Case Note & Summary
The Revenue appealed against the order of the Income Tax Appellate Tribunal which granted the benefit of Section 11(2) of the Income Tax Act, 1961 to the assessee, a registered charitable trust. For the Assessment Year 2005-06, the trust declared nil income after collecting donations of Rs. 32,47,909/- and incurring incidental expenses of Rs. 7,527/-. The remaining amount was claimed as accumulation under Section 11(2) by filing Form No. 10, which stated purposes such as conducting activities in academics, architecture, music, literature, running educational institutions for the poor, and assisting medical institutions. However, the trust did not specify the object of accumulation and did not invest the accumulated income in the modes prescribed under Section 11(5). The Assessing Officer denied the accumulation benefit, but the Tribunal allowed it. The High Court framed the substantial question of law regarding the correctness of the Tribunal's decision. The court noted that the trust had not carried on any charitable activity during the year and had not complied with the requirements of Section 11(2) and Section 11(5). The court held that the benefit of accumulation under Section 11(2) is conditional upon specifying the object of accumulation and investing in prescribed modes. Since the trust failed to do so, the appeal was allowed, and the order of the Tribunal was set aside.
Headnote
A) Income Tax - Charitable Trust - Accumulation under Section 11(2) - Requirement to Specify Object - The assessee trust claimed accumulation of 85% of donations under Section 11(2) but did not specify the object of accumulation in Form No. 10. The court held that the object of accumulation must be specified to avail the benefit. (Paras 2-4)
B) Income Tax - Charitable Trust - Accumulation under Section 11(2) - Compliance with Section 11(5) - The assessee trust failed to invest the accumulated income in the modes prescribed under Section 11(5). The court held that compliance with Section 11(5) is mandatory for claiming accumulation benefit. (Paras 2-4)
C) Income Tax - Charitable Trust - Accumulation under Section 11(2) - Charitable Activity - The assessee trust did not carry on any charitable activity during the assessment year. The court held that the trust must engage in charitable activities to claim accumulation. (Paras 3-4)
Issue of Consideration
Whether the Appellate Authority were correct in holding that the assessee was entitled to accumulation of income of 85% of the donations received during the current assessment year under Section 11(2) of the Act without specifying the object of accumulation and without complying with Section 11(5) of the Act?
Final Decision
The appeal is allowed. The order of the Income Tax Appellate Tribunal, Bangalore in ITA No.8/BNG/2009 dated 26/06/2009 is set aside. The order of the Deputy Commissioner of Income Tax (Exmp) Circle, 17(2), Bangalore is restored.
Law Points
- Section 11(2) of the Income Tax Act
- 1961 requires specification of object of accumulation
- Section 11(5) mandates investment in prescribed modes
- charitable trust must comply with both conditions for accumulation benefit
Case Details
2015 LawText (KAR) (03) 27
K V Aravind (for appellants), A Shankar & M Lava (for respondent)
The Director of Income Tax, Exemptions, Bangalore and The Deputy Commissioner of Income Tax (Exmp) Circle-17(1), Bangalore
Envisions, No.203, Camelot, Kensington Road, Ulsoor, Bangalore
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Nature of Litigation
Appeal by Revenue against order of Income Tax Appellate Tribunal granting benefit of Section 11(2) to assessee trust.
Remedy Sought
Revenue sought to set aside the Tribunal's order and confirm the Assessing Officer's order denying accumulation benefit.
Filing Reason
Revenue challenged the Tribunal's decision allowing accumulation of 85% of donations without specifying object and without complying with Section 11(5).
Previous Decisions
Assessing Officer denied accumulation benefit; Commissioner of Income Tax (Appeals) allowed it; Tribunal confirmed the Commissioner's order.
Issues
Whether the assessee was entitled to accumulation of income under Section 11(2) without specifying the object of accumulation?
Whether the assessee was entitled to accumulation without complying with Section 11(5) regarding investment in prescribed modes?
Whether the assessee was entitled to accumulation when no charitable activity was carried on during the assessment year?
Submissions/Arguments
Revenue argued that the assessee did not specify the object of accumulation in Form No. 10 and did not invest in prescribed modes under Section 11(5), and no charitable activity was carried on.
Assessee argued that the accumulation was for the purposes of the trust and the Tribunal correctly granted the benefit.
Ratio Decidendi
For claiming benefit of accumulation under Section 11(2) of the Income Tax Act, 1961, the assessee must specify the object of accumulation in Form No. 10 and must invest the accumulated income in the modes prescribed under Section 11(5). Failure to comply with these conditions disentitles the assessee to the accumulation benefit.
Judgment Excerpts
This is an appeal filed by the Revenue against the order of the Tribunal whereby the benefit of Section 11(2) of the Income Tax Act, 1961 has been granted in favour of the assessee.
The brief facts of this case are : That the respondent – assessee is a registered charitable trust. For the relevant Assessment Year 2005-06, the Assessee had declared its total income as nil.
The remaining amount was claimed by the Assessee as accumulation u/s 11(2) of the Act by filing Form -10 in which the following purposes were stated: a) To conduct various activities in the field of Academics, Architecture, Music and Literature for preservation of our heritage. b) To run maintain educational or other institution for providing and promoting education for poor and weaker sections of the society. c) To run, maintain or assist any medical institution to grant assistance to indigent needy people for meeting the cost of medical
Procedural History
Assessing Officer denied accumulation benefit under Section 11(2) for Assessment Year 2005-06. Assessee appealed to Commissioner of Income Tax (Appeals) who allowed the appeal. Revenue appealed to Income Tax Appellate Tribunal, Bangalore which confirmed the Commissioner's order. Revenue then filed this appeal under Section 260-A of the Act before the High Court of Karnataka.
Acts & Sections
- Income Tax Act, 1961: Section 11(2), Section 11(5), Section 260-A
