Director of Income-tax (Exemption) v. M/s Nbie Welfare Society
[Citation -2014-LL-1203-4]

Citation 2014-LL-1203-4
Appellant Name Director of Income-tax (Exemption)
Respondent Name M/s Nbie Welfare Society
Court HIGH COURT OF DELHI AT NEW DELHI
Relevant Act Income-tax
Date of Order 03/12/2014
Assessment Year 1996-97
Judgment View Judgment
Keyword Tags charitable institution • assessment proceeding • additional payment • managing committee • medical relief • admission fee • annual report • trust deed • substantial question law
Bot Summary: The assessing officer, after going through the reply of the respondent assessee, held that the explanation of assessee was vague and the purpose further utilization cannot be treated as accumulation for specific purpose. The accumulation is permitted provided the assessee specifies the purpose or purposes for which accumulation is required and necessary. The question whether and in which cases declaration regarding purpose of ITA 67/2003 Page 4 of 11 accumulation given by the assessee should be treated as sufficient was examined by the Delhi High Court in Commissioner of Income Tax v. Hotel and Restaurant Association ITR 190. 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. The decision in Hotel and Restaurant Association was referred to in another decision of the Delhi High Court in Bharat Kalyan Pratishthan v. Director of Income Tax 299 ITR 406 Delhi and it was observed that in the Hotel and Restaurant Association case this court had observed that if accumulation was for one or more purposes and these purposes were the objects of the institution, then it is permissible for the assessed to accumulate income for utilization of these objects. During the course of assessment proceeding as is apparent from the appellate proceedings, the assessee has clarified and stated that the money in question would only be used for the purpose of making payments to the members or their legal representatives in case of their death, retirement or permanent disability.


$ R146 * IN HIGH COURT OF DELHI AT NEW DELHI Date of decision: December 03, 2014 + ITA 67/2003 DIRECTOR OF INCOME TAX (EXEMPTION) ..... Appellant Through: Mr. Balbir Singh, Senior Standing Counsel with Mrs. Rubal Maini and Mr.Abhishek Singh Baghel, Advocates. versus M/S. NBIE WELFARE SOCIETY, NEW DELHI..... Respondent Through: None. CORAM: HON'BLE MR. JUSTICE SANJIV KHANNA HON'BLE MR. JUSTICE V. KAMESWAR RAO SANJIV KHANNA, J (ORAL) 1. This appeal by revenue pertains to assessment year 1996-97 and was admitted for hearing by order dated 6th November, 2006 on following substantial question of law:- Whether ITAT was correct in holding that by mentioned (sic. mentioning) Further utilization in Form No. 10 read with Rule 17 of Income Tax Rules, 1962 Assessee has fulfilled its obligation as required under Section 11 (2) of Act . ITA 67/2003 Page 1 of 11 2. respondent society claiming itself to be charitable institution had filed return of income for assessment year 1996-97 declaring nil taxable income. Respondent also filed Form No. 10 along with its return as required by section 11(2) of Act. During course of assessment proceedings, assessing officer, after going through return and Form No. 10, noticed that respondent assessee had accumulated Rs.27,54,839/- for description/purpose further utilization . said purpose/description, it was observed was not specific one, accordingly, respondent assessee was asked to explain why accumulation under Section 11(2) of Act should not be disallowed. Respondent assessee vide its letter dated 22.02.1999 submitted their explanation that accumulation was done for aims and objectives of society. assessing officer, after going through reply of respondent assessee, held that explanation of assessee was vague and purpose further utilization cannot be treated as accumulation for specific purpose. He observed that Form No. 10, filed by respondent assessee, did not meet statutory mandate as definite and concrete purpose/purposes should have been specifically stated in Form No. 10. Accordingly, assessing officer disallowed accumulation under section 11(2) and added it to total ITA 67/2003 Page 2 of 11 income of assessee. 3. Commissioner of Income Tax (Appeals) upheld view of Assessing Officer and rejected contention of assessee that expression further utilization was in context of objects of charity i.e. as per objectives for which respondent society was formed. He observed that accumulation or setting apart income in context of objectives alone would not meet statutory requirements under Section 11 (2) of Act. purpose for which it had been accumulated should be definite and specified. 4. On further appeal, Income Tax Appellate Tribunal (Tribunal, for short) reversed said findings. Tribunal observed that assessee had mentioned words further utilization in column No. 1 of Form No. 10, which meant that assessee was to utilize funds for benefit of members i.e. employees of New Bank of India in case of death, retirement and permanent disability. They referred to very object for which respondent society was formed. It was recorded that funds were paid/given to employees of New Bank of India in aforesaid eventualities and it was in this context, words further utilization had been mentioned. Referring to objectives of society, it was observed ITA 67/2003 Page 3 of 11 that respondent-assessee was to provide financial assistance to members in case of death, retirement and permanent disability. This was sole and only purpose for which funds could be utilized. It was held that description further utilization was neither vague nor unspecific. 5. Tribunal distinguished decision of Calcutta High Court in Director of Income Tax (Exemption) v. Trustees of Singhania Charitable Trust (1993) 199 ITR 819 (Cal) on ground that in said case, charitable trust had as many as 18 objectives and there was no specific objective for which accumulation had been sought. Further, in this case, objectives of respondent society were clear and specific and sole objective being that funds should be used for purpose of providing financial assistance to members in case of death, retirement and permanent disability. 6. It is obvious that purpose and objective behind Section 11 (2) of Act is to curtail long term accumulation of income by charitable institutions without specifying purpose for which funds were being accumulated. accumulation is permitted provided assessee specifies purpose or purposes for which accumulation is required and necessary. question whether and in which cases declaration regarding purpose of ITA 67/2003 Page 4 of 11 accumulation given by assessee should be treated as sufficient was examined by Delhi High Court in Commissioner of Income Tax v. Hotel and Restaurant Association (2003) (261) ITR 190 (Delhi). contention raised by revenue in said case was that Tribunal had failed to appreciate that in prescribed form, assessed has failed to indicate specific purpose for which income was sought to be accumulated and therefore, assessee had violated Section 11 (2) of Act. contention was rejected in following words:- ..6 We do not agree. It is true that specification of certain purpose or purposes is needed for accumulations of trust s income under Section 11 (2) of Act. At same time purpose or purposes to be specified cannot be beyond objects of trust. Plurality of purposes for accumulation is not precluded but it depends on precise purpose for which accumulation is intended. In present case, both appellate authorities below have recorded concurrent finding that income was sought to be accumulated by assessed to achieve object for which assessed was incorporated. It is not case of Revenue that any of objects of asses-see company were not for charitable purpose. aforenoted finding by Tribunal is essentially ITA 67/2003 Page 5 of 11 finding of fact giving rise to no question of law . 7. decision in Hotel and Restaurant Association (supra) was referred to in another decision of Delhi High Court in Bharat Kalyan Pratishthan v. Director of Income Tax (Exemption) (2008) 299 ITR 406 Delhi and it was observed that in Hotel and Restaurant Association case (supra) this court had observed that if accumulation was for one or more purposes and these purposes were objects of institution, then it is permissible for assessed to accumulate income for utilization of these objects. Reference was also made to Director of Income Tax (Exemption) v. Daulat Ram Education Society (2005) 278 ITR 260 (Delhi) wherein, assessee had specified eight purposes under Section 11 (2) of Act. This it was held was permissible. Thereafter, High Court observed as under:- 12 In present case, assessed has only three objects as far as its trust deed, copy of which has been placed on record, is concerned. trust deed requires trust to utilize its funds for charitable purposes which are medical relief, education and relief to poor. In application seeking exemption, assessed had specified these three objects. We are of opinion that it was not required for assessed to ITA 67/2003 Page 6 of 11 be more specific with regard to utilization of funds. 8. In case of Director of Income Tax v. Mamta Health Institute and Children (2007) 293 ITR 380 (Delhi), High Court referred to objectives for which society was formed which had seven clauses. Revenue had alleged that in Form No.10, assessee had failed to indicate specific purpose for which income was sought to be accumulated, but this submission was rejected by observing that assessee had placed copy of annual report in which he has specified items for which money was accumulated. It was accordingly observed:- 9 perusal of annual report as well as overview of these projects clearly shows that projects were in consonance with objectives sought to be achieved by assessed, which were for benefit of women and adolescent girls particularly in slums or in community which was not particularly well off. On going through objects of society, it is clear that assessed sought to accumulate funds for charitable purpose. Quite clearly, Tribunal was correct in its conclusion that decision of this Court would apply to facts of case and that assessed was entitled to benefit of accumulation. We do not find any infirmity in ITA 67/2003 Page 7 of 11 order passed by Tribunal. No substantial question of law arises for consideration . 9. In present case, assessing officer himself had noted in assessment order that aim and objective of assessee was to work for welfare of employees of New Bank of India. This undoubtedly was purpose and objective of society. Therefore, during course of assessment proceeding as is apparent from appellate proceedings, assessee has clarified and stated that money in question would only be used for purpose of making payments to members or their legal representatives in case of their death, retirement or permanent disability. Tribunal in impugned order has also referred to scheme floated by respondent assessee under which employees who were desirous of becoming members had to deposit Rs.10/- as admission fees and thereafter pay Rs.25/- per month for period of 25 years. scheme devised provided:- PRESENT SCHEME Membership : Membership of society shall be open to permanent employees of New Bank of India. Any employee desirous of becoming member may apply on prescribed form on payment of Rs.10/- as admission fee, duly recommended by any of office ITA 67/2003 Page 8 of 11 bearer or Managing Committee member of society employees appointed on part-time basis and 1/3rd or 2/3rd salary are not eligible for membership. Subscription : Under present scheme, every member shall subscribe sum of Rs.25/- per month for period of 25 years. Benefits: (a) in case of death : (i) Members in age group of below 50 years (as on 31-7-85) will be entitled to following benefits:- (a) sum of Rs.500/- p.m. shall be paid to nominee of deceased member for period of 15 years. (b) Lump sum additional payment of Rs.15,000/- shall be made to nominee of deceased member in addition in benefit referred above if member dies during period of service in bank. (ii) Members in age group of above 50 years (as on 31-07-1985) will be entitled to following benefits:- (a) sum of Rs.500/- p.m. shall be paid to nominee of deceased member till age of retirement with minimum period of 5 years. (b) lumpsum payment of Rs.15,000/- shall be made to nominee of deceased member in addition to benefit referred above (ii-a) if ITA 67/2003 Page 9 of 11 member dies during period of service in bank. Other benefits are also there which are in case of retirement and these have been given in part B of this scheme to extent that sum of Rs.500/- per month shall be paid to members as per calculation given in same. Further, other benefits in cases of death and permanent disability have also been given. Lastly, benefit have been given on resignation from bank prior to retirement. contention of learned counsel is that this is only object of assessee and there are no plurality of objects and as such if assessee had mentioned in form no. 10 that accumulation of funds w0ere for further utilization very purpose is to utilize amount of accumulation for further benefits to be given to members in case of death, retirement, permanent disability...... 10. Other benefits which were specified in part (b) of Scheme, which stipulated that sum of Rs.500/- shall be paid to members on event specified therein. 11. aforesaid contention has been accepted by Tribunal. findings recorded are in consonance with ratio of several decisions of this Court. ITA 67/2003 Page 10 of 11 12. In view of factual background, substantial question of law in terms of decisions of this court has to be answered in favour of respondent assessee and against appellant. appellant revenue, is not entitled to succeed. appeal is disposed of. There will be no order as to costs. SANJIV KHANNA, J V. KAMESWAR RAO, J DECEMBER 03, 2014/j ITA 67/2003 Page 11 of 11 Director of Income-tax (Exemption) v. M/s Nbie Welfare Society
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