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Income Tax Appellate Tribunal, DELHI BENCH: ‘F’: NEW DELHI
Before: SHRI N.K. BILLAIYA & MS. ASTHA CHANDRA
ORDER PER N.K. BILLAIYA, AM
This appeal by the assessee is preferred against the order dated 20.03.2023 by NFAC, Delhi, pertaining to AY 2018-19.
The grievances of the assessee read as under:
“1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in not allowing the claim of accumulation of Rs. 85,26,540/- made by the assessee trust u/s 11(2) of the Act and that too by recording Page 1 of 8 ITA no.- 1242/Del/2023 Prernalaya Trust incorrect facts and finding and by disregarding the submissions, evidences and material placed on record by the assessee and without observing the principles of natural justice.
2. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in not allowing the claim of accumulation of Rs. 85,26,540/- made by the assessee trust u/s 11(2), is bad in law and against the facts and circumstances of the case and the same is not sustainable on various legal and factual grounds.
3. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not reversing the action of Ld. AO in charging interest u/s 234B of the Income Tax Act, 1961.
4. That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above ground are without prejudice to each other.”
Briefly stated the facts of the case are that the assessee is a public charitable trust registered under 12A of the Act. It filed its return of income on 19.09.2018 declaring Nil income. The return was selected for scrutiny assessment under CASS and accordingly statutory notices were issued and served upon the assessee.
During the course of scrutiny assessment proceedings, the AO noticed that the assessee has claimed accumulation of Rs. 85,26,540/- U/s 11(2) of the Act. On perusal of Form 10 filed by the assessee, the AO found that no specific purpose has been determined by the trust for accumulation.
The AO issued a show cause notice to the assessee asking it to explain why no specific purpose has been mentioned and to show caused why claim Page 2 of 8
ITA no.- 1242/Del/2023 Prernalaya Trust of accumulation should not be made ineligible for deduction. The assessee filed his detail reply relying upon certain judicial decisions. The reply of the assessee was dismissed by the AO, who completed the assessment by denying the claim of accumulation.
6. The assessee agitated the matter before the CIT(A), but without any success. Before us, the Counsel for the assessee drew out attention to the past history of the assessee in so far as mentioning of purpose for accumulation is concerned and pointed out that in past many years, the assessee has mentioned the accumulation as “Development Activities of the Society “or “Charitable Activities of the Society” which has been accepted by the AO. In support, the Counsel drew our attention to the resolution of the Board of Trustees.
7. In support strong reliance was placed on several decisions of the Hon’ble High Court of Delhi. Per contra, DR strongly supported the findings of the AO.
We have given a thoughtful consideration to the orders of the authorities below.
ITA no.- 1242/Del/2023 Prernalaya Trust 9. The only dispute is the purpose mentioned by the assessee in Form 10B.
It is a fact that in past years, the assessee has been mentioning purpose of accumulation as “Development Activities of the Society “or “Charitable Activities of the Society”, which is evident from the following chart:
9.1 The following resolution was passed by the Board of Trustees:
ITA no.- 1242/Del/2023 Prernalaya Trust 9.2 In the light of the above, let us now consider the some direct judgments of the Hon’ble Jurisdictional High Court of Delhi, first of it is, in the case of Hotel and Restaurant Association, 261 ITR 0190, the relevant finding read as under:
2. The following questions, stated to be substantial questions of law, have been proposed in the appeal memo; “A. Whether, on the facts and circumstances of the case, the Tribunal is justified holding that the accumulation of income by the assessee under s. 11(2) of the IT Act, 1961 (hereinafter referred to as the Act), for all objects for which the trust was created and not for specific purpose was neither prejudicial nor erroneous to the interests of the Revenue? B. Whether s. 11(2) of the Act makes it necessary for the assessee to make specific mention of any purpose or purposes to enable it to accumulate the income?
3. Briefly stated the material facts, leading to the present appeal, are that the respondent-assessee is a company registered under s. 25 of the Companies Act, 1956. It had been granted registration under s. 12A(a) of the Act. For the relevant previous year ending 31st March, 1992, by means of a resolution, the assessee decided to accumulate its income for a period of ten years for fulfillment of the objects for which it had teen created. Notice to that effect was given by filing the requisite statutory form, giving particulars of the income sought to be accumulated and invested in the specified securities. However, while completing assessment for the relevant assessment year, the AO declined to take into consideration the amounts so accumulated on the ground that in the statutory form the specific object for which the income was sought to be accumulated was not indicated. He accordingly, brought the said amount to tax.
4. Aggrieved the assessee preferred an appeal to the CIT(A), who, by his order at. 26th April, 1995, accepted the claim of the assessee. While holding that the notice to accumulate income by the assessee was in order, the CIT(A) observed that the assessee had passed a resolution to accumulate its income so as to apply the same in India in the next 10 years to achieve the object for which it had been incorporated; notice of this fact had been given to the AO in the prescribed format and further the said money had been invested in the specified securities. The CIT(A) thus, held that the assessee was entitled to exemption under s. 11(1)(b) of the Act. Page 5 of 8 ITA no.- 1242/Del/2023 Prernalaya Trust 5. Being dissatisfied the Revenue carried the matter in appeal to the Tribunal. The Tribunal has affirmed the view taken by the CIT(A). It has also noticed that the assessee had applied the accumulated income for achieving its object. Hence the present appeal.
We have heard Mr. R.D. Jolly, learned senior standing counsel for the Revenue. Mr. Jolly submits that the appellate authorities have failed to appreciate that in the prescribed form the assessee had failed to indicate the specific purpose for which the income was sought to be accumulated and, therefore, the statutory requirement had not been strictly complied with, dis- entitling the assessee from relief under s. 11(2) of the Act.
We do not agree. It is true that specification of certain purpose or purposes is needed for accumulations of trust's income under s. 11(2) of the Act. At the same time the purpose or purposes to be specified cannot be beyond the objects of the trust. Plurality of the purposes for accumulation is not precluded but it depends on the precise purpose for which the accumulation is intended. In the present case, both the appellate authorities below have recorded a concurrent finding that the income was sought to be accumulated by the assessee to achieve the object for which the assessee was incorporated. It is not the case of the Revenue that any of the objects of the assessee-company were not for charitable purpose. The aforenoted finding by the Tribunal is essentially a finding of fact giving rise to no question of law.”
9.3 This was followed by the Hon’ble High Court of Delhi in the case of Bharat Kalyan Pratishthan 299 ITR 0406 and Mitsui & Co.
Environmental Trust, 303 ITR 0111. In fact, in this case the Hon’ble High Court has distinguished the decision of the Hon’ble Calcutta High Court which has been relied upon by the AO.
Considering the facts in totality, in the light of the binding precedents of the Hon’ble jurisdictional High court, the appeal is allowed.
ITA no.- 1242/Del/2023 Prernalaya Trust 11. In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 26.09.2023.