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Income Tax Appellate Tribunal, MUMBAI BENCH “B”, MUMBAI
Before: Shri Sandeep Gosain & Shri G Manjunatha
per the books of account of the assessee has not been allowed while determining income available for application. It is the settled position of law that once income of a trust / institution is computed under the provisions of section 11 of the Act, whatever income derived from the property held under trust is to be taken into account and against which actual expenditure incurred for the objects of the trust has to be considered as application of income. Therefore, while arriving at income u/s 11, the AO needs to allow deduction towards actual repairs and maintenance expenses incurred for Rs.13,00,635. Therefore, we direct
12 ITA 106/Mum/2016 the AO to allow deduction towards actual repairs and maintenance expenditure incurred for Rs.13,00,635 before arriving at income available for accumulation u/s 11(2) / taxable income of the trust / institution.
The next issue that came up for our consideration from ground 4 of the appeal is computation of income of a trust in respect of income derived from capital gain u/s 11(1)(a) of the Income-tax Act, 1961. The factual matrix of the impugned dispute are that the assessee has sold certain investments during the year and computed long term capital gain from sale of such investments. The assessee further claimed that it has re- invested sale consideration from sale of bonds / debenture for acquiring mutual funds. Therefore, while computing income of a trust / institution in respect of capital gain, amount invested for purchase of new capital asset needs to be allowed as deduction u/s 11(1)(a) of the Act.
Having heard both the sides and considered material available on record, we find that the issue raised by the assessee in respect of deduction towards re-purchase of mutual funds purchased out of sale consideration received from sale of investments u/s 11(1)(a) is either not discussed by the AO in his assessment order nor emanating from the records furnished by the assessee before the lower authorities. Although, the assessee has disclosed profit on sale of investments in the P&L
13 ITA 106/Mum/2016 Account, other facts with regard to the re-investment on sale consideration for purchase of mutual funds is not clear. Further, the assessee neither made any claim in the return of income filed for the year nor sought to include such claim by way of revised return or revised statement of total income before the AO. When there is no claim with regard to deduction towards re-investment u/s 11(1)(a) of the Act, before the AO and also the facts with regard to the issue is not placed at the time of assessment proceedings, the Ld.CIT(A) had no option but to proceed on the basis of materials brought out by the AO during assessment proceedings. Accordingly, we find no infirmity in the finding recorded by the Ld.CIT(A) in dismissing ground taken by the assessee regarding deduction towards capital gain income derived from sale of investments u/s 11(1)(a) of the Act.
The next issue that came up for our consideration from ground 6 of assessee’s appeal is accumulation of income u/s 11(2) of the Income-tax Act, 1961. The assessee has accumulated a sum of Rs.2.10 crores u/s 11(2) of the Act, in respect of income available for application for which necessary form 10 alongwith other details including copy of resolution has been filed before the AO. The AO while completing assessment, has allowed amount of income accumulated u/s 11(2), as per form 10 filed by 14 ITA 106/Mum/2016 the assessee for Rs.2.10 crores. The assessee now claims for accumulation of income u/s 11(2) of the Act for Rs.2,73,81,840 as against earlier accumulated income of Rs,.2.10 crores. The assessee has filed necessary revised form 10 alongwith copy of resolution passed by the Board of Trustees on 16-08-2018. According to the assessee, the trust has accumulated an additional amount of Rs.63,81,840 for acquisition of land, building, and structure for educational activities and the same to be utilised in the next five financial years commencing from 01-04-2019. In this regard, the Ld.AR for the assessee relied upon the decision of Hon’ble Gujarat High Court in the case of CIT vs Mayur Foundation (2005) 274 ITR 562 (Guj).
We have heard both the sides, perused the material available on record and gone through the orders of authorities below. It is an admitted fact that the assessee has filed form No.10 alongwith return of income filed for the year and accumulated a sum of Rs.210 lakhs for the objects of the Trust to be utilised in next five financial years. It is also an admitted fact that the AO has allowed accumulation of income u/s 11(2) as per the details filed by the assessee alongwith form 10. Now, the assessee has revised its claim and filed a revised form 10 alongwith copy of board resolution vide its from 10 dated 07-09-2018. We find that the assessee
15 ITA 106/Mum/2016 has passed a resolution to accumulate additional income of Rs.63,81,840 for acquisition of land, building, structure for educational activities in additional to earlier accumulated income of Rs.210 lakhs vide its resolution dated 20-09-2012. The reason for filing revised form, alongwith board resolution is to overcome taxable income computed by the AO on account of disallowance of standard deduction claimed u/s 24(a) of the Income-tax Act, 1961 in respect of rental income from house property. No doubt, the assessee can accumulate excess income for subsequent period to be used for the objects of the trust by filing necessary form 10 alongwith return of income. Such accumulation of income is further followed by other formalities including investment of accumulated funds in the forms and modes specified u/s 11(5) of the Act. In this case, initially the assessee has accumulated a sum of Rs.210 lakhs and such accumulation has been allowed by the AO. The subsequent accumulation of the remaining income has been made after a gap of six years, that too, after exhausting all options open to the assessee to challenge disallowance of standard deduction made by the AO u/s 24(a) of the Income-tax Act, 1961. Although, there is no bar under the Act to file a revised form 10 for accumulation of income to subsequent period u/s 11(2), but such accumulation cannot be stretch to a period of six years,
16 ITA 106/Mum/2016 that too, to overcome taxable income computed by the AO by disallowing standard deduction claimed u/s 24(a) of the Act. The benefit of accumulation of income u/s 11(2) has been provided to trusts / institutions claiming exemption considering the fact that where it is not possible to utilise the amount of income within the financial year due to various reasons including non receipt of income for that year, although income is computed under mercantile principles and for paucity of time, after fulfilling certain conditions. Therefore, such benefit cannot be used to overturn taxable income computed by the AO, more particularly, after availing all possible options to the assessee before the appellate authorities. While providing the benefit of accumulation, the legislature would not have intended to give the benefit of accumulation to trust where the AO has computed taxable income of the trust in accordance with the provisions of the Act. Therefore, if we analyse the legislative intend behind enactment of provisions of section 11(2), it is very clear that the trust / institutions are allowed to accumulate income for specified purposes which needs to be specified in the resolution passed by the trust. Unless, the trust specifies the purpose for which the income is accumulated, then the benefit cannot be allowed. In this case, the assessee has tried to use the benefit of accumulation after exhausting all
17 ITA 106/Mum/2016 possible options available to it to contest the issue of deduction u/s 24(a).
Further, no doubt, the Hon’ble Gujarat High Court has considered revised form 10 filed by the assessee accumulating additional income after a gap of six years, but on perusal of the ratio rendered by the Hon’ble Gujarat High Court, we find that in that case, there was no dispute with regard to availability of funds for accumulation u/s 11(2) and investment of such funds in the investments specified u/s 11(5) of the Income-tax Act, because, the disputed issue in that case is taxability of corpus donation received by the asasessee under the provisions of section 11 of the Act. In this case, the facts with regard to the availability of funds for making investments are under dispute. The assessee failed to file any details with regard to the availability of funds for making investments in the modes specified u/s 11(5) of the Income-tax Act, 1961. Therefore, we are of the considered view that there is no merit in the argument of the assessee that it has accumulated income u/s 11(2) of the Act, for the purpose of object of the trust in compliance with provisions of section 11(5) of the Income-tax Act, 1961. Therefore, we reject the ground taken by the assessee.
In the result, appeal filed by the assessee is dimissed.
18 ITA 106/Mum/2016
Order pronounced in the open court on 29-03-2019.