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Facts
The assessee, Universal Education Foundation, filed an appeal against the order of the CIT(A) for AY 2011-12. The Assessing Officer treated an assignment of property for ₹3,55,45,600 as income, which was confirmed by the CIT(A). The assessee argued that the amount was not received in the year under appeal and sought to apply Explanation-2 to Section 11(1) of the Income Tax Act. This led to multiple appeals and remands.
Held
The Tribunal, after considering the entire factual matrix and the High Court's directions, concluded that the consideration of ₹3,55,45,600 was not received by the assessee during the impugned assessment year (AY 2011-12) but was actually received in FY 2014-15 (AY 2015-16). The assessee's option to defer taxation was exercised during the assessment proceedings, which was considered valid as the rules for a prescribed format were introduced later. Therefore, the income was liable to be taxed in the year of actual receipt.
Key Issues
Whether the consideration of ₹3,55,45,600 was received/accrued in AY 2011-12, and if not, whether the assessee had validly exercised the option under Section 11(1) Explanation-2 to defer taxation to defer taxation to the year of actual receipt.
Sections Cited
Section 11(1), Section 11(2), Section 45, Section 48, Section 139(1), Section 254(2)
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Income Tax Appellate Tribunal, MUMBAI BENCH “F”, MUMBAI
Before: SHRI KULDIP SINGH, HON’BLE & SHRI S. RIFAUR RAHMAN, HONBLE
O R D E R PER S. RIFAUR RAHMAN (AM)
This appeal is filed by the assessee against order of Learned Commissioner of Income-Tax (Appeals), Mumbai -1, [hereinafter in short “Ld. CIT(A)”] dated 03.12.2015 for the A.Y.2011-12.
(A.Y: 2011-12) Universal Education Foundation 2. Brief facts of the case are, Assessing Officer completed the assessment u/s 143(3) of Income-tax Act, 1961 (in short “Act”) on 25.03.2014 on a total income of ₹.2,03,37,630/-. In appeal, the Ld.CIT(A) confirmed the assessment made by the Assessing Officer. Aggrieved by the order of the Ld. CIT(A), the assessee filed an appeal before the Tribunal. The ITAT "F" Bench, Mumbai (ITA No. 1097/Mum/2016) vide order dated 25.05.2017 dismissed the appeal filed by the assessee. Thereafter, the assessee filed a Miscellaneous Application (MA) before the Tribunal seeking rectification/recalling of the order dated 25.05.2017 u/s.254(2) of the Act. The ITAT "F" Bench, Mumbai vide order dated 16.01.2018 dismissed the MA filed by the assessee.
3. Thereafter, the assessee filed a Writ Petition before the Hon'ble Bombay High Court challenging the order dated 16.01.2018 passed by the Tribunal rejecting the application for rectification. The Hon'ble High Court vide order dated 28.06.2018 held:
"3. The primary grievance of the petitioner in its rectification application to the Tribunal is that the order passed on 25thMay, 2017 after recording the petitioner's submission that the provisions of Section 11(1) Explanation-2 of the Act would warrant its appeal being allowed was not considered and its appeal was dismissed. This led to the filing of the Rectification Application under Section 254 (2) of the Act.
(A.Y: 2011-12) Universal Education Foundation 4. On 16thJanuary, 2018 the impugned order was passed dismissing the Rectification Application. The impugned order while disputing the submission of the petitioner leading to the order dated 25thMay, 2017 did not consider the claim of the petitioner under Section 11(1) Explanation-2 Act to hold on merits that it is not entitled to the benefit of Section of the Act. This according to the petitioner is clearly contrary to and in defiance of the decisions of this Court in Safari Mercantile (P) Ltd. Vs. TAT/386 ITR 4 and Gyan Constructions v/s Income Tax Appellate Tribunal, 12015155 taxmann.com 479.
5. Mr. Walve, the learned Counsel for the respondent submits to the order of this Court.
6. We find that the issue is no longer res judicata as it stands concluded by the decision of this Court in Safari Mercantile (supra) and Gyan Constructions (supra) that while dealing with the application for rectification, the Tribunal where it finds there is an error apparent on record then it should recall the original order and place the Appeal for consideration of the issue on merits before the Regular Court. It is not appropriate to dispose of the controversy on merits of the submission, while disposing of the Rectification Application.
In the above view, the impugned order dated 16th January, 2018 is quashed and set aside. The Rectification Application filed by the petitioner is restored to the Tribunal for fresh disposal in accordance with the decision of this Court in Safari Mercantile Pvt. Ltd. (supra) and Gyan Constructions (supra).
8. The petition is disposed of in the above terms."
4. By following the above order of the Hon'ble Bombay High Court, the ITAT "F" Bench, Mumbai vide order dated 24.08.2018 recalled the original order dated 25.05.2017 and directed the Registry to fix the appeal before the Regular Bench for fresh hearing.
5. The fresh hearing took place before "F" Bench of the Tribunal.
(A.Y: 2011-12) Universal Education Foundation 6. As mentioned earlier, the primary grievance of the assessee in the Writ Petition filed before the Hon'ble High Court was that ITAT did not consider in its order dated 25.05.2017 was that the 11(1) Explanation-2 of the Act to hold on merits that it is not entitled to the benefit of Section 11(1) of the Act.
7. We may mention here the grounds of appeal filed by the assessee before the Tribunal which are as under: - "1. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding that the amount of Rs. 3,55,45,600 accrued to the Appellant as income for the year under appeal and was also received.
2. The Ld. CIT(A) failed to note that the amount of Rs. 3,55,45,600 was not factually received during the year under appeal and that in this circumstances the same should be deemed to be applied towards charitable purposes in terms of clause (2) of Explanation to Section 11(1) of the Income Tax 1961. This is more particularly so because the provision, for exercising option in writing under the said Explanation before the expiry of time allowed for furnishing return u/s 139 (1) is not mandatory, but directory in nature and must therefore be liberally interpreted to confer exemption u/s 11 and not deny it.
3. Both the lower authorities erred in passing their respective orders without granting your appellant adequate opportunity of being heard. The order passed by them are in contravention of the principles of natural justice and hence, bad in law."
The relevant facts of the issues under consideration are, during the course of assessment proceedings, the Assessing Officer found that (A.Y: 2011-12) Universal Education Foundation the assessee had assigned immovable property of ₹.3,55,45,600/; however, the assessee failed to disclose this transaction while filing its return of income for the impugned assessment year. In response to a query raised by the Assessing Officer vide order sheet noting dated 12.03.2014, assessee filed a reply dated 20.03.2014 stating as under:-
"1. Assessee, Universal Education Foundation is a Section 25 Company incorporated with the object of running EducationalInstitution. The company is desirous of expanding its activities of running Educational Institution by establishing a school for the people living in and around the city of Thane.
The lessee i.e. Universal Education Foundation approached the lessor M/s Kabra Associates and requested the lessor to grant unto the lessee, the lease of the property of land bearing survey nos. 124/1A, 124/2, 124/4/2, 124/5A, 125/5A admeasuring 4900.125 sq. mts. situated at Village Kolset, District and Taluka Thane, Maharashtra to construct and establish a school. It has entered into the Lease Agreement with M/s Kabra Associates dated 27th January 2009 (Photocopy of Lease Deed Enclosed) in which the lessor has agreed to grant to the lessee, lease of the said property for the purpose of establishing a school. The lessee has acquired the said property for the lease term of 96 years.
Immediately upon the signing of this lease deed, the lessee at its own cost and expense has obtained the permission from the required Authorities for establishing and running a school upto primary school for Academic Year 2009-2010. The lessee was entitled to construct structure on the said property that would make it fit for carrying out the activities of the lessee.
4. But the lessee was unable to erect the structure as required for running the schools; hence it has assigned the right, in the property to M/s Super Value Properties Pvt. Ltd.
5. The Universal Education Foundation has entered into the Deed of Assignment with M/s Super Value Properties dated 19.01.2011 (Photocopy of the Deed of Assignment is enclosed). The said deed of Assignment was agreed between the parties (1- Universal Education Foundation as Assignor, 2- Kabra Associates as Confirming Party and 3- Super Value Properties Pvt. Ltd as (A.Y: 2011-12) Universal Education Foundation Assignee) as for the consideration of the sum of Rs 3,55,45,600/- to be paid by the assignee to the assignor. As per deed of of assignment, assignor hasassigned all rights in respect of land bearing survey nos. 124/1A, 124/2, 124/4/2, 124/5A, 125/5A admeasuring 4900,125 sq. mts. situated at Village Kolset, District and Taluka Thaw' Maharashtra.
The Universal Education Foundation has entered into an Addendum dated 20.01.2011. Photocopy of the signed, stamped and duly notarized Addendum is enclosed. We are also producing the original for Your Honour's verification. The said Addendum was agreed between the parties Universal Education Foundation as Assignor and Super Value Properties Pvt. Ltd as Assignee. Following clauses was included in the agreement a. The consideration of the sum of Rs. 3,55,45,600/- to be paid by the assignee to the assignor on 31st March, 2015 or on the date B.C.C. of the building is obtained, whichever is earlier. b. The cost for construction of this school building will be incurred by the assignee. c. The agreement shall be terminated without any further notice to Assignee in case of any further delay in making the payment and in such event the amount paid by the Assignee shall be forfeited.
7. Thus, no amount was received by Universal Education Foundation as on 31.03.2011. Also, there was no definite possibility of receipt of the same in future. The agreement of Assignment will be terminated if the payment is not received on time.
8. Assessee is committed to make payment in the year of receipt. We are not denying the agreement of assignment. The receipt will be offered for taxation in the year of receipt. Since there is no definite possibility that receipt will be received the consideration was not taxed in AY 2011-12.
9. Furthermore, capital gain is chargeable under section 45 read with section 48 of the Act on consideration received or accruing. Assubmitted above, the Assessee has received nothing in the assessment year 2011-12 nor for the submissions made hereinafter any consideration has accrued in the assessment year 2011-12. It is well settled that for accrual of right the assesses should have unequivocal legal right enforceable in law against the party for coining to a conclusion that any sum has accrued. This will be determined by the terms and conditions of the agreement between the parties. Clauses 3(d) of the amendment clearly (A.Y: 2011-12) Universal Education Foundation provides that the agreement of assignment shall be terminated without any further notice to Assignee in case of any further delay in making the payment.
It is submitted that accrual is depended upon happening or non happening of future event which may or may not happen and hence is contingent which cannot be the basis of accrual or taxability. It is submitted that since in the assessment year 2011- 12, this eventuality has not happened no right accrues in favour of the assessee to any consideration and hence since there is no accrual in the year under consideration no capital gain is chargeable for the assessment year 2011-12.
11. Hence, since the payment as mentioned in the assignment deed was not received by M/s. Universal Education Foundation and there was no surety of the receipt of the same in future it was not reflected in Balance Sheet and not taxed during the year.
12. There in uncertainty in the receipt of the consideration. When there is an uncertainty of a receipt it cannot be accrued in the books as per standard of accounting. As per AS-29 An enterprise should not recognise a contingent asset.
13. Contingent assets usually arise from unplanned or other unexpected events that give rise to the possibility of an inflow of economic benefits to the enterprise. Contingent assets are notrecognised in financial statements since this may result in the recognition of income that may never be realised.
14. When it has become virtually certain that an inflow will arise, the asset and the related income will be recognised in the financial statements of the period in which the change occurs. The assessee is committed to tax the consideration in the year in which it is certain the payment is receivable.
15. Thus it is not certain on the date of entering into the Deed of assignment whether the consideration will be received or not. The addendum makes it further clearer that the consideration will be received on 32.03.2015 or B.C.C of the building whichever is earlier.
Thus as the possibility of the inflow in future in not certain, assessee has not taxed the consideration in the year of deed of assignment i.e AY 2011-12 but will offer the same in the year of actual receipt of the same. Assessee is committed to make the payment of tax in the year of receipt of the same.
17. Hence there is no tax incidence in AY 2011-12 because:
(A.Y: 2011-12) Universal Education Foundation 1. There was no incidence of accrual of income in the hands of the assessee.
2. No amount has been actually received from the transferee against the sale of rights.
3. There is no definite possibility of inflow in the future years.
An enforceable legal right to receive an income should vest with the assessee.
Accrual of income depends upon the terms of an agreement and subsequent agreements which should give rise to a definite right to the recipient and merely one agreement should not be the only test of chargeability to tax. Thus since the consideration is not paid, not due and not accrued, the consideration of Rs. 3.5 crore will not be taxed in the A.Y. 2011- 12 but in the year of actual receipt of the same. Hence the assessee has not taxed the same in AY 2011-12 but will offer the same for taxation in the year of receipt."
However, the Assessing Officer was not convinced with the above explanation of the assessee for the reason that (i) the assessee's statement that it has forgone the consideration of ₹.3,55,45,600/- is not acceptable because nobody can give its right, title and interest in such a precious property to anyone without consideration, (ii) the assessee could not explain as to what profit will M/s Super Value Properties Pvt. Ltd. get by constructing the infrastructure on the said land, (iii) when the assessee did not get any consideration from M/s Super Value Properties Pvt. Ltd., the said property belong to the assessee only and in that case why the assessee will pay any rent to M/s Super Value Properties Pvt. Ltd. on his own property. As the assessee failed to (A.Y: 2011-12) Universal Education Foundation explain properly the queries on the above, the Assessing Officer rejected the claim of the assessee that it has not received the consideration of ₹.3,55,45,600/- from M/s Super Value Properties Pvt. Ltd. and thus brought to tax the above amount.
10. Aggrieved assessee preferred appeal before the Ld. CIT(A) and after considering the submissions of the assessee, Ld. CIT(A) sustained the addition made by the Assessing Officer.
Aggrieved assessee preferred appeal before Income Tax Appellate Tribunal in earlier proceedings and assessee has submitted as under: -
“9. Before us, the Ld. counsel for the assessee submits that theappellant has admittedly not received the sale consideration for assignment of lease during the year ended 31.03.2011 and is therefore entitled to exercise option as per Explanation-2 to section 11(1) and this option may be considered to have been exercised during the course of assessment proceedings in view of submission dated 20.03.2014 to the AO reproduced on page 2 & 3 of the assessmentorder, more particularly para no. 7 & 8 of the submission (page 3 of the assessment order). It is further stated that under the law applicable for the year under appeal, there is no requirement for submitting option in any particular prescribed form and the provision for prescribed form was introduced subsequently only by the Finance Act, 2015 w.e.f. 01.04.2016. Thus, the Ld. counsel refers to Explanation-2 to Section 11(1) prior to the said amendment which reads as under: "Section 11 (2) if, in the previous year, the income applied to charitable or religious purposes in India falls short of eighty-five per cent of the income derived during that year from property held under trust, or, as the case may be, held under trust in part, by any amount-
(A.Y: 2011-12) Universal Education Foundation (i) for the reason that the whole or any part of the income has not been received during that year, or (ii) for any other reason, then- (a) in the case referred to in sub-clause (1), so much of the income applied to such purposes in India during the previous year in which the income is received or during the previous year immediately following as does not exceed the said amount, and (b) in the case referred to in sub-clause (ii), so much of the income applied to such purposes in India during the previous year immediately following the previous year in which the income was derived as does not exceed the said amount, may, at the option of the person in receipt of the income (such option to be exercised before the expiry of the time allowed under sub-section (1) of section 139 for furnishing the return of income) be deemed to be income applied to such purposes during the previous year in which the income was derived; and the income so deemed to have been applied shall not be taken into account in calculating the amount of income applied to such purposes, in the case referred to in sub-clause (1), during the previous year which the income is received or during the previous year immediately following, as the case may be, and in the case referred to in sub-clause (ii). during the previous year immediately following the previous year in whichthe income was derived." 10 The Ld. counsel files a copy and refers to the decision in CIT vs. Shivanand Electronics (1994) 75 TAXMANN 93 (Bom), CIT vs. Smt. Archana R. Dhanwatey (1981) 7 Taxman 121 (Bom), BalmukundAcharya vs. DCIT (2009) 176 TAXMAN 316 (Bom), CIT vs. Ziarat Mir Syed Ali Hamdani (2001) 248 ITR 769 (J&K), CIT vs. G.M. Knitting Industries (P.) Ltd. (2016) 71 taxman.com 36 (SC) and the order of the Tribunal dated 30.11.2016 in M/s Whistling Woods International Ltd. vs. ITO (ITA No. 556/Mum/2015 for AY 2004-05). Further reference is made by him to the Circular No. 14 (XI-35) of 1955, dated 11.04.1955.”
On the other hand, Ld. DR submitted as under: -
(A.Y: 2011-12) Universal Education Foundation “11. On the other hand, the Ld. DR submits that as per the original deed of assignment dated 19.01.2011, the amount of Rs. 3,55,45,600/- is stated to have been paid by the assignee to the assignor, which has been acknowledged by the assessee as received and in consequence it has discharged the assignee forever and in confirmation of which, the deed has been signed. It has not only been signed by all the three parties but also by the witnesses and has also been duly registered on 19.01.2011. It is further submitted that the addendum has not been registered with the Registering Authority. Also it is stated that the addendum is not signed by M/s Kabra& Associates, the confirming party. The Id. DR further submits that in the present case, the assessee has not exercised its option as per Explanation-2 to section 11 (1) of the Act. Thus, the Ld. DR submits that the order passed by the Ld. CIT (A) be confirmed.”
After considering submissions of both the parties Income Tax Appellate Tribunal vide order dated 26.06.2019 has adjudicated the issue against the assessee by observing as under: -
“17. In the instant case, the assessee has received Rs.3,55,45,600/- during the financial year 2010-11 relevant to the impugned assessment year. This is crystal clear from the (i) Deed of Assignment dated 19.01.2011 and the Schedule (ii) Receipt of Rs.3,55,45,600/- by the assessee through cheque No. 889388 dated 18.01.2011 drawn on UBI, Juhu, Tara Road and (iii) The Basis of Accounting & Revenue Recognition followed by the assessee during the present assessment year. In the written submission dated 18.03.2014 filed before the AO, the assessee's main contention is "Since there is no definite possibility that receipt will be received the consideration was not taxed in AY2011-12". A reading of the said written submission which we have extracted at para 6 hereinbefore, clearly indicates that the appellant has not exercised the option under clause (2) of the Explanation to section 11(1) of the Act. In Sumati Dayal (supra), the Hon'ble Supreme Court has held: "As laid down by this Court, apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real and that the taxing authorities are entitled to look
(A.Y: 2011-12) Universal Education Foundation into the surrounding circumstances to find out the reality and the matter has to be considered by applying the test of human probabilities - CIT v. Durga Prasad More [1971] 82 ITR 540, at pp. 545, 547 (SC)." The grounds of appeal filed by the assessee can be seen through lens of deductive inference, in which it is asserted that the conclusion is guaranteed to be true if the premises are true. In the present case, it is the contention of the assessee vide the 2nd ground of appeal that the Ld. CIT(A) failed to note that the amount of Rs.3,55,45,600/- was not factually received during the year underappeal. This premise is not true as evident from the finding above that the assessee has received Rs.3,55,45,600/- during the financial year 2010-11 relevant to the impugned assessment year. The inference drawn by the assessee is not a correct one as it is based on wrong premise. In view of the above facts and position of law, we uphold the order of the Ld. CIT(A). We also want to make it clear that all the cases relied on by both the sides have been duly taken into consideration while deciding the matter. The omission of reference to some of such cases in the order is either due to their irrelevance or to ease the order from the burden of the repetitive ratio decidendi laid down in such decisions.”
Aggrieved assessee filed an appeal before Hon’ble Bombay High Court and Hon’ble High Court vide order dated 02.12.2021 had remitted the issue back to the Income Tax Appellate Tribunal with the specific questions relating to the facts involved in this case and Income Tax Appellate Tribunal was asked to address these specific factual questions and then decide the issue under consideration, for the sake of clarity, relevant portion of the order is reproduced below: -
“3. In the circumstances, in our view, we would set aside theimpugned order dated 26thJune, 2019 passed in ITA
(A.Y: 2011-12) Universal Education Foundation No.1097/MUM/2016 and 20thMarch, 2020 passed in MA No.584/MUM/2019 and remand the matter for denovo consideration and would request the tribunal to answer,inter-alia, (a) When did petitioner receive entire consideration of Rs.3,55,45,600/-; (b) Whether petitioner exercised the option under Clause 2 of Explanation to Section 11 (1) of the Act; (c) If petitioner has exercised but beyond time prescribed in Clause (2) of Explanation to Section 11 (1) of the Act, the consequences thereof?
Based on the above directions of the Hon’ble High Court, the hearing of the present appeal was concluded and Ld.AR of the assessee has submitted his submissions for the queries raised by the Hon’ble High Court for denovo consideration. For the sake of clarity, it is reproduced below: -
“As regards High Court's Question no. 1 as when the Appellant receive entire consideration of Rs. 3,55,45,600/-, the Authorised Representative submitted that though it was cited in the deed of assignment of lease dated 19-01-2011 the consideration of Rs.3,55,45,600 was paid to the Appellant on 18-11-2011, the same was not received. The audited financial statements for the year under appeal (i.e. A.Y 2011-2012) also do not reflect any receipt of the lease consideration. For that reason the deed of addendum was entered on 20-11-2011 to record the change in payment terms of the deed of assignment to the effect that the date of payment was extended up to 31-03-2015. The details of the payments received by the Appellant from Super Value Properties Pvt. Ltd during FY 2014-15 (A.Y. 2015-2016) were submitted before CIT (A) vide letter dated 01-12-2015. Copies of the relevant pages of the bank statement of the Appellant evidencing the aforesaid receipts of Rs. 3,55,45,600 were also filed. Copy of the ledger account of the lease assignee i.e. Super Value Properties Pvt. Ltd in the books of the Appellant for FY 2014-15, which record the aforesaid receipts was also submitted to CIT (A) vide letter dated 01- 12-2015. Copy of the audited financial statements of the Appellant for AY 2014-15
(A.Y: 2011-12) Universal Education Foundation was submitted to CIT (A) The audited Income & Expenditure Accounts shows receipt of the lease consideration under the head "Other Income" - Schedule 15 to the audited financial statements as Leasehold Land Rights" Rs. 3,55,45,600/- Copy of the acknowledgement of Return of Income filed for AY 2015-16 was submitted to CIT (A) vide letter dated 01-12-2015.. The Assessing Officer's office was informed by the Appellant vide letter dated 01- 12-2015 that the consideration of Rs. 3.55 crores was received by it in FY 2014-15 (A.Y 2015-2016) and applied towards objects of the trust. In the course of the hearing before the Tribunal, the Appellant has also submitted full set of bank statements of both the Appellant and Super Value Properties Pvt. Ltd. Copy of Appellant's computation of income for Assessment Year 2015-16 was also submitted. Based on the above, the Authorised Representative submitted that it ought to be factuallyclear that the consideration of Rs.3,55,45,600 was not received during the year under appeal(AY 2011-12) but in financial year 2014-15 (AY 2015-16) and this should be the answer to thefirst question directed by the High Court to be answered by the Tribunal As regards the second question directed by the High Court to be answered i.e. whether the Appellant had exercised the option under clause 2 of Explanation to Section 11 (1), the Authorised Representative drew the attention to the requirements in the said provisions. He submitted that the main provision in section 11 (1) requires that income derived from property held under trust for charitable purposes is to be included in the assessee's income to the extent the same is not applied for charitable purposes. If 85% of the income is not applied for reason that whole or part of the same is not received during the previous year, then there is an option available to the assesse to be exercised before the due date for filing this return. If this option is exercised, then the income not so received shall be deemed to be applied during the year itself. As an incidence, the income so deemed to be applied shall not be taken in to account in calculating the amount applied during the year in which income is received or the year immediately following. If by this exercise, the income in respect of which the option was exercised is found to be not applied in the year in which it is received or immediate succeeding year, then the same shall be deemed to be income of the year following the year in which it is received. Thus, by exercising the option, the assessee can defer the fate of the taxation of the income to the time of receipt. The incidence of the taxable event shifts from accrual basis to receipt basis,
(A.Y: 2011-12) Universal Education Foundation The Authorised Representative pointed out that it is pertinent that for Assessment Year 2011-12, there was no prescribed form and manner in the Income Tax Act or Rules for exercising the option and this aspect is vital for determining the answer to the second question directed to be answered by the High Court. The prescription of the form and manner in which the option came to introduced in the section 11 only subsequently by Finance Act 2015 w.e.f. 01- 04-2016. The Authorised Representative submitted that this would mean that any writing from an assessee trust to the Assessing Officer communicating that it has not received income during the year and it would offer the said income to tax when received should constitute a valid option in terms of clause 2 of Explanation to section 11 (1) and in the Appellant's case, its writings in its letter dated 18-03-2014 to the Assessing Officer in assessment proceedings constitute this option. This letter has been reproduced by the Assessing Officer in the assessment order. The relevant portions of the letter are - "(Para no.) 7. Thus no amount was received by Universal Education Foundation as on 31-03-2011 ……. (Para no.) 8. Assessee is committed to make payment in the year of receipt. The receipt will be offered for taxation in the year of receipt..." The Authorised Representative submitted that the writings satisfy the two legal essentials of the option contemplated in clause 2 of the Explanation to Section 11 (1). The two legal essentials are that firstly, the income must not have been received and the secondly, the commitment to pay tax on receipt basis, after receipt. In his writings in the letter dated 18-03- 2014 to the Assessing Officer, the Appellant has cited that it has not received the income and was seeking deferment of its taxability on receipt basis. This is what the Appellant was all along contending to the Tribunal and High Court that these writing constitute a valid exercise of this option. Based on these submissions, the Authorised Representative has submitted that the Appellant has validly exercised the option during the assessment proceedings, though not before the due date prescribed for filing the return. He has thus urged that the second question directed by the High Court be answered accordingly. As regards the third question which the High Court has directed to be answered-i.e. if the Appellant has exercised the option but (A.Y: 2011-12) Universal Education Foundation beyond the time prescribed in Clause (2) of Explanation to Section 11 (2) of the Act, the consequences thereof the Authorised Representative has submitted that it has been held the requirement for filing the option beyond the due date prescribed for filing income return is 'directory' and not 'mandatory' and it would be sufficient compliance, if the option under Clause (2) of Explanation to Section 11 (1) is exercised before completion of assessment proceedings. He has submitted that the direct authority in this regard can be found in the decision of Jammu & Kashmir High Court in the case of Ziaret Mir Syed Ali (2001) 248 ITR 771 (J&K). The Authorised Representative submitted that it is pertinent that in making its ruling, the Jammu & Kashmir High Court has followed the decision of the Bombay High Court in Shivanand Electronics (1994) 209 ITR 63 (Bom) (on filing of audit report u/s 80-J- new industrial undertaking incentive deduction), which in turn has been approved by the Supreme Court in CIT vs. G M. Knitting Industries (P) Ltd [2015] 376 ITR 456 (SC). In the Appellant's case, it has exercised its option in the course of assessment proceedings, therefore its exercise of option may be taken as compliant of the directory requirement of the law. Allowing the option so exercised would also be in good spirit. The CBDT has in its circular no. 14 of 1955 dated 11th April 1955 has held that when an assessee is entitled to a deduction, but is not claiming the same in assessment due to ignorance or inadvertence, it is the duty of the Assessing Officer to freely advise him on his rights and assist him. Based on the above submissions, the Appellant has urged that the third question directed by the High Court to be answered may be answered that the Appellant's option, though exercised after the due date for filing the income tax return, is still valid as it is complaint with the directory aspect of the law.”
16. On the other hand, Ld. DR relied on the earlier submissions and with regard to issue involved in present hearing, he relied on the findings of the lower authorities.
Considered the rival submissions and material placed on record, we observe that assessee is a company Registered under section 25 of (A.Y: 2011-12) Universal Education Foundation Companies Act, 1956 and Registered as a charitable institution running for educational purpose under the Bombay Public Trust Act, 1950 and Registered under section 12A of Income-tax Act, 1961. The assessee has entered into lease dated 27.01.2009 with Kabra Associates for acquiring a land on lease. Subsequently, assessee has entered into Assignment Deed dated 19.01.2011 and assessee has assigned the above said lease of land to M/s. Super Value Properties Private Limited for a consideration of ₹.3,55,45,600/-. In the above said Assignment Deed, all the parties involved in the Assignment Deed have acknowledged that assessee was given a cheque dated 18.01.2011 drawn on Union Bank of India, Juhu, Tara Road. However, the assessee has not received the above said cheque as per the Assignment Deed and immediately on the next date i.e., on 20.01.2011 the assessee entered into an Addendum to the Assignment Deed with M/s. Super Value Properties Private Limited and as per the Addendum to the Deed, the date of collection was extended till 31.03.2015. During the course of assessment proceedings, the Assessing Officer observed that assessee has filed its return of income for the impugned assessment year i.e., 2011-12 declaring ₹.NIL as income and based on the Assignment Deed and the respective confirmations mentioned in the above said Assignment Deed, the Assessing Officer has brought to tax above said
(A.Y: 2011-12) Universal Education Foundation amount as income of the assessee and made the assessment accordingly. In the present case the pivotal question raised by the Hon’ble High Court is, when the assessee has actually received the entire consideration.
From the records, we observe that assessee has submitted bank statements of Indian Bank, Goregaon Branch, Indian Bank, Gorbhander Branch and Union Bank of India, Santacruz (West) Branch for the period from 03.01.2011 to 31.03.2011 of Account Numbers 8290603452, 855288802, 857417485, 892096342, 892097186, 892098033, 369101010090408, 369101010090411.
From the above bank statements, we observe that assessee has not received any of the sums specified in the Assignment Deed. The above said bank account details are placed before us in the form of Paper Book. Further, Assessee by way of confirmation from M/s. Super Value Properties Private Limited filed the confirmation of payment vide letter dated 22.05.2023. The same is placed on record at Page No. 66 of the Paper Book. As per the written confirmation from M/s. Super Value Properties Private Limited as per which assessee has received the payments as under: -
(A.Y: 2011-12) Universal Education Foundation Bank from which Date of Amount in ₹. payment was Payment made 08.01.2015 1,00,00,000 Indian Bank 08.01.2015 1,00,00,000 Indian Bank 08.01.2015 1,00,00,000 Indian Bank 08.01.2015 55,45,600 Indian Bank Total in ₹. 3,55,45,600
From the above submissions of the assessee along with the bank statements submitted before us, we observe that assessee has not received any payments during the impugned assessment year under consideration i.e., A.Y. 2011-12. However, assessee has received the entire consideration during the Financial Year 2014-15. Therefore, to answer to the question raised by the Hon’ble High Court, the assessee has not received any funds as specified in the assignment deed during the impugned assessment year under consideration.
Hon’ble High Court has raised Second and Third questions relating to whether the petitioner exercised the option under Clause 2 of Explanation to Section 11(1) of the Act and consequences of not exercising the above option.
As per the above Clause 2 of Explanation to Section 11(1) of the Act, the assessee in case of non-receipt of the income declared vide in (A.Y: 2011-12) Universal Education Foundation the financial records, as per the provision, assessee has to intimate to the Assessing Officer of such non-receipt and also the assessee has to inform the Assessing Officer with the reasons for the non-receipt of the above declared the income either whole or any part of the declared income during that year and the same may be declared as income in the year of receipt. It is fact on record that during the assessment year under consideration there was no specific manner or format through which the assessee has to inform the same to the Assessing Officer. However, it is part of the proceedings and responsibility of the assessee to inform of such eventuality to the Assessing Officer. It was submitted and argued before us that, the above prescription of the format and manner was introduced in Section 11 only in the Finance Act, 2015 w.e.f. 01.04.2016.
After careful consideration of the submissions of the Ld. AR we are in agreement with the fact that the procedure to inform any such eventuality in which assessee has not received a whole or any part of the income during the impugned assessment year was introduced only in the Finance Act, 2015. However, the income under consideration is a substantial amount having substantial bearing on the income of the assessee. It is in fact duty of the assessee to inform Assessing Officer
(A.Y: 2011-12) Universal Education Foundation that assessee has not received the above said amount and intend to declare the same in the subsequent assessment year. As directed by the Hon’ble High Court, we observe that assessee has not exercised the option under Clause 2 of Explanation to Section 11(1) of the Act until initiation of the assessment proceedings. Only during the course of assessment proceedings the assessee has submitted before Assessing Officer that assessee has not realized the above said receipt during the current assessment year. We observe that the assessee has not exercised the option to Clause 2 of Explanation to Section 11(1) of the Act before filing the return of income. However, before us, Ld.AR of the assessee submitted that the assessee has exercised the above option during the course of assessment proceedings is enough to satisfy and come to the conclusion assessee has exercised the above option as per law. In our considered view, assessee has not exercised the above option before filing of return of income and exercised only when Assessing Officer has brought to the notice of the assessee, the assessee has accepted it. After careful consideration, we observe that the tax authorities have came to conclusion that the income has accrued and received by the assessee during the year based on the terms of receipt mentioned in the Assignment Deed without verifying the books of account.
(A.Y: 2011-12) Universal Education Foundation 24. It is another matter that what is relevant for the assessment to be completed and appreciated by the Assessing Officer should be based on the fact that assessee should have actually received the above said funds. In this case as per the records submitted before Assessing Officer and subsequent Appellate Proceedings that assessee has not received any funds during the impugned assessment year. The Assessing Officer cannot merely go by the agreement submitted before him and when the assessee has brought on record that assessee has not received the above said funds and as per the Addendum Deed to the Assignment Deed both the parties mutually agreed to extend the date of settlement of above said funds on or before 31.03.2015. As per the addendum to the assignment deed the assessee has actually received the above said sum only during Financial Year 2014-15. When the parties agreed to modify the terms of agreement, the income dues accrue to the assessee. Therefore, the Assessing Officer cannot bring to tax an income which assessee has not received during the impugned assessment year. There is nothing on record to prove that assessee has actually received during the current assessment year or deferred the payment after receipt of the payments directly or indirectly. Therefore, what is relevant is substance over form. In the given case, Assessing Officer has not brought on record that assessee has actually received
(A.Y: 2011-12) Universal Education Foundation the payment except there is a reference in the Assignment Deed. However, in practical terms, the parties have acted upon the addendum to the Assignment Deed. Therefore, in our considered view Assessing Officer should have considered the fact that assessee has actually received the payment only during the assessment year 2015-16.
Considering he above facts on record, in our considered view the Appellate Authorities have proceeded with the understanding that assessee has received the funds and accrued to the assessee during the current assessment year. However, as per the facts on record assessee has not received the above said funds as per the Assignment Deed during the current assessment year, however, received only during Assessment Year 2015-16 as per the Addendum to the Assignment Deed. Therefore, it is to be taxed in the assessment year in which assessee has actually received. Income cannot be assessed in the year in which it has not accrued nor received by the assessee. Therefore, the facts in the present case suggest that there may be mistake on the part of the assessee in intimating the deferral of the receipt of funds to the Assessing Officer prior to filing of the return of income. However, the facts on record suggest that assessee has not actually received the above said funds during the current assessment year. Therefore, in our
(A.Y: 2011-12) Universal Education Foundation considered view, the income cannot be assessed during the current assessment year and it is liable to taxed in the year of receipt i.e., in the A.Y. 2015-16 and as per the record assessee has also declared the same in the above said assessment year. Therefore, there is no loss to the revenue in this case.
To answer to the questions raised by the Hon’ble High Court, the assessee has not exercised the option before filing the return of income and whether the assessee can exercise the option during the assessment proceedings is an options not coming from the provisions of the Act. In case, it is not exercised, the consequence will be to offer to tax in the relevant assessment year. In the given case, as discussed in the above paragraph, the income has not accrued to the assessee based on the addendum to the deed signed by both parties on the next day itself of signing the assignment deed. With regard to receipt of the funds, we observe that the assessee has actually received the funds only during AY 2015-16. On perusal of the Return of Income, we observed that the assessee has declared the income from lease hold land rights of ₹ 3,55,45,600/- in their statement of Income and Expenditure. The same was also applied for the purpose of the society. The requirement for exercise of the option arises only when the income accrued to the (A.Y: 2011-12) Universal Education Foundation assessee or received by them during the impugned assessment year. In this case both the above issue of accrual or receipt of income was not materialized during the impugned assessment year. Therefore, the requirement of exercise of option is not relevant.
Finally the answers to the questions framed by the Hon’ble High Court are as under:-
a) when did petitioner receive entire consideration of ₹. 3,55,45,600/-.
The petitioner has received the entire consideration only during the A.Y. 2015-16. b) Whether the petitioner exercised the option under Clause 2 of Explanation to Section 11(1) of the Act.
As discussed in the above paragraphs, the assessee has not exercised the option under Clause 2 of Explanation to Section 11(1) of the Act during the A.Y. 2011-12 before filing the return of income u/s 139(1) of the Act, for the reason
(A.Y: 2011-12) Universal Education Foundation that assessee has not received any income during this current assessment year. c) If petitioner has exercised but beyond time prescribed in Clause (2) of Explanation to Section 11 (1) of the Act, the consequences thereof?
It is clear from the Clause 2 of Explanation to Section 11(1) of the Act that at the options of the person in receipt of the income, such option to be exercised before the expiry of time allowed u/s 139(1) for furnishing the return of income, therefore failure to exercise the option before filing the return of income, the consequences would be that the income not applied for the purpose of the Trust shall be treated as income of the assessee i.e. the assessee will lose the exemption u/s 11 of the Act. In the given case, the assessee has not received or accrued the income during the current assessment year, therefore the non-exercise of the option does not affect the assessee during the current assessment year. It is fact on record that assessee has actually received the income only during the A.Y. 2015-16
(A.Y: 2011-12) Universal Education Foundation and the same was declared by the assessee in the return of income and which has been accepted by the revenue as it is evident from the return of income for A.Y. 2015-16 which is available on record.
Accordingly based on the above discussion, we are inclined to allow the grounds raised by the assessee.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 17th January, 2024.