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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI A K GARODIA
Per N.V. Vasudevan, Vice President
This appeal by the assessee is against the order dated 13.02.2019 of the CIT(Appeals)-IV, Bangalore relating to assessment year 2013-14.
The only issue that arises for consideration in this appeal is whether the revenue authorities were justified in bringing to tax a sum of Rs.1,93,54,000 on the ground that the said sum which was surplus and allowed to be accumulated in AY 2008-09 had not been applied for charitable purposes within a period of 5 years, as contemplated u/s. 11(3)(c) of the Income-tax Act, 1961 [the Act].
The facts are that assessee had surplus income of Rs.1.93,64,000 in FY 2007-08 relevant to AY 2008-09 on account of sale of immovable property of the assessee trust. The objects of the trust, we may notice, was to run schools, colleges, dispensaries, Dharmashalas, etc. The assessee could not apply the aforesaid surplus for charitable purposes in AY 2008-09 and had applied for accumulation of such surplus in terms of section 11(2) of the Act. As per the provisions of section 11(2), accumulation is allowed for a period of 5 years. It is not in dispute that such accumulation was allowed by the AO for the AY 2008-09.
In AY 2013-14 which is the Assessment year in appeal, the AO held that since the five years period expires in AY 2013-14, and since the assessee did not utilize the sum accumulated for charitable purpose in terms of section 11(3)(c) of the Act, the sum accumulated and which remains unspent for charitable purposes, shall be deemed to be income of the person, of the previous year, immediately following the expiry of the period aforesaid. The relevant provisions of Sec.11(3) read as follows:
“(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 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.”
A reading of Clause (c) of Sec.11(3) of the Act would show that the time allowed for applying accumulation for charitable purpose is 5 year and one year following the expiry of 5 years. This is clear from the expression used “or in the year immediately following the expiry thereof”. The previous year following the expiry of period of 5 years from AY 2008-09 will be AY 2014-15 and not AY 2013-14. This appeal relates to AY 2013-14 in which the AO sought to apply the provisions of section 11(3)(c). The Assessee did not raise such a plea regarding the applicability of the aforesaid provisions in AY 2014-15 only.
There is a reference to section 11(3)(d) in the order of AO, which in our opinion, is not the correct provision of law. Since the assessee did not give any explanation in not utilising the surplus funds accumulated, the AO brought to tax a sum of Rs.1,93,54,000.
Before the CIT(Appeals), the plea of assessee was that it had utilised the accumulated surplus for construction of a hostel building and products accounts evidencing income & expenditure towards the same. This plea of the assessee was rejected for the following reasons:-
“5.0) I have gone through the facts of the case and the submissions of the appellant. The provisions of section 11(2)(a) is as under: "If the accumulated amount or any part thereof is not utilised for the specified purposes during the period of accumulation or during the year immediately following the expiry thereof, the amount which has not been so utilised will be liable to tax as income of the previous year immediately following the expiry of the accumulation period." In course of appellate proceedings the appellant has not furnished any details before me with regard to the said claim of expenditure pertaining to construction of hostel building and the advances given for the construction of building over the periods, which it claimed. A simple claim of maintenance of book of account is not sufficient. Further no details whatsoever were furnished before me regarding the claim that advance for purchase of property was made, with any corroborative evidence, that it incurred expenditure out of the above surplus amount. In absence of the above, I do not hesitate in concluding that the action of the AO was correct and the addition was made rightly. The grounds 1 to 4 and 6 are hereby dismissed.”
The Assessee did not raise plea regarding the applicability of the aforesaid provisions of Sec.11(3)(c ) of the Act only in AY 2014-15 only. Aggrieved by the order of CIT(Appeals), the assessee has preferred the present appeal before the Tribunal.
As we have already noticed, the period of 5 years for spending the accumulated surplus for AY 2008-09 “or in the year immediately following the expiry thereof” is only AY 2014-15. This aspect has been highlighted by the assessee in ground Nos.2 to 4 in its appeal before the Tribunal, which reads as follows:-
“2. That the learned CIT( A) ought to have appreciated that u/s 11(3)(c) of the Income Tax Act, 1961 provides that accumulated income should be utilized during the 5 years period of accumulation or in the year immediately following the expiry thereof. That means, in the facts & circumstances of this case, the assesee at liberty to utilize the accumulated surplus up to 31-03- 2014. Now in this case, the assessee has utilized of Rs,1,67,47,400/- as investment in poor student hostel in the year 2013-14. Therefore, there is no contravention of section 11(3) and the accumulated surplus up to 31-3-2013 cannot become deemed income of the assessee for the assessment year 2013-14.
3. That the learned CIT(A) has failed to take note of the AO assessment order u/s.143(3) of the Act, dated 26..12,2016 for the A Y 2014-15, Wherein the learned .A0 has concluded the assessment after considering the bonafide explanation offered by the assessee and allowed the claim of Rs.1„67,47,400/- out of total surplus of Rs.1,93,54,529/- and the remaining balance of Rs:26 07,129 was treated as income uls. 13(1)(c) of the Act.
4. That the learned CIT(A) has failed to appreciate the fact that the appellant has furnished all the details with regard to claim of expenditure pertaining to construction of hostel building and other advances given for building over the periods have been produced before the AO during the course of assessment proceedings for the A Y 2014-15 and the same was considered and accepted by the AO.”
The ld. counsel for the assessee has also filed before us a copy of the order of assessment for AY 2014-15 wherein the AO has accepted the utilization of accumulated surplus in AY 2008-09 for charitable purpose in AY 2014-15. The ld. Counsel for the assessee drew our attention to the fact that the assessee had spent a sum of Rs.1,67,47,400 and to this extent, the application of income for charitable purposes has been accepted by the AO in AY 2014-15 in the order of assessment dated 26.12.2016 passed u/s. 143(3) of the Act.
The ld. DR while relying on the order of CIT(Appeals) submitted that this aspect has not been examined either by the AO or the CIT(Appeals) and therefore the issue should be sent back to the AO for fresh consideration in the light of order of assessment for AY 2014-15.
We have considered the rival submissions and are of the view that the issue raised now before the Tribunal in the form of grounds of appeal which we have extracted in the earlier part of the order should be considered by the AO. If AY 2013-14 is not the period within which the accumulated surplus has to be applied, then the addition made should be deleted. We therefore set aside the order of CIT(Appeals) and remand this issue for fresh consideration by the AO, after affording opportunity of being heard to the assessee.
In the result, the appeal by the assessee is treated as allowed for statistical purposes.
Pronounced in the open court on this 26th day of October, 2020.