.2,38,20,119/- as application of income towards acquisition of assets. The breakup of the above said amount is given below:

The first issue relates to the said rejection to allow the amount of fixed deposit as application of income u/s 11(1)(a) of the Act. The contention of the assessee before the tax authorities as well as before us is as follows: a) The word “Applied” used in section 11 of the Act does not necessarily mean “Spent”. Even if the amount has been earmarked and allocated for the purpose of the institution, it may be deemed to have been applied for its purposes. (CIT Vs. Radhaswami Saatsang Sabha 25 ITR 472). b) The word “Applied” is wider in merit than the word “Spent”. The money or amount will not go out irretrievably when it is applied to a purpose. c) The deposit made in a bank is treated as capital asset for the purpose of section 11(1A) of the Act. Hence, the capital asset includes deposits or investments in the line of objects of the Trust. d) Section 11(5) of the Act recognises deposits with public sector companies as one of the mode of investments. This only shows

We heard Ld. D.R. on this issue and perused the record. The assessee has claimed deduction of investment made in fixed deposits as a deduction u/s 11(1)(a) of the Act. A perusal of section 11(1)(a) would show that the 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 is exempt u/s 11(1)(a) of the Act. Hence, in order to claim exemption u/s 11(1)(a) of the Act, income should have been applied for a charitable purpose for which the Trust was established.

The contention of the assessee is that the word “Applied” does not necessarily mean “Spent”. However, it is the duty of the assessee to show that the amount has actually been ‘allocated to or earmarked for a charitable purpose in consonance with the objects of the Trust, even though the actual payment may be made later. We find support for this proposition in the case of CIT Vs. Nizams Trust 131 ITR 497. For example, a trust may purchase a vehicle before the end of the financial year, but actual payment be made subsequently. In this example, if the trust earmarks or allocate its funds towards payment of vehicle cost, it may be considered as having been “applied”.

In the instant case, the assessee has not shown that the amount kept in fixed deposits have been allocated to or earmarked for a charitable purpose in accordance with the objects of the Trust. The assessee is making only a general statement that it should be

The assessee has also placed reliance on section 11(1A) and section 11(5) of the Act. We have gone through those sections of the Act. Section 11(1A) is concerned with the capital gains arising on sale of a capital asset and its reinvestment for the purpose of availing exemption, i.e., conversion of one capital asset into another capital asset. Sec. 11(5) prescribes mode of making investments. In our view, those provisions will not support the claim of the assessee, since the deduction has been claimed u/s 11(1)(a) of the Act, as per which the income has to be applied for charitable purposes. In any case, reference to the other sections, which have been enacted for some other purpose, may not be appropriate. Accordingly, we reject these contentions of the assessee. In view of the above said discussions, we confirm the order passed by Ld. CIT(A) on this issue.

The next issue contested by the assessee is that the tax authorities have not accepted application made in form No.10 for accumulation of funds u/s 11(2) of the Act. Before the A.O., the assessee filed form No.10 and resolution (Both dated 29.3.2012) requesting him to permit accumulation of income u/s 11(2) of the Act, vide its letter dated 23.3.2015. The assessee filed the above said forms for the first time before the AO during the course of assessment proceedings, instead of filing the same along with return of income. The A.O., by placing reliance on the circular no.273 dated 3.6.1980 issued by CBDT, observed that only CIT is empowered to condone the delay in filing Form No.10 and therefore the A.O. cannot condone the delay. Further, the A.O. noticed that

Before us, the Ld. A.R. placed reliance on the decision rendered by Hon’ble Supreme Court in the case of CIT Vs. Nagpur Hotel Owners Association (2001) 247 ITR 201 and also the decision rendered by Hon’ble Andhra Pradesh & Telengana High Court in the case of Samaja Seva Nidhi Vs. ACIT (2015) 376 ITR 507. She submitted that the Hon’ble Andhra Pradesh & Telengana High Court, in the above said case, has held that where the Charitable trust had accumulated certain amount and furnished information in that regard after last date of filing return of income but before the date of completion of the assessment, it was entitled to benefit of accumulation u/s 11(2) of the Act.

We heard Ld D.R on this issue and perused the record. We notice that the Hon’ble Supreme Court has observed as under in the case of Nagpur Hotel Owners Association (supra):-

However, Income tax Act has been amended now and we notice that the time limit for furnishing form No.10 has been prescribed in section 11(2)(c) of the Act by Finance Act, 2015 w.e.f. 1.4.2016. Hence the amendment shall take effect from AY 2016-17 only. It is pertinent to note that Rule 17(2) of the Income tax Rules as amended from 1.4.2016 and also earlier Rule 17 prescribed that the Form No.10 shall be furnished before the expiry of time limit u/s 139(1) for furnishing return of income. We notice that the Chandigarh Bench of Tribunal has held in the case of Infrastructure Development Fund vs DCIT (ITA No.220/Chd/2020 dated 24.08.2020) that the amendment has been brought into the Income tax Act with effect from 1.4.2016 and hence it will apply only from AY 2016-17. The Tribunal did not give much credence to

The year under consideration being assessment year 2012-13, the amended provisions will not be applicable to the assessee for the year under consideration. The AO has only doubted the date of Form No.10, but the undisputed fact remains that the Form no.10 and resolution have been filed before him during the course of assessment proceeding itself, i.e., before completion of the assessment.

In view of the above, we are of the view that the AO should have entertained Form No.10 and resolution filed by the assessee. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and restore this issue to the file of the A.O. with a direction to consider Form No.10 and resolution filed by the assessee and examine the claim of the assessee u/s 11(2) of the Act in accordance with law.

In the result, the appeal filed by the assessee is treated as partly allowed. Order pronounced in the open court on 23rd Aug, 2021.

The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order