M.P. GANDHI TRUST v. ASSISTANT DIRECTOR OF INCOME TAX
[Citation -2006-LL-0425-1]

Citation 2006-LL-0425-1
Appellant Name M.P. GANDHI TRUST
Respondent Name ASSISTANT DIRECTOR OF INCOME TAX
Court ITAT
Relevant Act Income-tax
Date of Order 25/04/2006
Assessment Year 1993-94, 1995-96
Judgment View Judgment
Keyword Tags public charitable trust • charitable institution • charitable activities • denial of exemption • charitable objects • medical treatment • audit report • time-limit • trust deed
Bot Summary: The learned counsel for the assessee drew our attention to page-1 of the paper book filed by the assessee wherein the assessee-trust had sought accumulation of the sum of Rs. 25 lakhs out of the income of the trust for a period of 10 years beginning from the previous year relevant to the asst. From the above, it is clear that the charitable trust has to apply 75 per cent of its income during the relevant financial year to charitable or religious purposes in India during the relevant financial year itself and in case it is not able to do so, it is permitted to accumulate or set apart either in full or in part the unutilized income of the previous year for application to such purpose in India for a period not exceeding 10 years and it has to obtain the permission of the AO by applying in the prescribed manner by stating the purpose for such accumulation or setting apart of the income is sought. In our view each and every assessment year is separate and the assessee-trust has to make an application under s. 11 in Form No. 10 every year in which it is unable to apply 75 per cent of its income of that year to charitable or religious purposes and unapplied amount of that particular year only can be accumulated for a period not exceeding ten years thereafter. As we have come to the conclusion that Form No. 10 has to be filed every year in which unapplied income of that year is sought to be accumulated or set apart, it goes without saying that the purpose also has to be mentioned in the Form No. 10 each year. The said purpose could be the same from year to year, but nevertheless, it is the duty of the assessee to mention the same in Form No. 1 0 as prescribed by law. The learned counsel for the assessee relied upon the following decisions in support of his contentions The decision of the Delhi High Court in the case of Director of IT vs. Guru Nanak Vidya Bhandar Trust 187 CTR 558: 272 ITR 379 wherein it was held that where the assessee was allowed to accumulate income in preceding as well as subsequent years and there was no change in objects of the assessee during the relevant assessment years, the accumulation of income could not be denied. As mentioned earlier, it can be permitted to accumulate only unutilized income of the relevant accounting year for a period of 10 years thereafter.


appeals of assessee are directed against CIT(A) s separate orders dt. 13th Nov., 1997 for asst. yrs. 1993-94 and 1995-96 respectively. Since common issue is involved in both years, appeals are heard together and disposed of by this common order. main grievance of assessee in these appeals is denial of exemption under s. 11(2) of Act during relevant assessment years in respect of income accumulated/set apart for application as per provisions of IT Act. Brief facts relating to issue are that assessee is charitable trust and it filed its audit report along with return of income for relevant previous year. assessee filed Form No. 10 along with resolution of trust. assessee had requested for accumulation of surplus funds under s. 11(2) of Act. purpose of accumulation was mentioned as "for making substantial donation to selected institutions after careful appraisal for meeting objects of trust". During asst. yr. 1993-94 assessee had claimed tax exemption of Rs. 4,96,204 being surplus and Rs. 1,66,864 for asst. yr. 1995- 96. AO rejected application of assessee holding that assessee had failed to state specific purpose of accumulation. Aggrieved, assessee filed appeal before CIT(A) who partly allowed appeal by permitting accumulation of 25 per cent of income of assessee as admissible under s. 11(1) of Act. Aggrieved, assessee is in appeal before us for balance amount. learned senior counsel, Shri S.E. Dastur, appearing for assessee submitted that assessee had initially made application under s. 11(2) of Act for accumulation of surplus amount upto Rs. 25 lakhs for period of 10 years from asst. yr. 1986-87 and during previous year 1989-90 application was only for raising limit from Rs. 25 lakhs to Rs. 50 lakhs and therefore, second notice is only extension of earlier notice. He submitted that accumulation was permitted in asst. yrs. 1989-90 and 1990-91 while it was denied in asst. yr. 1991-92 on ground that Form No. 10B was not filed along with return of income by assessee. Subsequently, by order under s. 264 of Act delay in filing Form No. 10B was condoned and AO was directed to accept Form No. 10B along with petition under s. 264 filed by assessee and allow benefit. said order was complied with. learned counsel for assessee drew our attention to page-1 of paper book filed by assessee wherein assessee-trust had sought accumulation of sum of Rs. 25 lakhs out of income of trust for period of 10 years beginning from previous year relevant to asst. yr. 1987-88 with view to enabling trust to make substantial donations for charitable objects particularly for construction or establishment of hospital, dispensary or decease detection centres, or medical research institutions, or educational institutions, widows homes, etc. or for their maintenance, consistent with objects of trust for relief to humanity. Thus, according to him notice contained purposes for accumulation of income for period of 10 years, i.e., upto 31st March, 1996. He also drew our attention to p. 5 of paper book which is resolution dt. 10th June, 1989 wherein amount for accumulation was sought to be raised to Rs. 50 lakhs to enable trust to utilize funds for fulfilling objects of trust. Thus, according to him, second notice is also only extension of first notice and as first notice contained all details second notice is valid in law. Thus, according to him, as accumulation has been permitted for period of 10 years, i.e., upto 31st March, 1996 upto amount of Rs. 50 lakhs rejection of application under s. 11(2) for asst. yrs. 1993-94 and 1995-96 was unwarranted and object need not be specified in Form No. 10 every year. learned Departmental Representative, on other hand, relied upon t h e orders of authorities below and submitted that each and every assessment year is separate and distinct. He submitted that s. 11 permits two types of deductions sub-s. (1) permits general accumulation of income for relevant assessment year upto limit of 25 per cent of income while sub- s . (2) permits accumulation of unutilized income of trust of relevant assessment year subject to fulfilment of conditions such as notice to AO in prescribed manner specifying purpose for which income is being accumulated or set apart and period for which accumulation or setting apart is sought which shall in no case exceed 10 years and; (b) money so accumulated or set apart is invested or deposited in forms or modifications specified in sub-s. (5) of s. 11. According to him assessee while making application under s. 11(2) has not specified specific purpose for which accumulation is sought and therefore AO was right in denying exemption under s. 11(2) of Act. Heard both parties and considered their rival contentions. For proper appreciation of facts, s. 11(2) as in force in relevant assessment year is reproduced hereunder: "Sec. 11(2) Where seventy-five per cent of income referred to in cl. (a) or cl. (b) of sub-s. (1) r/w Explanation to that sub-section is not applied, or is not deemed to have been applied, to charitable or religious purposes in India during previous year but is accumulated or set apart, either in whole or in part, for application to such purposes in India, such income so accumulated or set apart shall not be included in total income of previous year of person in receipt of income, provided following conditions are complied with, namely: (a) such person specifies, by notice in writing given to AO in prescribed manner, purpose for which income is being accumulated or set apart and period for which income is to be accumulated or set apart, which shall in no case exceed ten years; (b) money so accumulated or set apart is invested or deposited in forms or modes specified in sub-s. (5): Provided that in computing period of ten years referred to in cl. (a), period during which income could not be applied for purpose for which it is so accumulated or set apart, due to order or injunction of any Court, shall be excluded. Explanation. Any amount credited or paid, out of income referred to in cl. (a) or cl. (b) of sub-s. (1), r/w Explanation to that sub-section, which is not applied, but is accumulated or set apart, to any trust or institution registered under s. 12AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-cl. (iv) or sub-cl. (v) or sub-cl. (vi) or sub-cl. (via) of cl. (23C) of s. 10, shall not be treated as application of income for charitable or religious purposes, either during period of accumulation or thereafter. From above, it is clear that charitable trust has to apply 75 per cent of its income during relevant financial year to charitable or religious purposes in India during relevant financial year itself and in case it is not able to do so, it is permitted to accumulate or set apart either in full or in part unutilized income of previous year for application to such purpose in India for period not exceeding 10 years and it has to obtain permission of AO by applying in prescribed manner by stating purpose for such accumulation or setting apart of income is sought. From provisions of law, it does not emerge that assessee trust can seek to accumulate upto particular amount for period of ten years. Only unapplied income earned during year can be set apart or accumulated. In case on hand assessee trust has made application under s. 11(2) for accumulation of amount to limit of initially Rs. 25 lakhs and later Rs. 50 lakhs over period of 10 years which is not permissible under Act. In our view each and every assessment year is separate and assessee-trust has to make application under s. 11 (2) in Form No. 10 every year in which it is unable to apply 75 per cent of its income of that year to charitable or religious purposes and unapplied amount of that particular year only can be accumulated for period not exceeding ten years thereafter. There cannot be application for general accumulation over period of time." Coming to purpose for which income is sought to be accumulated or set apart by assessee as mentioned in notice under s. 11(2)(d) of A c t , assessee has mentioned that it was for purpose of making substantial donations to selected institutions after careful appraisal for meeting objects of trust. According to us, section only provides for specifying purpose for accumulating funds. assessee had mentioned purposes i.e., for making donations and has not mentioned specific institutions to which donations are to be made. As we have come to conclusion that Form No. 10 has to be filed every year in which unapplied income of that year is sought to be accumulated or set apart, it goes without saying that purpose also has to be mentioned in Form No. 10 each year. said purpose could be same from year to year, but nevertheless, it is duty of assessee to mention same in Form No. 1 0 as prescribed by law. learned counsel s arguments that since assessee had already mentioned specific purposes in its resolution in 1986, it need not be mentioned every year thereafter cannot be accepted. Now, it is to be examined whether purpose mentioned in Form No. 10 fulfils condition laid down in s. 11(2) of Act in light of judicial precedents on this subject. AO has relied upon decision of Calcutta High Court in case of Director of IT (Exemption) vs. Trustees of Singhania Charitable Trust (1993) 199 ITR 819 (Cal) wherein it was held that objects of trust cannot be listed as purposes of accumulation and purpose must be concrete one and itemized purpose or purpose instrumental or ancillary to implementation of its object. learned counsel for assessee relied upon following decisions in support of his contentions (i) decision of Delhi High Court in case of Director of IT (Exemption) vs. Guru Nanak Vidya Bhandar Trust (2004) 187 CTR (Del) 558: (2005) 272 ITR 379 (Del) wherein it was held that where assessee was allowed to accumulate income in preceding as well as subsequent years and there was no change in objects of assessee during relevant assessment years, accumulation of income could not be denied. (ii) Sir Sobha Singh Public Charitable Trust vs. Asstt. Director of IT (2001) 72 TTJ (Del)(TM) 1007: (2001) 79 ITD 1 (Del)(TM) wherein it was held as under: "Perhaps to meet contingency where fulfilment of project requires heavy outlay and calls for accumulation of funds, which wants to accumulate its income for long period of 10 years to carry out charitable objects as set out in trust deed, does require time to think, time to plan and time to garner its resources, etc. to fulfil those objects for which it has sought accumulation of funds and legislature in its wisdom has allowed long period of 10 years. Therefore, argument of Revenue that even when application for accumulation was filed, assessee trust must mention type of institution, medical or educational which it should set up as also type of educational or medical treatment which it would impart could not be appreciated. This was never intention of law makers and provision in form of concession was introduced thereby charitable institution need not pay any tax on its earning for good period of 10 years, provided it carried out charitable activities with view to fulfilling specific objects mentioned in application seeking accumulation." (iii) decision of Rajasthan High Court in case of CIT vs. Anjuman Moinia Fakharia (1994) 119 CTR (Raj) 91: (1994) 208 ITR 568 (Raj), is not applicable to facts of case because it relates to time-limit for filing application under s. 11(2). object of permitting accumulation or setting apart of income of trust is to facilitate trust to meet contingency where for fulfilment of its objects, heavy outlay is needed and accumulation of sufficient funds is called for. Therefore, accumulation must necessarily be for charitable purposes alone and as held by Hon ble Delhi High Court in case of Hotel & Restaurant Associated accumulation depends on precise purpose or object of trust and as long as it was for fulfilment of object of trust, exemption cannot be denied. In this case also, assessee was allowed to accumulate income in preceding as well as subsequent years and there was no change in objects of assessee during relevant assessment years. Therefore in our view, both AO as well as CIT(A) were not correct in denying exemption on ground that assessee has failed to state specific purpose of accumulation and that assessee had failed to apply their mind in their action to accumulate funds. But, assessee cannot be permitted to accumulate upto particular limit in general over period of time. As mentioned earlier, it can be permitted to accumulate only unutilized income of relevant accounting year for period of 10 years thereafter. In this view of matter, assessee s appeals for asst. yrs. 1993-94 and 1995-96 are allowed and AO is directed to compute income of assessee accordingly. In result, appeals are allowed. *** M.P. GANDHI TRUST v. ASSISTANT DIRECTOR OF INCOME TAX
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