IN THE ITAT MUMBAI BENCH ‘D’
Cotton Textiles Export Promotion Council
v.
Income-tax Officer (Exemptions), Range 1(1), Mumbai
K. C. Singhal, Judicial Member
And V. K. Gupta, Accountant Member
IT Appeal Nos. 6456 & 6576 (Mum.) of 2004
[Assessment year 2001-02]
October 11, 2007
Section 11 of the Income-tax Act, 1961 - Charitable or religious trust - Exemption of income from property held under - Assessment Year 2001-02 - Whether assessee can give notice in writing in Form No. 10 for more than one year in order to claim accumulation of income under section 11(2) and claim of assessee cannot be denied merely on ground that in subsequent year or years no further notice is given by assessee - Held, yes
The assessee-company was established as a non-profit making organization for the promotion and regulation of export of cotton textiles and was entitled to benefit of section 11. In the course of assessment proceedings for the assessment year 2001-02, the Assessing Officer found that the total receipts of the assessee including entrance fees amounted to Rs. 11,68,05,181 while the expenditure towards the charitable objects was Rs. 7,95,10,244. In view of the same, he was of the view that the assessee could not apply 75 per cent of income towards the charitable purposes. However, the assessee sought the accumulation of income under section 11(2). The same was denied by the Assessing Officer on the ground that statutory form No. 10 and copy of resolution in this regard had not been filed by the assessee along with the return of income. Consequently, accumulation was allowed only upto 25 per cent of the total receipts. On appeal, the assessee submitted that copy of the resolution along with the prescribed form 10 had been filed along with the return for the year 1992-93 and that it had been specified that the assessee could accumulate such income as would be available at the preceding year and nine subsequent previous years ending on 31-3-2001. The Commissioner (Appeals) held that the intention of accumulating income under section 11(2) has to be communicated to the department every year and, therefore, one time filing of Form No. 10 would not automatically entitle the assessee to claim the said benefit for succeeding assessment years. He, therefore, confirmed the order of the Assessing Officer.
On second appeal:
The perusal of section 11(2) reveals that in order to claim exemption under section 11(1), the assessee must apply 75 per cent, of its income towards the charitable purposes or religious purposes, as the case may be. In case, where assessee is unable to apply 75 per cent of such income to the charitable or religious purposes but is accumulated or set apart either in whole or in part for application such purposes then such income so accumulated or set apart is not to be included in the total income of the previous year. However, this benefit is available if two conditions are satisfied viz., (i) that a notice in writing is given to the Assessing Officer in the prescribed manner, and (ii) the money so accumulated or set apart is invested or deposited as per the requirement of sub-section (5) of section 11. At this stage it may be mentioned that accumulation can be made only for a period of 10 years. [Para 8]
If the above provisions are read, in isolation then one can reasonably interpret in the manner in which the Commissioner (Appeals) had interpreted the provisions. However, the entire scheme of the Act read with the rules made thereunder and the contents of the prescribed form should be read as a whole and in a harmonious manner. If two interpretations are possible, then, the one which achieves the object should be preferred as against the interpretation which frustrates the intent of the legislature. No doubt, the assessee can file notice in Form No. 10 in respect of each year along with the return of income whenever the assessee is unable to apply its income to the extent of 75 per cent to the charitable or religious purposes. But there is nothing in the provisions which prohibits the assessee to file the notice in Form No. 10 for more than one year. There may be cases where the assessee may intend to apply its income towards constructing of huge building to be used for the charitable or religious purposes and considering the quantum of expenditure, the income of one year may not be sufficient. In such an event, the assessee may be required to accumulate its income for various years for future application towards construction of such building. In such an event, the department cannot be said to be prejudiced if the assessee gives a notice in writing that it would accumulate or set apart the income relating to the current previous year, as well as the subsequent previous years. The rule making authority must have visualised such situation and, therefore, in order to avoid the multiplicity of the applications, it has been provided in Form No. 10 itself that an assessee can give notice in writing not only for the current year but also for the subsequent previous years. Form No. 10 clearly provides that notice can be given not only for the current previous year but also for subsequent previous years. If the contents of Form No. 10 are to be read along with the provisions of section 11(2) then, the only conclusion which can be arrived at is that the assessee can give notice in writing for more than one year and then claim of the assessee cannot be denied merely on the ground that in the subsequent year no further notice is given by the assessee. Once the rules are framed and form to be submitted is prescribed for the benefit of the assessee, then the tax authorities cannot be permitted to contend that the rules are contrary to the provisions of the Act. The rigour of the provisions of the Act can always be relaxed in favour the assessee either by Board circular or by enacting suitable rules. Therefore, if the Form No. 10 prescribed under the rules permit the assessee to give notice for subsequent year or years then claim of assessee cannot be denied ignoring the contents of Form No. 10. [Para 9]
In the instant case there was no dispute that Form No. 10 along with the copy of the resolution was filed along with the return of income pertaining to assessment year 1992-93. The perusal of the Form 10 clearly showed that notice was given in respect of 10 pervious years commencing from the assessment year 1992-93 and the income was sought to be accumulated for the period ending 31-3-2001. Further the objects for which the accumulation was sought had already been specified in the said form, which were for (i) acquiring and/or constructing building for the purpose of the council, (ii) setting up of research facilities for carrying out research activities, to promote, support, maintain and increase the export of cloth, yarn and madeup and/or to contribute sums to other organization for setting up research facilities having objects similar to that of the council, (iii) administrating the affairs of the members of the council and promoting and exports of cloth, yarn and madeup of all kinds. [Para 10]
In the instant case, all the conditions set out in section 11(2) had been complied with by the assessee. Consequently, the lower authorities were not justified in denying the benefit of accumulation for the year under consideration. However, the Assessing Officer would be at liberty to examine whether the provisions of section 11(5) have been complied with by the assessee or not. If the income so accumulated is ultimately either found to be not applied to charitable purposes or not invested as per section 11(5), then the same may be included in the total income of the assessee in accordance with the provisions of sub-section (3) of section 11. Subject to these observations, the order of the Commissioner (Appeals) was set aside and consequently, the Assessing Officer was directed to allow the accumulation under section 11(2). [Para 11]
The entrance fee received by the assessee, which was entitled to benefit of section 11, could not be treated as its income.