DAIVADNYA SAMJONNATI PARISHAD MAHAJANWADI MANDAL,MUMBAI vs. ITO (E) I(1), MUMBAI

The issue raised in the present appeal is in relation to the disallowance of exemption claimed of an amount of ` 95 lakh under section 11(2) of the Act.

Brief facts are the assessee a trust is registered under section 12A of the Income Tax Act, 1961 (for short "the Act"). For the assessment year under consideration, the assessee filed its return of income on 9th August 2011, declaring total income of ` 78,210. During the assessment proceedings, the Assessing Officer on verifying the financial statement of the assessee, along with the return of income noticed that the assessee has claimed accumulation of fund at ` 95 under section 11(2) of the Act. The Assessing Officer, therefore, issued a show cause notice to the assessee to explain why exemption claimed under section 11 of the Act on the accumulated fund amounting to ` 95 lakh set apart for utilisation in future should not be disallowed. In response to the show cause notice, the assessee while objecting to the proposed disallowance submitted that not only the assessee maintains books of account as per statutory requirement but its accounts are audited. It was submitted, along with the return of income assessee has not only filed the audit report in the specified manner but also filed Form no.10 along with the copy of resolution mentioning the purpose for which the accumulated fund was set apart. The assessee submitted, accumulated fund was set apart for carrying out the object of the trust which is for utilisation in the up–coming projects. The Assessing Officer, after considering the submissions of the assessee, however, observed that the purpose of accumulation shown by the 3 Daivadnya Samjonnati Parishad Mahajanwadi Mandal assessee is general in nature and it does not specified the specific object or purpose for which accumulated fund is to be utilised. He observed, assessee was not able to substantiate the purpose of accumulation with any concrete plan of action supported with documentary evidence. Accordingly, he disallowed the claim of accumulated funds under section 11(2) and brought to tax the amount of ` 95 lakh. Being aggrieved of such addition, assessee preferred appeal before the learned Commissioner (Appeals).

Before the learned Commissioner (Appeals), though, the assessee made elaborate submissions contesting the finding of the Assessing Officer and justifying its claim, however, the learned Commissioner (Appeals) endorsing the view of the Assessing Officer held that as the assessee has not specified in Form no.10, any concrete project or purpose for which the accumulated fund was set apart no exemption can be allowed to the assessee.

Learned Authorised Representative submitted, one of the main object of the trust is to construct Mahajan Wadi, Hostels, Shelters, etc., for the members and needy students of Daiwadnya Samaj. He submitted, the surplus funds available with the trust which could not be applied for the objects during the relevant previous year was accumulated and set apart for the purpose of achieving the object of 4 Daivadnya Samjonnati Parishad Mahajanwadi Mandal the trust. He submitted, in Form no.10, submitted along with return of income and the accompanying resolution of the trust, the purpose for which the accumulated fund was set apart was clearly and specifically mentioned. In this context, he drew our attention to Form no.10 dated 27th June 2011 and resolution of the trust dated 27th June 2011. Further elaborating, learned Authorised Representative submitted, the trust has constructed a building to be utilised as hostel for outstation students. The building being a very old one is in a dilapidated condition. Therefore, a project was undertaken for re–development of the hostel building as well as other existing properties of the trust. Thus, the learned Authorised Representative submitted, the allegation of the Departmental Authorities that the purpose of accumulation of fund is general in nature is not correct. Learned Authorised Representative submitted, the purpose of accumulation set out in form no.10 if read along with the resolution of the trust as well as the objects of the trust would clearly indicate that the accumulation of fund was for the purpose of achieving the object of the trust. Learned Authorised Representative submitted, as per section 11(3) the assessee is required to utilise the accumulated funds for the purpose for which it is set apart within a period of five years. Therefore, until the expiry of five years, the Assessing Officer cannot disallow the assessee’s claim of exemption as per statutory provisions contained

Learned Departmental Representative relying upon the observations of the Assessing Officer and the learned Commissioner (Appeals) submitted, as the assessee has not specifically mentioned the purpose of accumulation with any concrete plan and documentary evidence assessee’s claim was rightly disallowed.

We have considered the submissions of the parties and perused the material available on record. Undisputedly, the assessee is 6 Daivadnya Samjonnati Parishad Mahajanwadi Mandal registered as charitable trust under section 12A. Therefore, the assessee is eligible to claim exemption under section 11 subject to fulfillment of conditions enshrined therein. This factual position has not been disputed by the Department. On a perusal of section 11 of the Act, it is noticed, income derived by a charitable trust or institution shall not be included in the total income of the previous year to the extent to which the income so accumulated or set apart is not in excess of 15% of the income from such property. Sub–section (2) of section 11 provides that where 85% of the income referred to under sub–section (1) of section 11, is not applied to charitable or religious purpose during the previous year but is accumulated or set apart either in whole or in part for application to such purpose in India, the income so accumulated or set apart shall not be included in the total income of the previous year in which such income was received subject to fulfillment of condition mentioned in clause (a) & (b) which provides that the trust submits in writing before the Assessing Officer the purpose for which the income is accumulated or set apart and the period for which the income is to be accumulated shall not exceed five years. The second condition is the fund accumulated or set apart has to be invested or deposited in any of the mode specified in sub–section (5) of section 11. Keeping in view the aforesaid statutory provisions if we examine the facts of the present case, it is to be noticed that the 7 Daivadnya Samjonnati Parishad Mahajanwadi Mandal assessee has accumulated funds of ` 95 lakh which has been set apart for utilisation in the objects of the trust in subsequent years. In compliance to the provisions of section 11(2)(a), assessee along with return of income has filed a declaration in form no.10. On a perusal of the said declaration dated 27th June 2011, a copy of which is at Page– 27 of the paper book it is noticed that the purpose for which the fund has been accumulated or set apart is to spend on development of existing properties of the trust or purchase or construction of new building for carrying out the activities of the trust. Along with declaration in form n o.10, the assessee has also enclosed a resolution of the managing committee of the trust dated 27th June 2011, which reads as under:–

Further, on reading of the trust deed, we have noted that the main object of the trust is to construct Mahajan Wadi at Bombay and to purchase and construct such other land and structures to enable to help gathering of Sammelans of member of Daiwadnya Samaj, to built

In the result, assessee’s appeal is allowed. Order pronounced in the open Court on 16.09.2016