ASSOCIATION FOR WELFARE OF THE HANDICAPPED,KOZHIKODE V. THE ITO EXEMPTION WARD, KOZHIKODE

ITA 305/COCH/2023

AI Insights

The case involves M/s. Association for Welfare of the Handicapped, which appealed against the order of the National Faceless Appeal Centre (NFAC), Delhi, which had disallowed their claim for exemption under Section 11 of the Income Tax Act for the Assessment Year 2011-12. The primary contention was whether the Form No. 10, filed to claim the exemption, was validly submitted in accordance with the statutory requirements. The Income Tax Officer (ITO) had disallowed the exemption on the grounds that the Form No. 10 was not filed within the prescribed time, as per Rule 17 of the Income Tax Rules. However, the assessee argued that the Form No. 10 was filed before the completion of the assessment, and thus, they were entitled to the exemption. The Tribunal examined the provisions of Section 11(2) and relevant judicial precedents, concluding that the rule could not override the section and that the absence of a specific time limit in the Act meant the Form No. 10 was filed in a timely manner.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 471744 (ITAT-COCHIN)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Other Referred Cases: CIT V. Shree Padmanbhaswami Temple Trust, ITO v. M.C.T Trust, Commissioner of Income tax, AP-II, Hyd. v.Mumtaz Yarud Dowla Waqf, Hyd, CIT v. Nagpur Hotel Owners Association
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJIT KUMAR DAS
• Assessee Lawyers: BINISHA BABY
• Keywords: Condonation of delay; Period of limitation
• Section: 143(3); 201; 11; 12AA

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH : COCHIN BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI SOUNDARARAJAN K., JUDICIAL MEMBER ITA No. 305/Coch/2023 Assessment Year : 2011-12 M/s. Association for Welfare of the Handicapped, AWHM Square Building, Pavamani Road, Calicut, Kozhikode – 673 001. Kerala. PAN: AAATA3349L Vs. The Income Tax Officer, Exemption Ward, Kozhikode. APPELLANT RESPONDENT Assessee by : Ms. Binisha Baby, Advocate Revenue by : Shri Sanjit Kumar Das, CIT-DR Date of Hearing : 27-11-2024 Date of Pronouncement : 19-02-2025 ORDER PER SOUNDARARAJAN K., JUDICIAL MEMBER This is an appeal filed by the assessee challenging the order of the NFAC, Delhi dated 20/03/2023 in respect of the A.Y. 2011-12 and raised the following grounds. Page 2 of 7 ITA No. 305/Coch/2023 “A. The impugned order to the extent objected to herein is illegal, arbitrary and unauthorized. B. The Learned Commissioner (Appeals) erred in assessing the accumulated amount in excess of the permitted limit of 15% of income without considering the notice under Sec.] 1(2) in Form No.10 even though they have allowed the application under Sec.] 1(2). As per Sec.11(2) of the Act, no time limit has been specified for filing Form 10. However, Rule 17 of the Income Tax Rules contemplates that Form 10 should be delivered before the expiry of the time allowed under Sec.139(1) and in this case the due date for filing is 30.09.2011. The appellant craves to bring into the notice the ratios of the various High Courts in CIT V. Shree Padmanbhaswami Temple Trust, (1979) 120 ITR 42(Ker), ITO v. M.C.T Trust,(1976)102 ITR 138(Mad),where it has been observed that the words \"In the prescribed manner\" in Sec.11(2) do not confer power on the rule making authority to prescribe a time limit in Rule 17. C. Furthermore, the amendment to Sec.11(2) Income Tax Act introduced through the Finance Act, 2015 which led to the addition that the Form 10 is to be delivered before the expiry of the time allowed under Sec.139(1) has only prospective effect from 01.04.2016. D. Moreover, in Commissioner of Income tax, AP-II, Hyd. v.Mumtaz Yarud Dowla Waqf, Hyd, it has been observed that since the period of limitation is not prescribed in section 11 of the Income Tax therefore, the intention of the Legislature is that the rule should be treated as directory and not mandatory. If it is so, then even if the notice is not issued within the period prescribed under rule 17 the assessee would be entitled to the benefit of section 11 of the Income Tax Act provided the notice is issued before the assessment is made. In the matter on hand, the Appellant had filed notice in Form 10 on 27.03.2013 way before the completion of assessment. E. Learned Commissioner (Appeals) erred in not appreciating the Honorable Supreme Court Judgement in the case of CIT v. Nagpur Hotel Owners Association ,(2001) 247 ITR 201(SC), where it has been categorically held that the assessing authority must have all these information at the time of completion of the assessment and thus the compliance under Sec.1 1(2) should be complied before the completion of the assessments. In the matter on hand, it has already been complied way before the completion of assessment. Page 3 of 7 ITA No. 305/Coch/2023 F. The Learned Commissioner (Appeals) ought to not to have dismissed the matter in tune with judgments of the High Court and the Hon'ble Supreme Court. For these and other grounds and documents to be submitted at the time of hearing and it is humbly prayed that the Tribunal be pleased to allow the appeal.” 2. The brief facts of the case are that the assessee is a society registered under the Societies Registration Act and also registered under section 12AA of the Act. For the A.Y. 2011-12, the assessee filed their return of income on 26/03/2013 declaring a Nil income after claiming the exemption u/s. 11 of the Act. The assessee also filed the form 10 on 27/03/2013 in which they explained the reasons for the accumulation. The assessee also filed a condonation petition for the delay in filing form 10 before the Ld.CIT, Calicut. 3. Thereafter the assessee’s case was selected for scrutiny through CASS and the AO had completed the assessment u/s. 143(3) of the Act in which the AO had disallowed the exemption claimed u/s. 11 of the Act. The AO had alleged that the assessee had not filed the form 10 before the due date prescribed for filing the return of income. The assessee challenged the said order before the Ld.CIT(A) on the ground that the form 10 was filed well before passing the assessment order and therefore the assessee was eligible for claiming the exemption u/s. 11 of the Act. The Ld.CIT(A) had not accepted the case of the assessee on relying on the provisions and rules. 4. As against the said order, the assessee is in appeal before this Tribunal. 5. At the time of hearing, the Ld.AR submitted that the authorities below had erred in assessing the accumulated amount even though notice in form no. 10 was filed well before passing of the assessment order. The Ld.AR further submitted that in this case the return was filed on 26/03/2013 and Page 4 of 7 ITA No. 305/Coch/2023 the form 10 was filed on 27/03/2013 and therefore the AO ought to have considered the form 10 available before him while passing the assessment order. The Ld.AR further submitted that there is no specific time limit prescribed under the provision 11(2) of the Act during the relevant assessment year and therefore, the form 10 filed before the assessment has been completed is in accordance with the judgment of Hon’ble Supreme Court reported in 247 ITR 201 in the case of CIT vs. Nagpur Hotel Owners Association. 6. The Ld.DR relied on the order of the lower authorities and also brought to our notice about the order passed by this Hon’ble Tribunal in ITA No. 199/Coch/2023 dated 09/12/2024 in the assessee’s own case for the A.Y. 2012-13 and prayed to dismiss the appeal. 7. We have heard the arguments of both sides and perused the materials available on record. 8. In order to appreciate the facts of the present case, we will refer section 11(2)(a) which exists until 31/03/2016 which reads as follows: “11 (2) Where [eighty-five] per cent of the income referred to in clause (a) or clause (b) of sub-section (1) read with the Explanation to that sub-section is not applied, or is not deemed to have been applied, to charitable or religious purposes in India during the 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 the total income of the previous year of the person in receipt of the income, provided the following conditions are complied with, namely:-] (a) such person specifies, by notice in writing given to the Assessing Officer in the Prescribed manner, the purpose for which the income is being accumulated or set apart and the period for which the income is to be accumulated or set apart, which shall in no case exceed ten years; Page 5 of 7 ITA No. 305/Coch/2023 (b) the money so accumulated or set apart is invested or deposited in the forms or modes specified in sub-section (5):” 9. From the above said provision existed during the relevant A/Y, we understand that the Act has not prescribed any time limit for filing the Form 10. Therefore prior to the amendment, the Act says that the assessee should give the notice in writing in the prescribed manner but silent about the time limit for filing the said notice in writing. Admittedly, in the present case, the assessee had filed their form no. 10 on 27/03/2013 whereas the AO had made the assessment on 27/03/2014, i.e. after the date of filing of form no. 10 and therefore the AO ought to have considered the said form 10 and granted the benefits conferred under the provisions of the Act. The only reason for not-considering the said form 10 is that the same was filed beyond the statutory period prescribed for filing the returns which in effect denied the exemption and subjected the said income as income of the current year. The AO relied on the Rule 17 in order to come to the above conclusion. We are of the considered view that rule cannot over ride the section. When there is no time limit prescribed under the main Act, by way of rule any restriction could not be made. At the best it can be taken as directory and not mandatory. This is the principle adopted by various High Courts. Therefore in our opinion the order of the AO is not in accordance with the provisions of the Act existed during the relevant A/Y. 10. We have also considered the judgment of the Hon’ble Supreme Court relied on by the Ld.AR in support of their case which has dealt with the similar facts, that too before the amendment in which it was held as follows: “It is abundantly clear from the wordings of sub-section (2) of Section 11 that it is mandatory for the person claiming the benefit of Section 11 to intimate to the assessing authority the particulars required, under Rule 17 in Form No.10 of the Act. If during the assessment proceedings the Assessing Officer does not have the necessary information, question of excluding such income from assessment does not arise at all. As a matter of fact, this benefit of excluding this particular part of the income from the net of taxation arises from Section 11 and is subjected to the conditions Page 6 of 7 ITA No. 305/Coch/2023 specified therein. Therefore, it is necessary that the assessing authority must have this information at the time he completes the assessment. In the absence of any such information, it will not be possible for the assessing authority to give the assessee the benefit of such exclusion and once the assessment is so completed, in our opinion, it would be futile to find fault with the assessing authority for having included such income in the assessable income of the assessee. Therefore, even assuming that there is no valid limitation prescribed under the Act and the Rules even then, in our opinion, it is reasonable to presume that the intimation required under Section 11 has to be furnished before the assessing authority completes the concerned assessment because such requirement is mandatory and without the particulars of this income the assessing authority cannot entertain the claim of the assessee under Section 11 of the Act, therefore, compliance of the requirement of the Act will have to be any time before the assessment proceedings” 11. The Ld.CIT(A) had not considered the judgment of the Hon’ble Supreme Court cited supra even though the assessee had relied on the same. Further, we have also seen that the AO had treated the form 10 filed u/s. 11(2) of the Act as the statement filed pursuant to Explanation (2) to section 11(1) of the Act which is not correct. 12. Now we will consider the order of the Coordinate Bench of this Tribunal cited supra and relied on by the Ld.DR in which the Tribunal has no occasion to consider the provision existed and also the judgment of the Hon’ble Supreme Court. In fact this was not brought to the notice of the Coordinated Bench while deciding the issue. Therefore the order passed by the Coordinate Bench of this Tribunal could not be treated as a precedent and therefore we are not in agreement with the view expressed in the said order. Further, the assessee had sought for the condonation of delay in filing form no. 10 before the Ld.CIT(A), Calicut and the same is still pending for consideration. In our view, there is no necessity for filing the said delay condonation application before the Ld.CIT(A), Calicut in view of the fact that section 11(2) of the Act does not prescribe any time limit for filing the Form 10 and also in view of the judgment of the Hon’ble Supreme Court cited Page 7 of 7 ITA No. 305/Coch/2023 supra which explained the correct position of law. In view of the above said discussion we have made, we are allowing this appeal filed by the assessee. 13. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 19th February, 2025. Sd/- Sd/- (INTURI RAMA RAO) (SOUNDARARAJAN K.) Accountant Member Judicial Member Bangalore, Dated, the 19th February, 2025. /MS / Copy to: 1. Appellant 2. Respondent 3. CIT 4. DR, ITAT, Cochin 5. Guard file 6. CIT(A) By order Assistant Registrar, ITAT, Cochin "