DEPUTY COMMISSIONER OF INCOME TAX, (EXEMPTIONS), CIRCLE-1, BENGALURU vs. M/S. CHRIST EDUCATIONAL SOCIETY, BENGALURU

The appeal filed by the revenue is directed against order dated 20.10.2017 passed by Ld. CIT(A)-14, Bengaluru and it relates to assessment year 2011-12. The revenue is aggrieved by the decision of Ld. CIT(A) in holding that the donation given by the assessee to another Trust is not to be considered as application of income, since it has been paid out of accumulated income.

The facts relating to the above said issue are stated in brief. The assessee is a charitable institution registered u/s 12A of the Income-tax Act,1961 ['the Act' for short] and is running educational institutions. During the course of assessment proceedings, the A.O. noticed that the assessee has donated sum of Rs.21 Crores to another Trust named M/s. Christ University Trust. The A.O. examined the sources of making donations and noticed that the assessee has paid a sum of Rs.14.14 crores out of the maturity proceeds of fixed deposits kept with bank. The said deposits were found to have been made by the assessee on 5.4.2010. Accordingly, the A.O. drew the inference that the assessee has used its accumulated funds to the tune of Rs.14.14 crores, in order to make donations of Rs.21 Crores to M/s. Christ University Trust. Accordingly, the A.O. took the view that the assessee has violated the provisions of Explanation given u/s 11(1) of the Act, which states that the donation given to another charitable trust out of accumulated income is not considered as application of income. Accordingly, he added Rs.14.14 crores to the total income of the assessee.

The Ld. CIT(A), however, took the view that the conclusion drawn by the A.O. that donations were made out of opening cash balance is not correct. Accordingly, he

At the time of hearing, the ld A.R submitted that the assessee had initially filed Form No.10 u/s 11(2) opting to accumulate unutilized income of Rs.7,85,73,537/-. In view of the decision of the AO to assess Rs.14,14,35,325/- as income of the assessee on account of disallowance of inter- trust donation as application of income, the assessee has opted to enhance the accumulation of income in terms of the CBDT Circular No.273 dated 03-06-1980. Accordingly, the assessee has filed an application u/s 119(2)(b) for condonation of delay in filing revised Form No.10 before DIT (Exemption), Bangalore and the same was considered and condoned by DIT, vide his letter in F No.18(44)/DIT(E)/Form 10/2013-14 dated 20-03-2014. Accordingly, the assessee has filed revised Form No.10 in order to accumulate a sum of Rs.26,86,00,000/- u/s 11(2) of the Act and the same has also been accepted by the AO. Accordingly, the ld A.R submitted that the issue as to whether the donations were given out of current income or accumulated income shall become academic in nature.

The ld D.R, on the contrary, submitted that the assessing office was able to establish nexus between the donation and sources thereof, which was the maturity

We heard rival contentions. From the submissions made by the Ld A.R, we notice that the assessee has opted to accumulate the above said income u/s 11(2) of the Act and accordingly, after getting the delay in filing Form No.10 by Ld. DIT (E), the assessee has also filed revised Form No.10 enhancing the amount accumulated by it. Thus, the assessee has challenged the disallowance of Rs.14.40 crores as matter of principle before Ld CIT(A) and hence it was only an academic exercise. Hence the decision rendered by Ld CIT(A) does not have any tax effect for the year under consideration. There should not be any dispute that the amount that could be accumulated u/s 11(2) of the Act cannot exceed the unutilized surplus of the year under consideration. In the instant case, the assessee has already accumulated a sum of Rs.26.86 crores, which included the amount of Rs.14.40 crores disallowed by the AO. Hence, after giving effect to the order of Ld CIT(A), the unutilized surplus shall come down and hence the amount of Rs.26.86 crores would result in accumulation of amount

In this view of the matter, the issue urged by the revenue before would be academic in nature and further the decision rendered by Ld CIT(A) on the above said issue does not have any revenue effect. Accordingly, we are of the view the issue urged by the revenue does not require adjudication.

In the result, the appeal of the revenue is treated as dismissed.