Bagalkot Town Development Authority, Bagalkot V. CIT, Belgaum

ITA 1151/BANG/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73374 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 17-02-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 10-09-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M TIRUMALA KUMAR CITIDR
• Assessee Lawyers: P DINESH
• Keywords: Charitable institution; Assessment record; Condonation of delay
• Section: 143(3); 12A; 10B; 263; 63; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N. BARATHVAJA SANKAR, VICE PRESIDENT AND SHRI N.V. VASUDEVAN, JUDICIAL MEMBER ITA NO.1151/BANG/2012 ASSESSMENT YEAR : 2008-09 BAGALKOT TOWN DEVELOPMENT AUTHORITY, BELGAUM ROAD, BAGALKOT 587 102. PAN : AAALB 0234F VS. THE COMMISSIONER OF INCOME TAX, BELGAUM. APPELLANT RESPONDENT APPELLANT BY : SHRI P. DINESH, ADVOCATE RESPONDENT BY : SHRI M. TIRUMALA KUMAR, CIT-I(DR) DATE OF HEARING : 07.01.2014 DATE OF PRONOUNCEMENT : 22.01.2014 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS APPEAL IS BY THE ASSESSEE AGAINST THE ORDER D ATED 24.07.2012 OF THE COMMISSIONER OF INCOME-TAX, BELGAUM [CIT] PASSED U/S. 263 OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'T HE ACT']. ITA NO. 1151/BANG/2012 PAGE 2 OF 17 2. THE ASSESSEE IS A TOWN DEVELOPMENT AUTHORITY ES TABLISHED BY THE STATUTE OF KARNATAKA LEGISLATURE TO CARRY OUT CERTA IN PUBLIC WORKS SUCH AS REHABILITATION OF DISPLACED PEOPLE FROM THE CONSTRU CTION OF ALMATTI DAM AND ALSO INFRASTRUCTURE DEVELOPMENT ON THE RESETTLED AR EA. IT IS NOT IN DISPUTE THAT THE ASSESSEE WAS GRANTED REGISTRATION U/S. 12A A OF THE ACT AND WAS CONSIDERED AS AN INSTITUTION EXISTING FOR A CHARITA BLE PURPOSE. ACCORDINGLY, INCOME OF THE ASSESSEE WAS EXEMPT FROM INCOME TAX U /S. 11 OF THE ACT. 3. FOR THE A.Y. 2008-09, THE ASSESSEE FILED RETURN OF INCOME CLAIMING EXEMPTION U/S. 11 OF THE ACT. THE ASSESSEE WAS GOV ERNED BY KARNATAKA IMPROVEMENT BOARDS ACT, 1976 [KIBA FOR SHORT]. T HE ASSESSEE WAS CONSTITUTED AS A STATUTORY BODY WITH STATUTORY POWE RS FOR THE PURPOSE OF REHABILITATION OF PEOPLE IN BAGALKOT CONSEQUENT TO THE DISPLACEMENT BY CONSTRUCTION OF ALMATTI DAM. THE ASSESSEE WAS ACCO RDINGLY CONSTITUTED BY VIRTUE OF 12A OF THE KIBA. AS PER THE PROVISIONS OF SECTION 39 OF KIBA, THE BOARD WHICH INCLUDES THE ASSESSEE SHALL HAVE TO MAI NTAIN ITS OWN FUND TO WHICH IT SHALL CREDIT MONIES RECEIVED FROM THE GOVE RNMENT BY WAY OF GRANTS, LOANS, ADVANCES OR OTHERWISE; ALL MONIES RE CEIVED BY THE BOARD BY WAY OF RENTS OR PROFITS OR IN ANY OTHER MANNER OR F ROM ANY OTHER SOURCE. SECTION 39(2) FURTHER LAYS DOWN THAT THE FUND SHALL BE APPLIED BY THE BOARD IN THE ADMINISTRATION OF KIBA AND FOR NO OTHER PURP OSE. SECTION 46 OF THE ACT PROVIDES FOR AUDIT OF THE ACCOUNTS. ITA NO. 1151/BANG/2012 PAGE 3 OF 17 4. THE RETURN OF INCOME FILED BY THE ASSESSEE DECLA RING NIL INCOME WAS ACCEPTED BY THE ASSESSING OFFICER IN AN ORDER OF AS SESSMENT U/S. 143(3) OF THE ACT DATED 02.11.2010. 5. THE CIT IN EXERCISE OF HIS POWERS U/S. 263 OF TH E ACT AND ON PERUSAL OF THE ASSESSMENT RECORDS OF THE ASSESSEE FOR THE A .Y. 2008-09 WAS OF THE VIEW THAT THE ORDER OF THE ASSESSING OFFICER ALLOWI NG EXEMPTION U/S. 11 OF THE ACT TO THE ASSESSEE WAS ERRONEOUS AND PREJUDICI AL TO THE INTERESTS OF THE REVENUE FOR THE FOLLOWING REASONS:- 1. THE ASSESSEE HAS CLAIMED EXEMPTION OF INCOME U/S. 1 1 OF THE INCOME TAX ACT, 1961. ACCORDING TO CIT, THE ASS ESSMENT RECORDS SHOWED THAT THE ASSESSEE HAS NOT APPLIED 85 % OF INCOME TOWARDS CHARITABLE OR RELIGIOUS PURPOSE IN INDIA DU RING THE PREVIOUS YEAR AND HAS ACCUMULATED THE INCOME. IT HA S NOT SUBMITTED FORM NO. 10 AND HAS NOT SPECIFIED BY NOTI CE IN WRITING GIVEN TO THE ASSESSING OFFICER IN THE PRESCRIBED MA NNER, THE PURPOSE FOR WHICH THE INCOME IS BEING ACCUMULATED O R SET A PART AND THE PERIOD FOR WHICH THE INCOME IS TO BE ACCUMU LATED OR SET A PART. 2. FURTHER THE CIT ALSO NOTICED THAT FOLLOWING DEPOSIT S WERE MADE INTO THE BANK ACCOUNTS. BANK FIXED DEPOSIT FRESH (UNDER KGJNL FUNDS ACCOUNT) RS. 10,00,000 BANK FIXED DEPOSIT FRESH (UNDER CORNER PLOT ACCOUNT RS.9,95,00,000 BANK FIXED DEPOSIT FRESH (UNDER SITE COST ACCOUNT) RS.2,65,00,000 REDEPOSIT OF ACCRUED INTEREST BANKS (UNDER KBJNL FUNDS ACCOUNT) RS. 3,33,669 REDEPOSIT OF ACCRUED INTEREST BANKS(UNDER CORNER PLOT ACCOUNT) RS. 97,39,628 REDEPOSIT OF ACCRUED INTEREST BANKS (UNDER SITE COST ACCOUNT) RS.2,10,13,299 TOTAL RS.15,80,86,596 ITA NO. 1151/BANG/2012 PAGE 4 OF 17 THE DEPOSITS MADE AS ABOVE INTO BANK ACCOUNT WAS CLAIMED AS APPLICATION OF INCOME FOR CHARITABLE PUR POSE, WHICH ACCORDING TO CIT DOES NOT AMOUNT TO APPLICATI ON TOWARDS OBJECTS. 3. SINCE THE ASSESSEE WAS REQUIRED TO SUBMIT FORM NO. 10 AND INTIMATE THE ASSESSING OFFICER REGARDING ACCUMULATI ON OF 15% OF THE INCOME IN ACCORDANCE WITH SECTION 11(2) OF THE INCOME TAX ACT, 1961, THE CIT WAS OF THE VIEW THAT THE SUM OF RS. 15,80,86,596/- OUGHT TO HAVE BEEN TREATE D AS INCOME AND BROUGHT TO TAX BY THE ASSESSING OFFICER. THERE WAS FAILURE ON THE PART OF THE ASSESSING OFFICER AN D HAS NOT APPLIED THE CORRECT LAW. THERE IS LACK OF VERIFICAT ION AND THE ORDER HAS BEEN PASSED IN A PERFUNCTORY MANNER. 6. ANOTHER REASON GIVEN BY THE CIT IN THE SHOW CAUS E NOTICE WAS WITH REGARD TO NON-VERIFICATION OF THE EXPENSES CLAIMED BY THE ASSESSEE IN THE INCOME AND EXPENDITURE ACCOUNT. ON THIS ISSUE, TH E CIT DID NOT EXERCISE JURISDICTION U/S. 263 OF THE ACT AND THEREFORE THIS ISSUE BECOMES IRRELEVANT AS FAR AS THE PRESENT APPEAL IS CONCERNED. 7. IN REPLY TO THE SHOW CAUSE NOTICE ISSUED BY THE CIT U/S.263 OF THE ACT AS SET OUT IN PARA-5 ABOVE, THE ASSESSEE SUBMIT TED THAT IT WAS AN AUTHORITY CONSTITUTED UNDER KIBA AND EXISTING FOR A CHARITABLE PURPOSE. IT WAS ALSO POINTED OUT THAT THE ENTIRE FUNDS BELONGED TO GOVT. OF KARNATAKA AND THE ASSESSEE IS ACTING AS AN AGENT ON ITS BEHAL F AND IMPLEMENTING AND EXECUTING PROJECTS. THE ASSESSEE FURTHER SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION IT HAS MADE FRESH DEPOSITS AND REDEPOSIT OF ACCRUED INTEREST UNDER DIFFERENT FUND ACCOUNTS (KJBNL FUND ACCOUNT, CORNER PLOT ITA NO. 1151/BANG/2012 PAGE 5 OF 17 ACCOUNT AND SITE COST ACCOUNT) OF RS.15,80,86,596. THE ASSESSEE SUBMITTED THAT THESE DEPOSITS ARE MADE FOR CREATION OF CORPUS FUND AS PER THE DIRECTION OF GOVT. OF KARNATAKA VIDE LETTER NO. HRD 26/REH 2006 DATED 25.02.2006 AND NO.HRD 100/REH 2010 DATED 21.06.2010 ISSUED BY THE UNDER SECRETARY, REVENUE DEPARTMENT, LAND ACQUISITI ON-2 AND REHABILITATION. THE ABOVE SAID BANK FRESH DEPOSITS AND REDEPOSIT OF ACCRUED INTEREST TOWARDS CORPUS FUND CANNOT BE TREA TED AS INCOME OR IN THE ALTERNATIVE HAS TO BE TREATED AS APPLICATION FOR CH ARITABLE PURPOSE U/S. 11(1)(A) OF THE ACT AS CREATION OF CORPUS FUND IS A LSO ONE OF THE OBJECTS OF THE ASSESSEE. 8. THE CIT, HOWEVER, DID NOT AGREE WITH THE SUBMISS IONS MADE ON BEHALF OF THE ASSESSEE. HE HELD NON-FURNISHING OF FORM NO.10 FOR ACCUMULATION OF INCOME WHICH HAVE BEEN DEPOSITED IN FDS AND REDEPOSITS WITH ACCRUED INTEREST AMOUNTING TO RS.15,80,86,596/ -, HAS NOT BEEN EXPLAINED BY THE ASSESSEE. THE ASSESSEE HAS NOT CO MPLIED WITH VARIOUS CONDITIONS REQUIRED TO BE FULFILLED AS PER SECTION 11(2) OF THE I.T. ACT. THE ASSESSEE HAS REMAINED SILENT ON THE ISSUE RAISED IN THE NOTICE U/S 263 FOR ACCUMULATING PROFITS TO THE EXTENT OF RS.15,80,86,5 96/- WITHOUT GIVING NOTICE IN WRITING TO THE ASSESSING OFFICER IN THE PRESCRIB ED MANNER (FORM NO.10) AND WITHOUT SPECIFYING THE PURPOSE FOR WHICH THE IN COME WAS BEING ACCUMULATED OR SET APART AND THE PERIOD FOR WHICH T HE INCOME WAS ACCUMULATED OR SET APART AS PER SECTION 11(2) OF TH E I.T. ACT. THE CIT HELD THAT AS PER RULE 17 OF THE I.T. RULES IF SUCH TRUST /INSTITUTION WAS INTENDING TO ITA NO. 1151/BANG/2012 PAGE 6 OF 17 ACCUMULATE PROFIT BEYOND THE PRESCRIBED LIMITS, IT WAS REQUIRED TO GIVE NOTICE TO THE ASSESSING OFFICER IN FORM NO.10 ON OR BEFORE THE DUE DATE OF FURNISHING THE RETURN OF INCOME. THE CIT FURTHER H ELD THAT FORM NO.10 WAS NOT FURNISHED BEFORE THE ASSESSING OFFICER ON OR BE FORE THE DUE DATE OF FILING THE RETURN AND NOT EVEN BEFORE THE COMPLETIO N OF THE ASSESSMENT. THE CIT REFERRED TO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. NAGPUR HOTEL OWNERS ASSOCIATION (247 ITR 201) (SC) WHEREIN THE ASSESSEE HAD NOT FURNISHED THE REQUIRE D INFORMATION IN THE PRESCRIBED FORM TILL THE COMPLET ION OF ASSESSMENT AND THE HONBLE SUPREME COURT HELD THAT EVEN ASSUMING THAT THERE WAS NO VALID LIMITATION PRESCRIBED UNDER ACT, THE INTIMATION U/S 11(2) HAS TO BE FURNISHED BEFORE THE ASSESSING AUTHORITY COMPLETES THE ASSESS MENT. THE CIT HELD THAT IN THE CASE OF THE ASSESSEE IT HAD NOT FILED T HE REQUIRED INFORMATION IN FORM NO.10 BEFORE THE ASSESSING OFFICER ON OR BEFOR E THE EXPIRY OF THE TIME ALLOWED U/S 139(1) OF THE I.T ACT FOR FURNISHING TH E RETURN OF INCOME AND HAS NOT FURNISHED EVEN BEFORE THE ASSESSING OFFICER BEF ORE THE COMPLETION OF THE ASSESSMENT. THEREFORE THE ASSESSEE IS NOT ENTIT LED FOR THE BENEFIT OF EXCLUSION OF INCOME U/S 11(2) OF THE I.T. ACT. 9. THEREAFTER THE CIT COMPUTED 15% OF ACCUMULATION WITHOUT FILING FORM NO.10 WHICH HAD TO BE CONSTRUED AS INCOME AS F OLLOWS: THE ASSESSEE HAS SHOWN INCOME OF RS.47,66,36,982/- AND THE APPLICATION OF INCOME HAS BEEN SHOWN AT RS.48,11,29 ,497/-. THIS SHOWS THAT IN THE APPLICATION OF THE INCOME, THE IN COME OF THE PAST YEARS HAVE ALSO BEEN INCLUDED. OUT OF THE INCO ME OF THE YEAR ITA NO. 1151/BANG/2012 PAGE 7 OF 17 OF RS.47,66,36,982/-, AS PER SECTION 11(2) OF THE I .T. ACT, THE ASSESSEE WAS REQUIRED TO APPLY 85% OF THE INCOME WH ICH COMES TO RS.40,51,41,434/- FOR CHARITABLE PURPOSES DURING THE YEAR. WHEREAS THE ASSESSEE HAS ACTUALLY APPLIED FOR CHARI TABLE PURPOSES OUT OF THE INCOME OF THIS YEAR ONLY TO THE TUNE OF RS.31,85,50,386/- (47,66,36,982 - 15,80,86,596) [AS MENTIONED ABOVE RS. 15,80,86,596/- IS NOT APPLICATION OF INCO ME FOR CHARITABLE PURPOSES BUT REPRESENTS DEPOSITS/REDEPOS ITS IN FDS]. AS PER THE PROVISIONS OF SECTION 11(2) OF THE I.T. ACT THE DIFFERENCE OF RS.40,51,41,434/- AND OF RS.31,85,50,386/- WHICH COMES TO RS.8,65,91,048/- SHOULD HAVE BEEN ASSESSED AS TOTAL INCOME OF THE ASSESSEE FOR THE A.Y. 2008-09. ACCORDINGLY THE CIT DIRECTED THE AO TO ENHANCE THE INCOME OF THE ASSESSEE BY RS.8,65,91,048/- FOR THE A.Y. 2008-09 A ND ADOPT THE TOTAL INCOME OF THE ASSESSEE FOR THE A.Y. 2008-09 AT RS.8 ,65,91,050/- WHILE GIVING EFFECT TO HIS ORDER. 10. AGGRIEVED BY THE ORDER OF THE CIT U/S. 263 OF T HE ACT, THE ASSESSEE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNA L. 11. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT AS PER THE KIBA, ALL MONIES RECEIVED HAVE TO BE APPLIED FOR THE PURPOSE FOR WHICH THE ASSESSEE WAS CREATED AND THEREFORE THERE CANNOT BE ANY DISPU TE WITH REGARD TO APPLICATION OF INCOME FOR CHARITABLE PURPOSE. IT W AS FURTHER SUBMITTED THAT THE ASSESSEE WAS CONTROLLED AND SUPERVISED BY THE S TATE GOVT. AND WHOLLY FINANCED BY THE STATE GOVT. THE INTEREST INCOME WH ICH THE ASSESSEE EARNED ON DEPOSITS WHICH WERE AGAIN REDEPOSITED AND REFLECTED AS REDEPOSIT OF ACCRUED INTEREST TOTALING TO RS.15,80, 86,596 AND REFERRED TO IN THE SHOW CAUSE NOTICE ISSUED BY THE CIT WOULD NOT C ONSTITUTE INCOME OF THE ITA NO. 1151/BANG/2012 PAGE 8 OF 17 ASSESSEE AT ALL, IN VIEW OF THE DECISION OF THE HON BLE KARNATAKA HIGH COURT IN THE CASE OF CIT V. KARNATAKA URBAN INFRASTRUCTURE DEVELOPMENT & FINANCE CORPORATION,[KUIDFC] 284 ITR 582 (KAR) , WHEREIN THE HONBLE HIGH COURT HELD THAT INTEREST INCOME EARNED BY PARKING OF FUNDS RECEIVED FROM THE GOVERNMENT FOR EXECUTION AND DEVE LOPMENT OF URBAN INFRASTRUCTURE IN BANGALORE CITY HAD TO BE APPLIED ONLY FOR THE PURPOSE FOR WHICH THE FUNDS WERE GIVEN AND SUCH INTEREST INCOME EARNED WILL ALSO ASSUME THE CHARACTER OF FUNDS PROVIDED BY THE GOVER NMENT AND CANNOT BE BROUGHT TO TAX AS INCOME FROM OTHER SOURCES. 12. ACCORDING TO THE LD. COUNSEL FOR THE ASSESSEE, THE AFORESAID RATIO WOULD APPLY TO THE CASE OF THE ASSESSEE AND THEREFO RE OUT OF THE TOTAL INCOME OF RS.47,66,36,982, INTEREST ON BANK FD OF R S.3,33,699 WHICH IS DEPOSITED IN KBJNL FUND ACCOUNT AND RS.97,39,628 WH ICH IS INTEREST ON FDS ON BANK FD INTEREST UNDER CORNER PLOT ACCOUNT A ND RS.2,10,13,299 WHICH IS INTEREST ON FDS UNDER SITE COST ACCOUNT, I N ALL TOTALING RS.3,10,85,586 WILL HAVE TO BE REDUCED FROM THE INC OME FOR THE PURPOSE OF DETERMINING INCOME THAT COULD BE ACCUMULATED IN TER MS OF SECTION 11(2) OF THE ACT. 13. WITH REGARD TO NON-FILING OF FORM 10 REGARDING ACCUMULATION TO THE EXTENT OF 15% OF THE INCOME, THE LD. COUNSEL FOR TH E ASSESSEE PLACED RELIANCE ON THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF ITO V. SRI KIKABHAI PREMCHAND TRUST [2010] 42 SOT 4 03 WHEREIN ITA NO. 1151/BANG/2012 PAGE 9 OF 17 IT WAS HELD THAT NON-FILING OF FORM 10B ALONG WITH RETURN OF INCOME IS NOT FATAL TO THE CLAIM FOR EXEMPTION U/S. 11 OF THE ACT . WE ARE OF THE VIEW THAT THIS DECISION WILL NOT BE RELEVANT IN THE PRESENT C ASE FOR THE REASON THAT THE REQUIREMENT IN THE PRESENT CASE IS FILING OF FORM 1 0 U/S. 11(2) R.W. RULE 17 OF THE I.T. RULES, 1962. SECONDLY, FORM 10B IN THE CASE CITED BY THE LD. COUNSEL FOR THE ASSESSEE HAD BEEN FILED DURING THE COURSE OF ASSESSMENT PROCEEDINGS, WHEREAS IN THE PRESENT CASE FORM 10 HA S NOT BEEN FILED BY THE ASSESSEE. THEREFORE, THE DECISION RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE WILL NOT BE OF ANY ASSISTANCE TO THE PLEA PUT FORTH BY THE ASSESSEE BEFORE US. 14. THE LD. DR REITERATED THE STAND OF THE CIT AS R EFLECTED IN THE IMPUGNED ORDER. 15. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION TO T HE RIVAL SUBMISSIONS. WITH REGARD TO THE PLEA OF THE ASSESSEE THAT INTERE ST INCOME TO THE TUNE OF RS.3,10,86,586 WHICH IS INTEREST ON FUNDS PARKED IN FDS FOR SPECIFIC PURPOSES PENDING UTILIZATION, WE FIND THAT THE RATI O LAID DOWN BY THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF KUIDFC (SUPRA) WILL BE SQUARELY APPLICABLE TO THE ASSESSEES CASE. IN THIS REGARD, WE HAVE ALREADY SEEN THAT UNDER THE PROVISIONS OF SECTION 39(1)(D) OF KI BA, ALL FUNDS HAVE TO BE TREATED AS FUNDS OF THE ASSESSEE AND IN TERMS OF SE CTION 39(2) OF KIBA, THE FUND HAS TO BE APPLIED ONLY IN THE ADMINISTRATION O F THE ACT VIZ., THE PURPOSE FOR WHICH THE ASSESSEE WAS ESTABLISHED WHICH HAS BE EN RECOGNIZED BY THE ITA NO. 1151/BANG/2012 PAGE 10 OF 17 REVENUE AS CHARITABLE PURPOSE. THEREFORE, THE INTE REST INCOME OUGHT TO BE EXCLUDED FROM THE INCOME OF RS.47,66,36,982. TO T HIS EXTENT, THE ORDER OF THE CIDT WILL STAND MODIFIED. CONSEQUENTLY, 85% OF THE INCOME WHICH WAS ARRIVED BY THE CIT IN HIS ORDER U/S. 263 OF THE ACT AT RS.40,51,41,434 WILL STAND MODIFIED. THE APPLICATION OF INCOME BY THE A SSESSEE FOR CHARITABLE PURPOSES HAS BEEN ACCEPTED BY THE CIT TO BE AT RS.3 1,85,50,386. CONSEQUENTLY, THE AMOUNT OF RS.8,65,91,048 DETERMIN ED BY THE CIT IN THE IMPUGNED ORDER AS SUM ASSESSABLE U/S. 11(2) OF THE ACT WILL ALSO STAND REVISED. THE AO IS DIRECTED TO DO THE REVISED COMP UTATION AS INDICATED ABOVE. FOR BETTER APPRECIATION OF THE FIGURES, THE INCOME AND APPLICATION OF INCOME STATEMENT OF THE ASSESSEE FOR THE PREVIOUS Y EAR IS GIVEN AS ANNEXURE-I TO THIS ORDER . 16. WITH REGARD TO THE FAILURE ON THE PART OF THE A SSESSEE TO FILE FROM 10, WE SHALL FIRST NOTICE THE FOLLOWING LEGAL PROVISION S:- I. SECTION 11 OF THE INCOME TAX ACT, 1961: SEC.11 :INCOME FROM PROPERTY HELD FOR CHARITABLE O R RELIGIOUS PURPOSES. (1) SUBJECT TO THE PROVISIONS OF SECTIONS 60 TO 63 , THE FOLLOWING INCOME SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE PREVIOUS YEAR OF THE PERSON IN RECEIPT OF THE INCOME (A) INCOME DERIVED FROM PROPERTY HELD UNDER TRUST W HOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES, TO THE EXTENT TO WHICH SUCH INC OME IS APPLIED TO SUCH PURPOSES IN INDIA; AND, WHERE ANY SUCH INCOME IS AC CUMULATED OR SET APART FOR APPLICATION TO SUCH PURPOSES IN INDIA, TO THE E XTENT TO WHICH THE INCOME SO ACCUMULATED OR SET APART IS NOT IN EXCESS OF FIF TEEN PER CENT OF THE INCOME FROM SUCH PROPERTY ; (B) INCOME DERIVED FROM PROPERTY HELD UNDER TRUST I N PART ONLY FOR SUCH PURPOSES, THE TRUST HAVING BEEN CREATED BEFORE THE COMMENCEMENT OF THIS ITA NO. 1151/BANG/2012 PAGE 11 OF 17 ACT, TO THE EXTENT TO WHICH SUCH INCOME IS APPLIED TO SUCH PURPOSES IN INDIA; AND, WHERE ANY SUCH INCOME IS FINALLY SET AP ART FOR APPLICATION TO SUCH PURPOSES IN INDIA, TO THE EXTENT TO WHICH THE INCOME SO SET APART IS NOT IN EXCESS OF FIFTEEN PER CENT OF THE INCOME FRO M SUCH PROPERTY; (2) WHERE EIGHTY-FIVE PER CENT OF THE INCOME REFER RED 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 BE EN 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 APPLI CATION TO SUCH PURPOSES IN INDIA, SUCH INCOME SO ACCUMULATED OR SET APART SHAL L 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 GIV EN 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 T HE INCOME IS TO BE ACCUMULATED OR SET APART, WHICH SHALL IN NO CASE EX CEED TEN YEARS ; (B) THE MONEY SO ACCUMULATED OR SET APART IS INVEST ED OR DEPOSITED IN THE FORMS OR MODES SPECIFIED IN SUB-SECTION (5) : PROVIDED THAT IN COMPUTING THE PERIOD OF TEN YEARS REFERRED TO IN CLAUSE (A), THE PERIOD DURING WHICH THE INCOME COUL D NOT BE APPLIED FOR THE PURPOSE FOR WHICH IT IS SO ACCUMULATED OR SET APART , DUE TO AN ORDER OR INJUNCTION OF ANY COURT, SHALL BE EXCLUDED: PROVIDED FURTHER THAT IN RESPECT OF ANY INCOME ACCU MULATED OR SET APART ON OR AFTER THE 1ST DAY OF APRIL, 2001, THE P ROVISIONS OF THIS SUB- SECTION SHALL HAVE EFFECT AS IF FOR THE WORDS 'TEN YEARS' AT BOTH THE PLACES WHERE THEY OCCUR, THE WORDS 'FIVE YEARS' HAD BEEN S UBSTITUTED. EXPLANATION. : ANY AMOUNT CREDITED OR PAID, OUT OF INCOME REFERRED TO IN CLAUSE (A) OR CLAUSE (B) OF SUB-SECTION (1), READ W ITH THE EXPLANATION TO THAT SUB-SECTION, WHICH IS NOT APPLIED, BUT IS ACCU MULATED OR SET APART, TO ANY TRUST OR INSTITUTION REGISTERED UNDER SECTION 1 2AA OR TO ANY FUND OR INSTITUTION OR TRUST OR ANY UNIVERSITY OR OTHER EDU CATIONAL INSTITUTION OR ANY HOSPITAL OR OTHER MEDICAL INSTITUTION REFERRED TO I N SUB-CLAUSE (IV) OR SUB- CLAUSE (V) OR SUB-CLAUSE (VI) OR SUB-CLAUSE (VIA) O F CLAUSE (23C) OF SECTION 10, SHALL NOT BE TREATED AS APPLICATION OF INCOME F OR CHARITABLE OR RELIGIOUS PURPOSES, EITHER DURING THE PERIOD OF ACCUMULATION OR THEREAFTER. II. RULE 17 OF THE INCOME TAX RULES, 1962: NOTICE FOR ACCUMULATION OF INCOME BY CHARITABLE OR RELIGIOUS TRUST OR INSTITUTION OR ASSOCIATION REFERRED TO IN CLAUSES (21) AND (23) OF SECTION 10. THE NOTICE TO BE GIVEN TO THE ASSESSING OFFICER OR THE PRESCRIBED AUTHORITY UNDER SUB-SECTION (2) OF SECTION 11 OR UN DER THE SAID PROVISION AS APPLICABLE UNDER CLAUSE (21) OR CLAUSE (23) OF SECTION 10 SHALL BE IN FORM NO. 10 AND SHALL BE DELIVERED BEFO RE THE EXPIRY OF THE ITA NO. 1151/BANG/2012 PAGE 12 OF 17 TIME ALLOWED UNDER SUB-SECTION (1) OF SECTION 139, FOR FURNISHING THE RETURN OF INCOME. III. CIRCULAR NO.273 DATED 3.6.1980 CHARITABLE AND RELIGIOUS TRUSTSAPPLICATIONS FOR A CCUMULATION OF INCOMEUNDER S. 11(2) OF THE IT ACT, 1961CONDON ATION OF DELAYREGARDING CHARITABLE TRUSTS SECTION 11 CHARITABLE AND RELIGIOUS TRUSTS ARE ENTITLED TO EXE MPTION FROM INCOME- TAX UNDER S. 11 OF THE IT ACT, 1961, AFTER THEY FUL FIL THE REQUIREMENTS ENUMERATED IN SS. 11 TO 13. THESE TRUSTS ARE ALLOWE D TO ACCUMULATE OR SET APART INCOME DERIVED BY THEM FROM PROPERTY HELD UNDER TRUST PROVIDED THEY FULFIL THE CONDITIONS SPELT OUT IN S. 11(2) R/W R. 17 OF THE IT RULES, 1962 AND FORM NO. 10. 2. VERY OFTEN TRUSTS ARE NOT ABLE TO FILE THE APPLICA TION IN FORM NO. 10 WITHIN THE TIME ALLOWED UNDER S. 139(1)/139(2) AS E XTENDED BY THE ITO. THE CBDT IS THEN APPROACHED BY THESE TRUSTS FOR CON DONING THE DELAY FOR FILING APPLICATIONS. THE BOARD BY VIRTUE OF THE POWERS VESTED IN IT UNDER S. 119(2)(B) HAS BEEN CONDONING THE DELAY IN INDIVIDUAL CASES AFTER SATISFYING ITSELF THAT CERTAIN CONDITIONS ARE SATISFIED. 3. WITH A VIEW TO EXPEDITING THE DISPOSAL OF APPLICAT IONS FILED BY TRUSTS FOR CONDONING THE DELAY, THE BOARD HAS PASSED A GEN ERAL ORDER UNDER S. 119(2)(B) (REPRODUCED, INFRA) BY WHICH THE CIT HAVE BEEN AUTHORISED TO ADMIT BELATED APPLICATIONS UNDER S. 11(2) R/W R. 17 OF THE IT RULES, 1962. A COPY OF THIS ORDER IS ENCLOSED. ALL APPLICA TIONS FOR CONDONING THE DELAY UNDER S. 11(2) WILL HENCEFORTH BE DISPOSED OF BY CIT IN TERMS OF THE ENCLOSED ORDER. IV. COPY OF ORDER F.NO. 180/57/80-IT(AI), DATED 3R D JUNE, 1980 IN EXERCISE OF THE POWERS CONFERRED UNDER S. 119(2) (B) OF THE IT ACT, 1961 (43 OF 1961), THE CBDT HEREBY AUTHORISES THE C IT TO ADMIT APPLICATIONS UNDER S. 11(2) R/W R. 17 OF THE IT RUL ES, 1962, FROM PERSONS DERIVING INCOME FROM PROPERTY HELD UNDER TR UST WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES FOR ACCUMULATION O F SUCH INCOME TO BE APPLIED FOR SUCH PURPOSES IN INDIA WHEN THE AFOREME NTIONED APPLICATIONS ARE FILED BEYOND THE TIME STIPULATED. CIT WILL, WHILE ITA NO. 1151/BANG/2012 PAGE 13 OF 17 ENTERTAINING SUCH APPLICATIONS, SATISFY THEMSELVES THAT THE FOLLOWING CONDITIONS ARE FULFILLED : (A) THAT THE GENUINENESS OF THE TRUST IS NOT IN DOU BT; (B) THAT THE FAILURE TO GIVE NOTICE TO THE ITO UNDE R S. 11(2) OF THE ACT AND INVESTMENT OF THE MONEY IN THE PRESCRIBED SECUR ITIES WAS DUE ONLY TO OVERSIGHT; (C) THAT THE TRUSTEES OR THE SETTLOR HAVE NOT BEEN BENEFITED BY SUCH FAILURE DIRECTLY OR INDIRECTLY; (D) THAT THE TRUST AGREES TO DEPOSIT ITS FUNDS IN T HE PRESCRIBED SECURITIES PRIOR TO THE ISSUE OF THE GOVERNMENT SANCTION EXTEN DING THE TIME UNDER S. 11(2); AND (E) THAT THE ACCUMULATION OR SETTING APART OF INCOM E WAS NECESSARY FOR CARRYING OUT THE OBJECTS OF THE TRUST. [REPORTED IN 126 ITR (ST) 27] 17. A READING OF SEC.11(1) WOULD SHOW THAT INCOME OF THE PREVIOUS YEAR TO THE EXTENT IT IS APPLIED FOR CHARITABLE PURPOSE IN INDIA WOULD NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT AND WOULD BE EXEM PT. SEC.11(2) MANDATES THAT 85% OF THE INCOME OF THE PREVIOUS YEA R HAS TO BE APPLIED FOR CHARITABLE PURPOSE AND THE CHARITABLE INSTITUTION I S ALLOWED TO ACCUMULATE UPTO 15% OF THE INCOME OF THE PREVIOUS YEAR FOR APP LICATION FOR CHARITABLE PURPOSE IN FUTURE. ONE OF THE CONDITION TO BE FULF ILLED FOR GETTING THE BENEFIT OF ACCUMULATING 15% OF INCOME OF THE PREVIOUS YEAR WITHOUT APPLYING THE SAME FOR CHARITABLE PURPOSE DURING THE PREVIOUS YEA R BUT CARRYING IT FORWARD FOR APPLICATION IN FUTURE YEARS FOR CHARITABLE PURP OSE IS TO INFORM THE AO IN FORM NO.10 AS MANDATED BY RULE 17 OF THE IT RULES, 1962. SUCH NOTICE WILL HAVE TO BE GIVEN ON OR BEFORE THE DUE DATE SPECIFIE D FOR THE ASSESSEE ITA NO. 1151/BANG/2012 PAGE 14 OF 17 U/.S.139(1) OF THE ACT. ADMITTEDLY THE ASSESSEE IN THE PRESENT CASE HAS NOT GIVEN SUCH INTIMATION TO THE AO. 18. IN CIT VS. NAGPUR HOTEL OWNERS ASSOCIATION 247 ITR 20 1 (SC) , THE HONBLE SUPREME COURT WHILE DEALING WITH SEC. 11(2) OF THE ACT AND RULE 17 OF THE RULES HELD THAT IT WAS ABUNDANTL Y CLEAR FROM THE WORDINGS OF SUB-S. (2) OF S. 11 THAT IT IS MANDATOR Y FOR THE PERSON CLAIMING THE BENEFIT OF S. 11 TO INTIMATE TO THE ASSESSING A UTHORITY THE PARTICULARS REQUIRED, UNDER R. 17 IN FORM NO. 10. IF DURING THE ASSESSMENT PROCEEDINGS THE AO DOES NOT HAVE THE NECESSARY INFORMATION, QUE STION 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 IN COME FROM THE NET OF TAXATION ARISES FROM S. 11 AND IS SUBJECTED TO THE CONDITIONS SPECIFIED THEREIN. THEREFORE, IT IS NECESSARY THAT THE ASSESS ING AUTHORITY MUST HAVE THIS INFORMATION AT THE TIME HE COMPLETES THE ASSES SMENT. IN THE ABSENCE OF ANY SUCH INFORMATION, IT WILL NOT BE POSSIBLE FO R THE ASSESSING AUTHORITY TO GIVE THE ASSESSEE THE BENEFIT OF SUCH EXCLUSION AND ONCE THE ASSESSMENT IS SO COMPLETED, IT WOULD BE FUTILE TO FIND FAULT W ITH THE ASSESSING AUTHORITY FOR HAVING INCLUDED SUCH INCOME IN THE ASSESSABLE I NCOME OF THE ASSESSEE. THEREFORE, EVEN ASSUMING THAT THERE IS NO VALID LIM ITATION PRESCRIBED UNDER THE ACT AND THE RULES EVEN THEN, IT IS REASONABLE T O PRESUME THAT THE INTIMATION REQUIRED UNDER S. 11 HAS TO BE FURNISHED BEFORE THE ASSESSING AUTHORITY COMPLETES THE CONCERNED ASSESSMENT BECAUS E SUCH REQUIREMENT ITA NO. 1151/BANG/2012 PAGE 15 OF 17 IS MANDATORY AND WITHOUT THE PARTICULARS OF THIS IN COME THE ASSESSING AUTHORITY CANNOT ENTERTAIN THE CLAIM OF THE ASSESSE E UNDER S. 11, THEREFORE, COMPLIANCE OF THE REQUIREMENT OF THE ACT WILL HAVE TO BE ANY TIME BEFORE THE ASSESSMENT PROCEEDINGS. FURTHER, ANY CLAIM FOR GIVI NG THE BENEFIT OF S. 11 ON THE BASIS OF INFORMATION SUPPLIED SUBSEQUENT TO THE COMPLETION OF ASSESSMENT WOULD MEAN THAT THE ASSESSMENT ORDER WIL L HAVE TO BE REOPENED. THE ACT DOES NOT CONTEMPLATE SUCH REOPENI NG OF THE ASSESSMENT. 19. THE HONBLE GUJARAT HIGH COURT IN CIT VS. MAYUR FOUNDATION (2005) 194 CTR (GUJ) 197 : (2005) 274 ITR 562 (GUJ) , AFTER CONSIDERING THE DECISION OF THE HONBLE SUPREME COU RT IN THE CASE OF NAGPUR HOTEL OWNERS ASSOCIATION (SUPRA) HAS HELD THAT ASSESSMENT PROCEEDING CAN BE SAID TO BE PENDING TILL THE APPEA L IS HEARD AND DISPOSED OF BY THE TRIBUNAL AND THE ORDER OF THE TRIBUNAL IS GIVEN EFFECT TO AND, THEREFORE, TRIBUNAL WAS WELL WITHIN ITS JURISDICTIO N TO ENTERTAIN THE NEW GROUND BY WHICH THE ASSESSEE-TRUST CLAIMED THE BENE FIT UNDER S. 11(2) DURING PENDENCY OF THE APPEAL AND IN ALLOWING THE B ENEFIT OF S. 11(2) TO THE ASSESSEE-TRUST ONCE IT FOUND THAT THE ASSESSEE-TRUS T HAD COMPLIED WITH ALL THE REQUIREMENTS OF S. 11(2). 20. IN KERALA RURAL EMPLOYMENT & WELFARE SOCIETY VS. ASSTT . DIRECTOR OF IT & ANR. (2009) 312 ITR 51 (KER) , IT HAS BEEN HELD THAT ITA NO. 1151/BANG/2012 PAGE 16 OF 17 NOTICE FOR ACCUMULATION OF INCOME IN FORM NO. 10 HA S TO BE DELIVERED BEFORE THE EXPIRY OF TIME ALLOWED UNDER S. 139(1); IN VIEW OF THE FACT THAT THE PETITIONER IS A STATE GOVERNMENT UNDERTAKING AND HA S BEEN REGISTERED UNDER S. 12A FOR QUITE SOME TIME AND THAT THE NOTIC E IN FORM NO. 10 FOR ACCUMULATION WAS NOT FILED WITHIN THE TIME INDICATE D IN R. 17 OWING TO DELAY ON THE PART OF THE CHARTERED ACCOUNTANT TO FINALIZE THE ACCOUNTS, THE IMPUGNED ORDER PASSED BY THE CIT REJECTING THE APPL ICATION FOR CONDONATION OF DELAY IN FILING FORM NO. 10 IS QUASHED AND HE IS DIRECTED TO PASS APPROPRIATE ORDERS. 21. IT CAN BE SEEN FROM THE AFORESAID DISCUSSION TH AT FORM 10 CAN BE FILED BEFORE THE CONCLUSION OF THE ASSESSMENT PROCE EDINGS. IN THE PRESENT CASE, WE FIND THAT THE ASSESSING OFFICER DID NOT CA LL UPON THE ASSESSEE TO SHOW CAUSE REGARDING NON-FURNISHING OF FORM 10. EV EN THE CIT IN THE PROCEEDINGS U/S. 263 OF THE ACT DID NOT AFFORD OPPO RTUNITY TO THE ASSESSEE TO FILE FORM 10. WE ARE OF THE VIEW THAT IT WOULD BE JUST AND EQUITABLE TO SET ASIDE THE ORDER OF THE CIT ON THIS ISSUE AND REMAND THE ISSUE WITH REGARD TO FURNISHING OF FORM 10 TO THE ASSESSING OFFICER, WHO SHALL AFFORD OPPORTUNITY TO THE ASSESSEE TO FILE FORM 10. THIS IS BECAUSE O F THE PECULIAR SITUATION IN THE PRESENT CASE WHERE BEFORE THE CONCLUSION OF THE ASSESSMENT PROCEEDINGS, THE ASSESSEE DID NOT GET AN OPPORTUNIT Y TO FILE FORM 10. THE ORDER OF THE CIT IS THEREFORE MODIFIED AND THE ISSU E WITH REGARD TO DETERMINATION OF INCOME, IF ANY, TO BE BROUGHT TO T AX U/S. 11(2) OF THE ACT IS DIRECTED TO BE EXAMINED BY THE AO IN THE LIGHT OF T HE DIRECTIONS SET OUT IN ITA NO. 1151/BANG/2012 PAGE 17 OF 17 THIS ORDER. THE AO WILL REDO THE ASSESSMENT AND WH ILE DOING SO WILL CALL UPON THE ASSESSEE TO FILE FORM NO.10 AND AFFORD OPP ORTUNITY TO THE ASSESSEE IN THIS REGARD AND THEREAFTER PASS ORDER I N ACCORDANCE WITH LAW. THUS THE ORDER U/S.263 OF THE ACT IS MODIFIED TO TH E EXTENT INDICATED IN THIS ORDER. 22. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS PA RTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 22 ND DAY OF JANUARY, 2014 . SD/- SD/- ( N. BARATHVAJA SANKAR ) ( N.V. VASU DEVAN ) VICE PRESIDENT JUDIC IAL MEMBER BANGALORE, DATED, THE 22 ND JANUARY, 2014 . /D S/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. C IT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR/ SENIOR PRIVATE SECRETARY ITAT, BANGALORE.