In the ITAT
Additional Director of Income-tax (Exemption)
v.
Manav Bharati Child
Institute & Child Psychology
P.N. PARASHAR,
JUDICIAL MEMBER
AND DEEPAK R. SHAH,
ACCOUNTANT MEMBER
IT APPEAL
NO. 512 (
C.O.
NO.
131 (
[Assessment year
2001-02]
September 28, 2007
Section 11, read with sections 12 and 13, of
the Income-tax Act, 1961 - Charitable or religious trust - Exemption of income
from property held under - Assessment year 2001-02 - Whether so long as objects
of a society are for charitable purposes, merely because there is some surplus
in activities carried out by society, it would not disentitle it to claim
exemption under sections 11 and 12 - Held, yes - Whether there is no
prohibition in Act to remunerate interested person but such remuneration should
be commensurate with services rendered by them and so found, it cannot be said
that provisions of section 13(1)(c) are attracted so
as to deny benefit of exemption under sections 11 and 12 - Held, yes
Section 11 of the Income-tax Act, 1961 -
Charitable or religious trust - Exemption of income from property held under -
Assessment year 2001-02 - Whether though filing of Form No. 10 in respect of
accumulation of income is mandatory to claim exemption under sections 11 and 12
but same can be filed at any time during pendency of
assessment proceedings - Held, yes - Whether if Form No. 10 is filed, benefit
of accumulation of income for charitable purpose cannot be denied - Held, yes
FACTS
The assessee-society was running an
educational institution and was enjoying exemption under section 10(22)
in the past. During the assessment year 2001-02, the assessee filed an
application for registration under section 10(23C)(vi)
during the pendency of which, the assessee claimed
exemption under sections 11 and 12. The Assessing Officer found that financial
benefits were provided to the relatives of the Chairman, Members of Governing
Board and Members of the society. He also observed that huge surplus arose to
the assessee during the year which showed that activities of
the assessee was profit earning activity and not entirely for
educational purposes. On that basis, the Assessing Officer held that the
assessee had infringed the provisions of section 13(1)(c)
and, hence, benefit of exemption under sections 11 and 12 would not be allowed
to it. The other reason for denying the exemption under sections 11 and 12 was
that the assessee had not filed Form No. 10 in respect of surplus of income
while claiming exemption. On appeal, the Commissioner (Appeals) found that the
payments were made to the members of the society for the services rendered by
them. He further found that the assessee-society existed solely for educational
purposes since 1972 and was running two schools; all the receipts of the
society had been exclusively used for the purpose of society and the surplus
generated had also been applied for construction of new blocks for educational
activities which was the main object of the society and there was no finding of
the Assessing Officer that surplus had been utilized for any non-charitable
activity or any other object; the profit/surplus which had been generated had
not been applied for any personal purposes. Therefore, considering the said
fact, he held that the exemption under sections 11 and 12 could not be denied
and directed the Assessing Officer to compute income under sections 11 and 12
till the decision on application under section 10(23C) (vi).
On appeal, the assessee raised a cross
objection that form No. 10 can be filed at any time during pendency
of assessment proceedings.
HELD
In the instant case the assessee had been
claiming and being allowed exemption under section 10(22) which could be allowed only when the
assessee was an educational institution and existing solely for educational
purposes and not for the purpose of profit. Thus, the contention of the
Assessing Officer that huge surplus was accruing to the assessee and exemption
under sections 11 and 12 was not admissible was devoid of merits. So long as
the object are for charitable purposes, merely because there is some surplus in
the activities carried out by the society same would not disentitle it to claim
exemption under sections 11 and 12. Such exemption under sections 11 and 12 can
be denied provided there is violation as contemplated in section 13. Under
section 13(1)(c) only where the income or property is used for applying
directly or indirectly for the benefit of any person like author of the trust
or the person who has made substantial contribution or any trustee or manager
or any relative of such aforesaid person, etc., is given. As found by
the Commissioner (Appeals), the payments made to person referred to in
sub-section (3) of section 13 were for the services rendered by those persons
and which was commensurate with the nature of services rendered. There is no
prohibition in the Act to remunerate the interested person but such
remuneration should be commensurate with the services rendered by them. If so
found, it cannot be said that provisions of section 13(1)(c)
are attracted so as to deny benefit of exemption under sections 11 and 12.
Since it was found by the Commissioner (Appeals) that payment was not undue or
unreasonable, the exemption under sections 11 and 12 could not be denied.
Accordingly, there was no ground to deny the benefit of sections 11 and 12. [
As regards, the cross objection of the
assessee in respect of filing of Form No. 10, various courts have time and
again held that though filing of Form No. 10 in respect of accumulation of
surplus income is mandatory to claim exemption under sections 11 and 12, the
same can be filed at any time during the pendency of
assessment proceedings. If Form No. 10 is filed, the benefit of accumulation of
income for charitable purpose cannot be denied. Accordingly, the Assessing
Officer was to be directed to compute the income after allowing exemption under
sections 11 and 12 and also considering the application in Form No. 10
regarding accumulation of surplus income for the purpose of objects of trust. [
Case referred to
CIT v. Mayur
Foundation [2005] 274 ITR 562 (Guj.) (para
4).
Dinga Charan
Dash for the Appellant. Smt. Lalita Krishnamurthy for the
Respondent.
nn