Kandla Dock Labour Board, GANDHIDHAM V. The Income Tax Officer (OSD), GANDHIDHAM

ITA 54/RJT/2009

• Counselvise Citation: 5424914 RSA 2009
• Duration Of Justice: 2 year(s) 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 29-03-2011
• Assessment Year: 1994-1995
• Appeal Filed On: 03-02-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S L MEENA
• Assessee Lawyers: J P SHAH
• Keywords: Charitable institution; Condonation of delay; Capital expenditure
• Section: 12; 11; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT BEFORE SHRI A.L. GEHLOT (AM) AND SHRI N.R.S. GANESA N (JM) I.T.A. NO.54/RJT/2009. (ASSESSMENT YEAR 1994-95). KANDLA DOCK LABOUR BOARD, VS. THE I.T.O. (OSD ), KANDLA PORT TRUST BLDG., GANDHIDHAM. POST BOX NO.50, GANDHIDHAM(KUTCH). PAN;AAALK0014E. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI J.P.SHAH. DEPARTMENT BY : S.L. MEENA, D .R. O R D E R PER AL GEHLOT, AM: THIS APPEAL FILED BY THE ASSES SEE AGAINST THE ORDER OF THE C.I.T.(A)DATED 12-12-2008. THE GROUNDS RAISED IN TH E APPEAL ARE ARGUMENTATIVE IN NATURE, THEREFORE, THEY ARE ABRIDGED TO READ AS BELOW:- (1) LD C.I.T.(A)-II HAS ERRED IN NOT DIFFERENTIATIN G PROVISIONS OF SEC.11(1)(A) AND 11(2) OF THE ACT. (2) LD.CIT(A) II HAS ERRED IN NOT CONSIDERING THE E XEMPTION AVAILABLE U/S. 11(2) OF THE BALANCE INCOME NOT SPENT I.E. TOT AL PROPERTY INCOME LESS 25% OF THE INCOME PLUS AMOUNT APPLIED D URING THE YEAR, THOUGH FORM NO.10 WITH RESOLUTION WAS FILED B EFORE LD. A.O. BEFORE PASSING OF THE ASSESSMENT ORDER. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS IS AN INSTITUTION OF STATUTORY BODY SET UP U/S.5A OF THE DOCK WORKERS ACT, 1948 AN D IS FUNCTIONING UNDER THE CONTROL OF THE MINISTRY OF SURFACE TRANSPORT, GOVER NMENT OF INDIA. THIS IS A SECOND ROUND OF LITIGATION, IN THE FIRST ROUND OF L ITIGATION, THE A.O. FOUND THAT THE ASSESSEE DID NOT COMPLY WITH PROVISIONS OF SEC.11 A ND ALSO DID NOT FILE THE ITA 54/RJT/2009.. A.Y.1994- 95... 2 PRESCRIBED FORM WITHIN THE TIME ALLOWED UNDER THE L AW. THE A.O. MADE THE ASSESSMENT ON 21-02-2000. MATTER WAS CARRIED BEFOR E THE C.I.T.(A) WHO PARTLY ALLOWED THE APPEAL AND HELD THAT THE INCOME ACCUMUL ATED OR SET APART WHICH WAS IN EXCESS OF 25% WOULD FORM PART OF THE TOTAL INCOM E OF THE PREVIOUS YEAR OF THE ASSESSEE. HOWEVER, THE C.I.T.(A) DIRECTED THAT THE EXECUTIVE AUTHORITY MAY, AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE , CONDONE THE DELAY IN SUBMITTING THE PRESCRIBED FORM 10. THE ISSUE WAS T AKEN UP BEFORE THE ITAT. THE ITAT VIDE ITS ORDER DATED 10-08-2005 RESTORED T HE ISSUE BACK TO THE FILE OF THE A.O. WITH CERTAIN DIRECTIONS. THE RELEVANT FIND ING OF THE ITAT READ AS BELOW:- THE ASSESSEE IS AN INSTITUTION WHICH IS REGISTERED U/S.12A OF THE I.T.ACT. AS PER SEC.11(1)(A) OF THE IT ACT, IF THE ACCUMULATED FUNDS ARE USED TOWARDS THE OBJECT AS PER THE PROVISIONS O F SECTION 17 OF THE ACT, THE INCOME CANNOT BE TAXED. MOREOVER AS P ER SECTION 11(1)(2), 25% OF THE ACCUMULATED INCOME IS ALLOWABL E AS DEDUCTION, IF THE RETURN OF INCOME IS FILED IN FORM 1- WITHIN THE PRESCRIBED TIME LIMIT. THE HONBLE MADRAS HIGH COU RT HAD OCCASION TO CONSIDERED HOW TO TAX THE ACCUMULATION OF INCOME IN THE CASE OF C.I.T. V. G.R. GOVINDARAJULU & SONS CHARITIES (193 CTR 232;271 ITR 145), WHEREIN IT HAS BEEN HELD THAT A MERE LOO K AT S.11(1)(A) AS IT STOOD AT THE RELEVANT TIME CLEARLY SHOWS THAT OUT OF TOTAL INCOME ACCORDING TO A TRUST IN THE PREVIOUS YEAR FR O PROPERTY HELD BY IT WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES, TO THE EXTENT THE INCOME IS APPLIED FOR SUCH RELIGIOUS OR CHARITABLE PURPOSES, THE SAME WILL GET OUT OF THE TAX NET BUT SO FAR AS THE INCOME WHICH IS NOT SO APPLIED DURING THE PREVIOUS YEAR IS CONCERNED AT LEAST 25 PER CENT OF SUCH INCOME OF RS.10,000/-, WHICHEVER IS HI GHER, WILL BE PERMITTED TO BE ACCUMULATED FOR CHARITABLE OR RELIG IOUS PURPOSE AND IT WILL ALSO GET EXEMPTED FROM THE TAX NET. THEN F OLLOWS SUB-S(2), WHICH SEEKS TO LIFT THE RESTRICTION OR THE CEILING IMPOSED ON SUCH EXEMPTED ACCUMULATED INCOME DURING THE PREVIOUS YEA R AND ALSO BRINGS SUCH FURTHER ACCUMULATED INCOME OUT OF THE T AX NET IF THE CONDITIONS LAID DOWN BY SUB-S(2) OF S.11 ARE FULFIL LED MEANING THEREBY THE MONEY SO ACCUMULATE IS SET APART TO BE INVESTED IN THE GOVERNMENT SECURITIES ETC., AS LAID WON BY CL.(B) O F SUB-S.(2) OF S.11 APART FROM THE PROCEDURE LAID DOWN CL.(A)OF S.11(2 ) BEING FOLLOWED BY THE ASSESSEE-TRUST. THEREFORE, THE EXEMPTION U/ S.11(1)(A) IS UNFETTERED AND NOT SUBJECT TO ANY CONDITIONS. IN OT HER WORDS IT IS AN ABSOLUTE EXEMPTION. THEREFORE, WHEN THESE CONDITIO NS OF SECTION 11 ARE SATISFIED, NO INCOME CAN BE BROUGHT TO TAX. IN THE CASE OF C.I.T. V. NAGPUR HOTEL OWNERS ASSOCIATION (247 ITR ; 165 CTR 1), THE HONBLE SUPREME COURT HAS HELD THAT IT IS ABUND ANTLY CLEAR FROM ITA 54/RJT/2009.. A.Y.1994- 95... 3 THE WORDINGS OF SUB-S.(2) OF S.11 THAT IT IS MANDAT ORY FOR THE PERSON CLAIMING THE BENEFIT OF S.11 TO INTIMATE TO THE ASS ESSING AUTHORITY THE PARTICULARS REQUIRED, UNDER R.17 IN FORM NO.10. IF DURING THE ASSESSMENT PROCEEDINGS THE A.O. DOES NOT HAVE THE N ECESSARY INFORMATION QUESTION OF EXCLUDING SUCH INCOME FROM ASSESSMENT DOES NOT ARRIVES AT ALL. BUT IF THE FORM NO.10 IS AVAILABLE THEN NO INCOME CAN TAXED AND THE ASSESSEE IS ENTITLED TO DE DUCTION. THEREFORE, WE ARE OF THE VIEW THAT THE C.I.T.(A) IS NOT JUSTIFIED IN DIRECTING TO TAX ONLY THE PART OF ACCUMULATED FUND IN EXCESS OF 25% OF THE INCOME. THEREFORE, WE REVERSE THE FINDING O F THE C.I.T.(A) AND RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE ISSUE AFRESH KEEPING IN VIEW THE PROVISIONS OF SECTIONS 11(1)(A) AND 11(2)(B) AND IF THE ASSESSEE HAS FILED FORM NO. 10 ALONGWITH THE RETURN OF INCOME, THE ASSESSING OFFICER IS DIRECTED TO REFRAME THE ASSESSMENT AS PER LAW. 3. WHILE COMPLYING WITH THE DIRECTION OF THE ITAT, THE A.O. PASSED FRESH ORDER DATED 31-12-2006. WHILE DOING SO, HE CONCLUD ED THAT THE ASSESSEE DID NOT SATISFY THE CONDITIONS LAID DOWN U/S.11 (2) OF THE ACT READ WITH RULE 17 OF THE I.T. RULES. THE A.O. HELD THAT SINCE FORM NO.10 WAS NOT FILED WITH THE RETURN OF INCOME, THE ASSESSEE INSTITUTE HAS NOT SATISFIED TH E CONDITION LAID DOWN IN PROVISIONS OF SECTION 11(2) OF THE ACT READ WITH RU LE 17 OF IT RULES SO AS TO AVAIL THE EXEMPTION PROVIDED UNDER SECTION 11 OF THE ACT. ACCORDINGLY THE SURPLUS AMOUNT OF RS.1,46,43,350/- WAS TAXED. THE COMPUTA TION RESORTED TO BY THE ASSESSING OFFICER READS, THUS- RECEIPTS AS PER STATEMENT) A. INTEREST AND DIVIDEND. RS.2,14,40,907 B. RENT. RS. 3,28,411 C. LEVY RS.3,12,39,890 D. OTHERS. RS. 68,497 RS.5,30,77,705 LESS: AMOUNT SPEND TOWARDS OBJECTS OF THE TRUST(AS PER STATEMENT) RS.3,79,45,0 68 ADD: CAPITAL EXPENDITURE RS. 4,89,288 RS.3,84,34,356 RS.1,46,43,349 LESS: 25% OF RS. 5,30,77,705 ACCUMULATED AS PER STATEMENT NOT ALLOWABLE AS ASSESSEE HAS NOT FILED THE CERTIFICATE IN VIEW OF SECTION 11(1)(A) OF ITA 54/RJT/2009.. A.Y.1994- 95... 4 RS.1,32,69,429/-IN FORM NO.10 WITHIN THE PRESCRIBED TIME LIMIT. AMOUNT TO BE APPLIED ON THE OBJECT OF THE BOARD NOT ALLOWABLE AS ASSESSEE HAS NOT FILED THE REQUIRED CERTIFICATE FOR RS.13,73,923/- RS. NIL TOT AL INCOME RS.1,46,43,349 SAY RS.1,46,43,350 SUBJECT TO THE ABOVE, THE INCOME OF THE INSTITUTION IS DETERMINED AS UNDER:- INCOME AS PER STATEMENT. RS. NIL ADD: INCOME OF THE INSTITUTION TO BE CHARGED TO TAX (AS DISCUSSED ABOVE) RS.1,46,43,3 50 TOTAL INCOME RS.1,46,43,350 4. THE ASSESSEE CARRIED THE ISSUE BEFORE THE CIT(A) ONCE AGAIN AND DREW HIS ATTENTION TO PARAGRAPH 4 OF LETTER DATED 22-07-1999 WRITTEN BY THE ASSESSEE TO THE ASSESSING OFFICER WHEREIN IT WAS SUBMITTED AS FOLLO WS: A. THE A.O. OBSERVED THAT ON THE FACE OF THE RETU RN OF INCOME FILED ON 03-09-1996, UNDER THE COLUMN STATEMENT OR DOCUMENT S ENCLOSED, THE APPELLANT MENTIONED AT (E) FORM NO.10 AS ONE OF THE ENCLOSURES, BUT THE SAME WAS NOT FOUND AS AN ENCLOS URE. THE A.O. FURTHER STATED THAT, SUBSEQUENTLY, DURING THE COURS E OF ORIGINAL PROCEEDINGS, BY A LETTER DATED 22-07-1999, THE FORM NO.10 DATED 21-07-1999 WAS FURNISHED WITH A REMARK FORM NO.10 ATTACHED HEREWITH (ANN-1). DUE TO OVERSIGHT THE SAME HAS NO T BEEN ENCLOSED WHICH MAY PLEASED BE CONDONED. THE A.O. C ONCLUDED THAT, AS THE DATE OF FORM NO.10 WAS 21-07-1999, AND IT WAS SUBMITTED ONLY ON 22-07-1999, IT WAS CLEAR THAT THE APPELLANT DID NOT FURNISH THE FORM NO.10 ALONG WITH THE RETURN OF INCOME, ASS REQUIRED U/S.11(2) OF THE ACT. B. TO THE A.O., THE APPELLANT, BY A LETTER DATED 11 -08-1999, INTIMATED THAT NO BOARD RESOLUTION WAS PASSED REGARDING ACCUM ULATION OF SURPLUS ACCOUNT. THE PURPOSE BEHIND SUCH RESOLUTIO N AND DECLARATION IS TO CHECK THE APPLICATION OF FUNDS FO R THE OBJECTS OF THE TRUST, IN A SPECIFIED MANNER AND TIME-FRAME, SO, IF THE RESOLUTION WAS NOT PASSED IMMEDIATELY AND IF AFTER A GAP OF TH REE YEARS, FORM NO.10 WAS FURNISHED, THAT TOO, WITHOUT PASSING ANY BOARD ITA 54/RJT/2009.. A.Y.1994- 95... 5 RESOLUTION, THEN THE PURPOSE BEHIND THE INCLUSION O F SUCH CONDITION WILL NEVER BE FULFILLED. C THE A.O. FURTHER CONTENDED THAT, AS PER THE PROVI SION OF SECTION 11(2), THE APPELLANT WAS REQUIRED TO MENTION THE PU RPOSE FOR WHICH SUCH EXCESS FUND OR AN AMOUNT SET APART OR KEPT FOR USE IN FUTURE. THE AMOUNT WAS ACCUMULATED IN GENERAL RESERVE FUND ONLY. THUS, AS PER A.O., THE APPELLANT FAILED ON BOTH THE ACCOU NTS. D BEFORE A.O., THE A.R. ARGUED THAT THE ISSUE OF CO NDONATION OF DELAY IN FILING FORM NO.10 WAS STILL PENDING BEFORE THE C .I.T.,RAJKOT, SO THAT THE MATTER MIGHT BE KEPT IN ABEYANCE TILL 15-1 1-2006, UNTIL THE DATE THE ORDER WAS PASSED ON 30-12-2006. THE REMAR KED THAT THE APPLICATION OF THE APPELLANT REGARDING CONDONATION OF DELAY HAD NOT BEEN DECIDED. FINALLY, THE A.O. CLOSED THE MATTER BY SAYING ..,IT IS CLEAR THAT THE FORM NO.10 WAS NOT FILED WITH RETURN OF INCOME, SO THE ASSESSEE-INSTITUTE HAS NOT SATISFIED THE CONDITIONS LAID DOWN U/S.11(2) OF THE ACT AND R ULE-17 OF THE IT RULES. SO, THE EXCESS AMOUNT OF RS.14643350 /- BEING 25% OF THE RECEIPT IS NOT USED BY THE ASSESSE E TOWARDS THE OBJECT OF THE INSTITUTION AND IS TREATE D AS INCOME OF THE INSTITUTION IS REQUIRED TO BE TAXED IN THE H ANDS OF THE ASSESSEE-INSTITUTION FOR THE RELEVANT YEAR . 5. THE C.I.T.(A) AFTER CONSIDERING ASSESSEES SUBM ISSION CONCURRED WITH THE A.O. THAT ITAT WANTED TO DECIDE THE ISSUE AFRESH ON LY IF THE ASSESSEE HAD FILED FORM NO.10 ALONG WITH THE RETURN OF INCOME. THE C.I .T.(A) HELD THAT IN THE CASE UNDER CONSIDERATION, IT HAS BEEN CLEARLY BROUGHT ON RECORD THAT NO SUCH FORM NO.10 WAS FILED ALONG WITH THE RETURN OF INCOME. W ITHOUT PREJUDICE TO THE ABOVE REASONING, THE C.I.T.(A) PROCEEDED TO DECIDE ON THE MERIT OF THE CASE AND FOUND THAT THE RETURN OF INCOME WAS FILED BELATEDLY ON 03 -09-1996. HE OBSERVED THAT EVEN IN THE ORIGINAL ASSESSMENT ORDER PASSED ON 21- 02-2000, BASED ON A RETURN REGULARIZED U/S.148, THE A.O. ASKED THE ASSESSEE TO PRODUCE DETAILS WITH EVIDENCES REGARDING THE RECEIPTS FROM STEVEDORES, P AYMENTS TO WORKERS AND THE SURPLUS AMOUNT REMAINED WITH THE ASSESSEE AS ON 31- 03-1994, THE ASSESSEE DID NOT FURNISH THE REQUIRED INFORMATION. THE LD.CIT(A ) ALSO FOUND THAT THE ASSESSEE REPEATED THE SAME PATTERN IN SUBSEQUENT YEARS ALSO BY NOT FURNISHING FORM NO.10 WITHIN STIPULATED TIME LIMIT, NOR DID SET APA RT 25% OF THE RECEIPTS TO MEET ITA 54/RJT/2009.. A.Y.1994- 95... 6 THE OBJECTS OF THE TRUST BY MAKING SPECIFIED INVEST MENT AS PER THE REQUIREMENT OF PROVISIONS OF SECTION 11(5) OF THE ACT. THE C.I.T. (A) DISTINGUISHED THE JUDGEMENTS CITED BY THE ASSESSEE, VIZ. ADDL.C.I.T. & A.L.N. RAO CHARITABLE TRUST, 216 ITR 697 (SC), C.I.T. VS. G.R. GOVINDARAJULU & S ONS CHARITIES 271 ITR-145 (MADRAS), C.I.T. VS. MAYUR FOUNDATION 274 ITR-562 (GUJ.) AND C.I.T. VS. NAGPUR HOTEL OWNERS ASSOCIATION 247 ITR-201(SC) TO HOLD TH AT THE ASSESSEE-TRUST NEITHER FILED RETURN U/S 139(1) NOR U/S.139(4) OF T HE ACT. THE RETURN FILED BY THE ASSESSEE WAS BEYOND THE LIMITATION PRESCRIBED IN SE CTIONS 139(1) AND 139(4) AND THEREFORE, HAD TO BE REGULARIZED BY ISSUE OF NOTICE U/S.148. THE ASSESSEE DID NOT FILE FORM NO.10 ALONG WITH THE RETURN OF INCOME. SO , THE CIT(A) HELD THAT THE ASSESSEES ATTEMPT TO DRAW INFERENCE ON THE ABOVE J UDGMENTS WHERE FORM NO.10 WAS FILED IN THE COURSE OF ASSESSMENT PROCEED INGS, WAS HELD TO BE INCORRECT. THE C.I.T.(A) ALSO DID NOT ACCEPT THE C ONTENTION OF THE ASSESSEE THAT THE ASSESSEE HAD APPLIED FOR CONDONATION OF DELAY I N FILING FORM NO.10 BEFORE THE C.I.T. BY OBSERVING THAT THIS PLEA WOULD NOT GO TO HELP THE ASSESSEE INASMUCH AS THAT THE C.I.T HAS NO POWER TO CONDONE THE DELAY IN FILING FORM 10 PRESCRIBED IN RULE 17 OF I.T. RULES. AFTER EXAMINING THE RELEV ANT PROVISIONS IN THE I.T. ACT AND THE JUDGMENTS AS ALSO RULE-17 OF IT RULES, THE C.I.T.(A) HELD THAT WORDS SHALL BE DELIVERED CONVEYED A STRICT MANDATORY DI RECTION AND THAT BY NO STRETCH OF IMAGINATION, THE WORD SHALL COULD BE READ AS D IRECTORY IN NATURE. IN VIEW OF THESE FINDINGS THE LD.CIT(A) FINALLY CONCLUDED THAT THE ASSESSING OFFICER WAS JUSTIFIED IN HOLDING THAT THE ASSESSEE DID NOT COMP LY WITH PROVISIONS OF SECTION 11(2) SO AS TO CLAIM EXEMPTION UNDER THAT SECTION O F THE ACT. THE ADDITION OF SURPLUS AMOUNT OVER THE EXPENDITURE OF RS. 1,46,43, 350 WAS THUS CONFIRMED. 6. THE LD. A.R. AFTER BRIEFING THE FACTS OF THE CAS E SUBMITTED THAT A.O. AND C.I.T.(A) HAVE NOT CORRECTLY APPRECIATED THE DIRECT ION OF THE ITAT. THE ITAT HAS CLEARLY STATED AFTER DISCUSSION THAT THE ASSESSMENT IS REQUIRED TO BE MADE AFRESH IN ACCORDANCE WITH LAW. THEREFORE, THE A.O. HAS MIS READ THE DIRECTION OF THE ITAT THAT THE CASE HAS TO BE DECIDED AFRESH ONLY IF FORM NO.10 IS FILED ALONG WITH THE RETURN OF INCOME. THE LD. A.R. SUBMITTED THAT AS P ER SEC.11(1)(A), NO PRESCRIBED ITA 54/RJT/2009.. A.Y.1994- 95... 7 FORM IS REQUIRED FOR ACCUMULATION OF INCOME WHICH I S NOT IN EXCESS OF 25% OF THE INCOME. HE SUBMITTED THAT THE PRESCRIBED FORM NO.1 0 IS TO BE FILED U/S.11(2) OF THE ACT WHERE THE ACCUMULATION OF INCOME IS IN EXCE SS OF 25% OF THE INCOME. THE LD. A.R. FURTHER SUBMITTED THAT FORM NO.10 WAS FILED ON 22-07-99 WHICH IS BEFORE COMPLETION OF THE ORIGINAL ASSESSMENT, COMPL ETED ON 21-2-2000. THE LD. A.R SUBMITTED THAT THIS FACT HAS BEEN NOTED BY THE A.O. AT PARA-4.1 ON PAGE-3 OF THE ASSESSMENT FRAMED AFRESH ON 30-12-2006. THE LD . A.R. RELIED UPON THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF C.I.T. VS. MAYUR FOUNDATION 274 ITR-562 AND SUBMITTED THAT THE ASSES SMENT PROCEEDINGS ARE COMPLETED WHEN APPEAL AGAINST THE ORDER OF ASSESSME NT WAS DECIDED BY TRIBUNAL. THE LD. A. R. ACCORDINGLY SUBMITTED THAT THE A.O. HAS TO ACCEPT THE FORM NO.10 FILED BY THE ASSESSEE. 7. THE LD. A. R. RELIED UPON A JUDGMENT OF SUPREME COURT IN THE CASE OF ADDITIONAL COMMISSIONER OF INCOME-TAX VS. A. L. N. RAO CHARITABLE TRUST 216 ITR-697 AND SUBMITTED THAT THE APEX COURT HAS EXAMI NED THE ISSUE PERTAINING TO SEC.11(1)(A) AND SEC.11(2) AND LAID DOWN THE LAW TH AT SEC.11(2) DOES NOT RESTRICT OPERATION OF SEC.11(1)(A) AND THAT ACCUMULATED INCO ME EXEMPTED UNDER SEC.11(1)(A) NEED NOT BE INVESTED IN GOVERNMENT SEC URITIES. ADDITIONAL ACCUMULATED INCOME BEYOND 25% CAN ALSO GET AN EXEMP TION IF INVESTED AS LAID DOWN IN SEC.11(2) OF THE ACT. THE LD. A. R. ALSO R ELIED UPON THE JUDGMENT IN THE CASE OF C.I.T. VS. PROGRAMME FOR COMMUNITY ORGANISA TION, 248 ITR 1(SC) WHEREIN IT HAS BEEN HELD THAT ON PLAIN LANGUAGE OF SECTION 11(1)(A) OF THE ACT, THE ASSESSEE WAS ENTITLED TO ACCUMULATE 25% OF THE INCO ME. THE LD. A. R. HAS ALSO RELIED UPON A DECISION OF I.T.O. VS. SHRI MAHAKAL M ANDIR PRABANDH SAMITY, 131 TTJ.(IND) (UO) 66. 8. THE LD. D. R, ON THE OTHER HAND, RELIED UPON THE ORDER OF A.O.AND C.I.T.(A) AND SUBMITTED THAT THE ITAT HAS GIVEN CLEAR DIRECT ION THAT THE CASE IS REQUIRED TO BE DECIDED AFRESH ONLY IF THE ASSESSEE FILED FORM N O.10 ALONG WITH RETURN OF INCOME. THE ASSESSEE DID NOT FILE FORM NO.10 ALONG WITH THE RETURN OF INCOME ITA 54/RJT/2009.. A.Y.1994- 95... 8 WHICH IS AN ADMITTED FACT, AND THEREFORE, THE CLAIM OF THE ASSESSEE HAS BEEN RIGHTLY REJECTED. THE LD. D.R. SUBMITTED THAT WHIL E DECIDING THE ISSUE, THE ITAT IS BOUND TO READ THE ORIGINAL ORDER OF THE ITAT. THE LD. D. R. FURTHER SUBMITTED THAT SECTIONS 111(1)(A) AND 11(2) ARE VERY CLEAR THAT IT IS MANDATORY TO ASCERTAIN THE PURPOSE OF CREATION OF THE AND THE STATUS OF THE SU RPLUS FUND, THE UTILIZATION OF THE FUNDS TOWARDS THE OBJECT OF THE TRUST. IN THE INST ANT CASE THE ASSESSEE TRUST HAS VIOLATED ALL THESE REQUIREMENTS. THE SURPLUS FUND S WERE NOT UTILISED IN THE THREE SUBSEQUENT YEARS BY THE ASSESSEE. THE LD. D. R. SU BMITTED THAT C.I.T.(A) HAS ALSO CONSIDERED THE ALTERNATIVE SUBMISSION OF THE A SSESSEE REGARDING FILING OF FORM NO.10 AND THE CONDONATION APPLICATION FILED BE FORE CIT. FIRSTLY, FORM NO.10 WAS NOT FILED ALONG WITH THE RETURN OF INCOME AND S ECONDLY, THE RETURN FILED BY THE ASSESSEE WAS BELATED WHICH WAS REGULARIZED BY ISSUI NG U/S. 148 OF THE ACT. HOWEVER, THE LD. D.R. ADMITTED THAT IF THE SURPLUS OF THE EXPENDITURE IS LESS THAN 25% THERE IS NO STATUTORY REQUIREMENT IN FILING FOR M NO.10. 9. IN THE REJOINDER, THE LD. A. R. SUBMITTED THAT F ORM NO.10 CAN BE FILED IN THE COURSE OF ASSESSMENT PROCEEDINGS EVEN IN A CASE WHERE THE RETURN IS REGULARIZED BY ISSUE OF NOTICE U/S 148 OF THE ACT. HE SUBMITTED THAT SUBMISSION OF FORM NO.10 IS A PROCEDURAL REQUIREMENT AND IS NO T A MANDATORY REQUIREMENT. THE LD. A. R. SUBMITTED THAT IF THE SURPLUS IS BEYO ND 25%, THEN ONLY INVESTMENT AS PER SECTION 11(2) OF THE ACT, HAS TO BE MADE. O N MERIT, THE LD.A.R. RELIED UPON A JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF ADDITIONAL C.I.T. VS. A.L.N. RAO CHARITABLE TRUST 216 ITR 697 (SC). 10. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES, RECORD PERUSED. THERE ARE TWO IMPORTANT ISSUES WHICH ARE TO BE EXAM INED IN THIS CASE. FIRSTLY, WHETHER THE ASSESSING OFFICER HAS RIGHTLY UNDERSTOO D THE DIRECTION OF THE TRIBUNAL AND PASSED THE FRESH ASSESSMENT; AND WHETHER 25% OF INCOME IS A FLAT DEDUCTION OR FOR THAT MATTER, WHETHER FORM NO.10 AND OTHER FO RMALITIES ARE REQUIRED. NO DOUBT, THE SCOPE OF THE ASSESSING OFFICER IN THE FR ESH ASSESSMENT PROCEEDINGS IS ONLY LIMITED TO THE DIRECTION GIVEN BY THE APPELLAT E AUTHORITY. ON PERUSAL OF THE ITA 54/RJT/2009.. A.Y.1994- 95... 9 ORIGINAL ORDER OF THE ITAT, WE FIND THAT THE ITAT H AS DISCUSSED THE PROVISIONS OF SEC.11(1)(A) AND 11(1)(2) OF THE ACT. THE ITAT HAD ALSO CONSIDERED THE JUDGMENT OF THE HONBLE MADRAS HIGH COURT IN THE CA SE OF C.I.T. VS. G.R. GOVINDARAJULYU & SONS CHARITIES 271 ITR 145 (MAD) A ND THE JUDGMENT OF THE HON;BLE SUPREME COURT IN THE CASE OF C.I.T. VS. NA GPUR HOTEL OWNERS ASSOCIATION 247 ITR-201 WHEREIN IT HAS BEEN HELD TH AT IT IS MANDATORY FOR THE PERSON CLAIMING THE BENEFIT OF SEC.11 TO INTIMATE T O THE ASSESSING AUTHORITY THE PARTICULARS REQUIRED UNDER RULE 17 IN FORM NO.10 AP PLICABLE AT THE RELEVANT TIME. IT IS FURTHER HELD THAT IF DURING THE ASSESSMENT PR OCEEDINGS, THE A.O. DID NOT HAVE THE NECESSARY INFORMATION, QUESTION OF EXCLUDING SU CH INCOME FROM ASSESSMENT DOES NOT ARISE AT ALL. IT IS FURTHER HELD THAT IF FORM NO.10 IS AVAILABLE THEN NO INCOME CAN BE TAXED AND THE ASSESSEE IS ENTITLED FO R DEDUCTION. AFTER THESE DISCUSSIONS, THE ITAT SENT BACK THE MATTER TO THE F ILE OF THE A.O. TO DECIDE THE ISSUE AFRESH, IN VIEW OF PROVISIONS OF SEC.11(1)(A) AND 11(2)(B) AND ALSO THAT IF THE ASSESSEE FILED FORM NO.10 ALONG WITH THE RETURN OF INCOME. TO BE MORE SPECIFIC, THE DIRECTION OF THE TRIBUNAL READS, THUS THEREFORE, WE REVERSE THE FINDING OF THE C.I.T.(A) AND RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE ISSUE AFRESH KEEPING IN VIEW THE PROV ISIONS OF SECTIONS 11(1)(A) AND 11(2)(B) AND IF THE ASSESSEE HAS FILED FORM NO.10 A LONGWITH THE RETURN OF INCOME, THE ASSESSING OFFICER IS DIRECTED TO REFRAME THE AS SESSMENT AS PER LAW. SO, THE ASSESSING OFFICER HAD TO REFRAME THE ASSESSMENT ORD ER IN ACCORDANCE WITH LAW ONLY, ALBEIT ALL OTHER DIRECTIONS, WHATEVER MAY THE RE BE. IN THE CONJOINED DIRECTION ISSUED BY THE TRIBUNAL, THE WORDS REFRAME THE ASSE SSMENT AS PER LAW PREVAIL OVER ALL OTHER DIRECTIONS. IN NUTSHELL, WHATEVER M AY BE THE OTHER DIRECTIONS OF THE TRIBUNAL, STILL, FINALLY, THE ASSESSING OFFICER WAS DIRECTED TO FRAME THE ASSESSMENT AS PER LAW ONLY. SO SKIRTING THE DIRECTION ONLY TO THE EXTENT OF KEEPING IN VIEW THE PROVISIONS OF SECTIONS 11(1)(A) AND 11(2)(B) AN D IF THE ASSESSEE HAS FILED FORM NO.10 ALONGWITH THE RETURN OF INCOME, IN OUR OPINION, WOULD GO TO SHOW THAT THE DEPARTMENT WANTED TO RECOGNIZE AND ACCEPT THE D IRECTION ONLY TO THE EXTENT WHICH WAS SUITABLE TO THEM. THIS IS NOT IN ACCORDA NCE WITH THE LAW PROPOUNDED BY THE JUDICIARY. THE DIRECTION OF THE TRIBUNAL HA S TO BE READ AS A WHOLE. ITA 54/RJT/2009.. A.Y.1994- 95... 10 11. BE THAT AS IT MAY, WITH REGARD TO ISSUE OF FILI NG FORM NO.10, THE ADMITTED FACTS NOTICED BY US FROM THE A.O.S ORDER DATED 30- 12-2006 AT PARA-4.1 ON PAGE 3 THAT THE ASSESSEE HAS SUBMITTED FORM NO.10 ON 22-07 -1999 AND THAT THE ORIGINAL ASSESSMENT WAS MADE BY THE A.O. ON 21-02-2000. IN OTHER WORDS, FORM NO.10 WAS AVAILABLE WITH THE A.O. AT THE TIME OF MAKING O RIGINAL ASSESSMENT. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF C. I.T. VS. MAYUR FOUNDATION 274 ITR 562 (GUJ) HAS HELD THAT ASSESSMENT PROCEEDINGS ARE COMPLETE ONLY WHEN THE APPEAL AGAINST THE ORDER OF ASSESSMENT IS DECIDED B Y TRIBUNAL. IN THE CASE OF C.I.T. VS. NAGPUR HOTEL OWNERS ASSOCIATION 247 TTR 201(SC) THE HONBLE SUPREME COURT HELD THAT IF INFORMATION/FORM NO.10 I S AVAILABLE AT THE TIME OF ASSESSMENT PROCEEDINGS, THE ASSESSEE IS ENTITLED FO R THE DEDUCTION. IN THE CASE UNDER CONSIDERATION, FORM NO.10 WAS AVAILABLE WITH THE A.O. EVEN BEFORE PASSING OF THE ORIGINAL ASSESSMENT. WE ARE, THEREF ORE, OF THE VIEW THAT THE CLAIM OF THE ASSESSEE CANNOT BE REJECTED MERELY ON THE GR OUND THAT FORM NO.10 WAS FILED AT THE TIME OF ASSESSMENT PROCEEDINGS OR FORM NO.10 HAS NOT BEEN FILED ALONG WITH THE RETURN OF INCOME. 12. TURNING TO THE MERIT OF THE CASE, WE FIND THAT THE QUESTION TO BE CONSIDERED IS WHETHER 25% OF ACCUMULATION OF INCOME UNDER SECT ION 11(1)(A) OF THE ACT IS A FLAT DEDUCTION AVAILABLE TO THE ASSESSEE OR FOR THA T PURPOSE, WHETHER FILING OF FORM NO.10 ALONG WITH THE RETURN OF INCOME AND FULF ILLING OTHER FORMALITIES ARE A PRE-CONDITION OR NOT. PROVISIONS OF SEC.11(1) (A) READS AS UNDER:- 11.(1)(A) INCOME DERIVED FROM PROPERTY HELD UNDER T RUST WHOLLY OR CHARITABLE OR RELIGIOUS PURPOSES, TO THE EXTENT TO WHICH SUCH INCOME IS APPLIED TO SUCH PURPOSES IN INDIA ; AND, WHERE A NY SUCH INCOME IS ACCUMULATED OR SET APART FOR APPLICATION TO SUCH PURPOSES IN INDIA, TO THE EXTENT TO WHICH INCOME SO ACCUMULATED OR SET APART IS NOT IN EXCESS OF TWENTY-FIVE PER CENT OF THE INCOME FROM SUCH PROPERTY. (B) TO (D) XXXXXXXXXXXXXXX ITA 54/RJT/2009.. A.Y.1994- 95... 11 EXPLANATION.- FOR THE PURPOSES OF CLAUSES (A) AND ( B),- (1) IN COMPUTING THE TWENTY-FIVE PER CENT OF INCOME WHICH MAY BE ACCUMULATED OR SET APART, ANY SUCH VOLUNTARY CONTRIBUTIONS AS ARE REFERRED TO IN SECTION 12 SHAL L BE DEEMED TO BE PART OF THE INCOME; (2) IF, IN THE PREVIOUS YEAR, THE INCOME APPLIED TO CHARITABLE OR RELIGIOUS PURPOSES IN INDIA FALLS SHORT OF SEVENTY- FIVE PER CENT OF THE INCOME DERIVED DURING THAT YEAR FROM PROPERT Y HELD UNDER TRUST, OR, AS THE CASE MAY BE, HELD UNDER TRU ST IN PART, BY ANY AMOUNT (I) FOR THE REASON THAT THE WHOLE OR ANY PART OF TH E INCOME HAS NOT BEEN RECEIVED DURING THAT YEAR, OR (II) FOR ANY OTHER REASON, THEN- (A) IN THE CASE REFERRED TO IN SUB-CLAUSE (I), SO M UCH OF THE INCOME APPLIED TO SUCH PURPOSES IN INDIA DURING THE PREVIOUS YEAR IN WHICH THE INCOME IS RECEIVED OR DU RING THE PREVIOUS YEAR IMMEDIATELY FOLLOWING AS DOES NOT EXCEED THE SAID AMOUNT, AND (B) IN THE CASE REFERRED TO I N SUB-CLAUSE (II), SO MUCH OF THE INCOME APPLIED TO SUCH PURPOSES IN INDIA DURING THE PREVIOUS YEAR IMMEDIATELY FOLLOWING THE PREVIOUS YE AR IN WHICH THE INCOME WAS DERIVED AS DOES NOT EXCEED THE SAID AMOUNT. MAY, AT THE OPTION OF THE PERSON IN RECEIPT OF THE INCOME (SUCH OPTION TO BE EXERCISED IN WRITING BEFORE THE EXPIRY OF THE TIME ALLOWED UNDER SUB-SECTION (1) OF SECTION 1 39 FOR FURNISHING THE RETURN OF INCOME) BE DEEMED TO BE IN COME APPLIED TO SUCH PURPOSES DURING THE PREVIOUS YEAR I N WHICH THE INCOME WAS DERIVED; AND THE INCOME SO DEEMED TO HAVE BEEN APPLIED SHALL NOT BE TAKEN INTO ACCOUNT IN CAL CULATING THE AMOUNT OF INCOME APPLIED TO SUCH PURPOSES, IN T HE CASE REFERRED TO IN SUB-CLAUSE (I), DURING THE PREVIOUS YEAR IN WHICH THE INCOME IS RECEIVED OR DURING THE PREVIOUS YEAR IMMEDIATELY FOLLOWING, AS THE CASE MAY BE, AND, IN THE CASE REFERRED TO IN SUB-CLAUSE (II), DURING THE PREVIOUS YEAR IMMEDIATELY FOLLOWING THE PREVIOUS YEAR IN WHICH TH E INCOME WAS DERIVED. ITA 54/RJT/2009.. A.Y.1994- 95... 12 13. THE OTHER RELEVANT PROVISION GOVERNING THE ISSU E IS PROVISIONS OF SEC.11(2) WHICH READ AS UNDER:- 11(2) WHERE SEVENTY-FIVE PER CENT OF THE INCOME RE FERRED TO IN CLAUSE (A) OR CLAUSE (B) OF SUB-SECTION (1) READ WI TH THE EXPLANATION TO THAT SUB-SECTION IS NOT APPLIED, OR IS NOT DEEME D TO HAVE BEEN APPLIED, TO CHARITABLE OR RELIGIOUS PURPOSES IN IND IA DURING THE PREVIOUS YEAR BUT IS ACCUMULATED OR SET APART, EITH ER IN WHOLE OR IN PART, FOR APPLICATION TO SUCH PURPOSES IN INDIA, SU CH INCOME SO ACCUMULATED OR SET APART SHALL NOT BE INCLUDED IN T HE TOTAL INCOME OF THE PREVIOUS YEAR OF THE PERSON IN RECEIPT OF THE I NCOME, 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 PUR POSE FOR WHICH THE INCOME IS BEING ACCUMULATED OR SET APART AND TH E PERIOD FOR WHICH THE INCOME IS TO BE ACCUMULATED OR SET APART, WHICH SHALL IN NO CASE EXCEED TEN YEARS; (B) THE MONEY SO ACCUMULATED OR SET APART IS INVEST ED OR DEPOSITED IN THE FORMS OR MODES SPECIFIED IN SUB-SE CTION (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 S ET APART, DUE TO AN ORDER OR INJUNCTION OF ANY COURT, SHALL BE EXCLU DED. ON A PLAIN READING OF ABOVE SECTION WE FIND THAT FO LLOWING INCOME OF A CHARITABLE OR RELIGIOUS TRUST SHALL NOT BE INCLUDED IN THE TOT AL INCOME - (1) TO THE EXTENT OF INCOME (A) APPLIED; (B) DEEMED TO BE APPLIED FOR THE OBJECT OF THE TRUST; AND (C) ACCUMULATION OF INCOME NOT EXCEEDING 25%; (2) EXEMPTION OF BALANCE INCOME OF INCOME (AFTER IN COME APPLIED, DEEMED TO BE APPLIED AND ACCUMULATION NOT EXCEEDING 25%). 14. SECTION 11(1)(A) OF THE ACT AND CONSIDERING THE PROCEDURE LAID DOWN BY THE HONBLE APEX COURT IN THE CASE OF ADDL. C.I.T VS. A .L.N.RAO CHARITABLE TRUST ITA 54/RJT/2009.. A.Y.1994- 95... 13 (SC) 216 ITR 69, WE FIND THAT FOLLOWING INCOME SHAL L NOT BE INCLUDED IN THE TOTAL INCOME OF THE PREVIOUS YEAR OF THE TRUST IN RECEIPT OF THE INCOME.:- 1) THE INCOME APPLIED FOR CHARITABLE OR RELIGIOUS P URPOSES IN INDIA PLUS 2) THE INCOME WHICH IS ACCUMULATED OR SET APART FOR APPLICATION TO SUCH PURPOSES IN INDIA NOT EXCEEDING TWENTY-FIVE PE R CENT OF THE INCOME. 15. THUS, IT IS CLEAR THAT INCOME EARNED BY THE TRU ST DURING THE PREVIOUS YEAR ARE GIVEN EXEMPTION FROM INCOME-TAX TO THE EXTENT O F THAT PART OF THE INCOME WHICH IS ACTUALLY SPENT FOR CHARITABLE OR RELIGIOUS PURPOSES PLUS ACCUMULATED INCOME NOT EXCEEDING 25% OF THE INCOME. CLAUSE (A) OF SECTION 11(1) OF THE ACT PERMITS AUTOMATIC ACCUMULATION OF INCOME UP TO 25% WITHOUT ANY PRE-CONDITION SET. ONCE THE OPERATION OF SEC.11(1)(A) EXHAUSTED, THEN FOLLOWS SUB-SECTION (2) OF SECTION 11 OF THE ACT, WHICH DEALS WITH THE QUES TION OF INVESTMENT OF THE BALANCE OF ACCUMULATED INCOME OVER AND ABOVE 25% AC CUMULATED INCOME WHICH HAS STILL NOT QUALIFIED FOR EXEMPTION UNDER CLAUSE (A) OF SUB-SECTION 11(1) OF THE ACT. THAT BALANCE ACCUMULATED INCOME CAN ALSO QUALI FY FOR EXEMPTION FROM INCOME-TAX MEANING THEREBY THE CEILING OR THE LIMIT OF EXEMPTION OF ACCUMULATED INCOME FROM INCOME-TAX AS IMPOSED BY CLAUSE (A) OF SUB-SECTION (1) OF SECTION 11 WOULD GET LIFTED IF THE ADDITIONAL ACCUMULATED I NCOME BEYOND 25% AS THE CASE MAY BE, IS INVESTED AS LAID DOWN BY SECTION 11(2) A FTER FOLLOWING THE PROCEDURE LAID DOWN THEREIN. THEREFORE, SUB-SECTION (2) WILL OPERATE FOR THE ENTIRE BALANCE OF THE PREVIOUS YEAR WHICH HAS NOT GOT THE BENEFIT OF TAX EXEMPTION UNDER CLAUSE (A) OF SUB-SECTION (1) OF SECTION-11 OF THE ACT. IT HA S TO BE KEPT IN VIEW THAT OUT OF THE ACCUMULATED INCOME OF THE PREVIOUS YEAR, 25% OF THE TOTAL INCOME IS GIVEN EXEMPTION FROM INCOME-TAX BY CLAUSE (A) OF SUB SECT ION (1) OF SECTION 11 ITSELF. THAT EXEMPTION IS UNFETTERED AND NOT SUBJECT TO ANY CONDITIONS. SECTION 11(2) DOES NOT OPERATE TO WHITTLE DOWN OR TO CUT ACROSS T HE EXEMPTION PROVISION CONTAINED IN SECTION 11(1)(A) SO FAR AS SUCH ACCUMU LATED INCOME DOES NOT EXCEED 25% OF THE INCOME ACCUMULATED IN THE PREVIOU S YEAR. IT HAS ALSO TO BE ITA 54/RJT/2009.. A.Y.1994- 95... 14 APPRECIATED THAT SUB-SECTION (2) OF SECTION 11 DOES NOT CONTAIN ANY NON OBSTANTE CLAUSE LIKE NOTWITHSTANDING THE PROVISIONS OF SUB- SECTION (1). CONSEQUENTLY IT MUST BE HELD THAT AFTER SECTION11(1)(A) HAS HAD ITS FULL FORCE AND IF STILL ANY ACCUMULATED INCOME OF THE PREVIOUS YEAR IS LEFT TO BE DEALT WITH AND TO BE CONSIDERED FOR THE PURPOSE OF INCOME-TAX EXEMPTION, SUB-SECTION (2) OF SECTION 11 CAN BE PRESSED INTO SERVICE AND IF IT IS COMPLIE D WITH, THEN SUCH ADDITIONAL ACCUMULATED INCOME BEYOND 25% WILL ALSO BE ELIGIBLE FOR EXEMPTION FROM INCOME-TAX ON COMPLIANCE WITH THE CONDITIONS LAID D OWN BY SUB-SECTION (2) OF SECTION-11 OF THE ACT. THE RELEVANT PORTION OF THE CALCULATION OF A.O. IS REPRODUCED AT PARA 3 OF THIS ORDER. 16. A CHARITABLE OR RELIGIOUS TRUST HAVE TO APPLY 7 5% OF INCOME FOR THE OBJECT OF THE TRUST SO AS TO QUALIFY FOR EXEMPTION U/S 11 OF THE ACT. INCOME NOT EXCEEDING 25% OF INCOME IS ALLOWED TO BE ACCUMULATED UNDER TH IS SECTION 11(1)(A) OF THE ACT. THIS ACCUMULATION IS AUTOMATIC AND DOES NOT C ALL FOR ANY STATUTORY STIPULATION. EXPLANATION TO SECTION 11(1) PROVIDES DEEMED APPLICATION OF THE INCOME. THE SAID EXPLANATION DEALS WITH A SITUATIO N WHERE INCOME APPLIED TO CHARITABLE OR RELIGIOUS PURPOSE FALLS SHORT OF 75% OF THE INCOME FOR THE REASON THAT THE INCOME WAS NOT RECEIVED DURING THAT YEAR O R FOR ANY OTHER REASON, THE TRUST HAVE TO EXERCISE IN WRITING FOR ACCUMULATION IN ACCORDANCE WITH EXPLANATION TO SECTION 11(1) OF THE ACT. IT IS PERTINENT TO ME NTION THAT FILING OF FORM 10 U/S 11(2) OF THE ACT AND EXERCISING IN WRITING BEFORE T HE EXPIRY OF THE TIME ALLOWED UNDER SUB SECTION (1) OF SECTION 139 WHILE FURNISHI NG THE RETURN OF INCOME EXPLANATION TO SECTION 11(1) OF THE ACT IS DIFFEREN T. FOR EXERCISING IN WRITING IT IS NOT REQUIRED TO FILE ANY PRESCRIBED FORM. IT COULD BE ON SIMPLY APPLICATION OR IT COULD BE EXERCISED BY PASSING ACCOUNTING ENTRIES IN THE BOOKS OF ACCOUNT, FINANCIAL STATEMENTS AND OTHER DOCUMENTS FILED ALON G WITH THE RETURN OF INCOME. IF, COMBINEDLY, 75% OF INCOME INCLUDING INCOME APPL IED, DEEMED TO BE APPLIED AND ACCUMULATION NOT EXCEEDING 25% ARE LESS THAN 75 % STILL THE TRUST IS ELIGIBLE FOR EXEMPTION FROM INCOME U/S 11(2) OF THE ACT. IN OTHER WORDS, IT CAN BE SAID THAT A CHARTABLE OR RELIGIOUS TRUST CAN CLAIM EXEMP TION FROM INCOME EVEN NO ITA 54/RJT/2009.. A.Y.1994- 95... 15 INCOME IS APPLIED FOR THE OBJECT OF THE TRUST DURIN G THE YEAR, THE REMAINING 75% OF THE INCOME WILL BE ALLOWED EXEMPTION U/S 11(2) OF T HE ACT PROVIDED THE STATUTORY REQUIREMENTS FOR FILING FORM 10 AND INVESTING THE A MOUNT IN SPECIFIED SECURITIES ARE FULFILLED BY THE ASSESSEE. TO BE MORE EXPLICIT , WE MAY EXPLAIN IT WITH THE HELP OF THE FOLLOWING EXAMPLES: EXAMP.1 EXAMP.2 EXAMP.3 GROSS RECEIPT OF TRUST RS. 100 100 100 AMOUNT APPLIED FOR OBJECTS OF THE TRUST RS. 80 60 NIL CALCULATION OF EXEMPTION AVAILABLE U/S 11(1)(A) & 1 1(2) WOULD BE AS UNDER: GROSS INCOME OF THE TRUST RS. 100 100 100 LESS : AMOUNT APPLIED OR DEEMED TO BE APPLIED FOR OBJECTS OF THE TRUST PLUS 25% OF ACCUMULATION OR GROSS INCOME WHICHEVER IS LOWER RS. 100 85 2 5 BALANCE AVAILABLE FOR EXEMPTION U/S 11(2) RS. NIL 15 75 (IN EXAMPLE 1, 80 + 25 = 105, IN EXAMPLE 2, 60- + 2 5 = 85 AND IN EXAMPLE 3, NIL + 25 = 25. IT IS TO NOTE THAT IN EXAMPLE 1 ABOVE FOR GETTING E XEMPTION OF RS.100 THE ASSESSEE IS NOT REQUIRED TO SATISFY ANY CONDITION W HEREAS FOR GETTING EXEMPTION IN EXAMPLE 2 OF R.15 U/S 11(2) THE ASSESSEE HAS TO SAT ISFY ALL THE STIPULATED CONDITIONS PRESCRIBED IN SECTION 11(2) OF THE ACT. IN EXAMPLE 2, IF INCOME NOT UTILIZED TO THE EXTENT OF 75% FOR THE REASON THAT T HE WHOLE INCOME HAS NOT RECEIVED OR FOR ANY OTHER REASON EXPLANATION TO SEC TION 11(1)(A) WILL APPLY. 17. IN THE LIGHT OF ABOVE DISCUSSION, WE ARE OF THE CONSIDERED VIEW THAT AS PER SECTION 11(1)(A) THE ASSESSEE IS ENTITLED FOR FLAT DEDUCTION WITHOUT ANY CONDITION OR FORMALITY OF FILING FORM NO.10, IF INCOME IS ACC UMULATED OR SET APART FOR APPLICATION OF THE OBJECTS OF THE TRUST IN INDIA TO THE EXTEND TO WHICH THE INCOME ITA 54/RJT/2009.. A.Y.1994- 95... 16 SO ACCUMULATED OR SET APART DOES NOT EXCEED 25% OF THE INCOME. IN THE CASE UNDER CONSIDERATION, THE TOTAL INCOME OF THE TRUST IS RS.5,30,77,705. THE INCOME APPLIED DURING THE YEAR FOR THE OBJECT OF THE TRUST COMES TO RS.3,84,34,356. THE CALCULATION OF EXEMPTION OF INCOME U/S 11(1)(A) IS AS UNDER: INCOME APPLIED FOR THE OBJECT OF THE TRUST RS. 3 ,84,34,356 ADD : 25% OF INCOME RS. 1,32,69,429 --------------------- RS. 5,17,03,785 THE BALANCE OF (RS.5,30,77,705 (-) RS. 5,17,03,785) = RS. 13,73,920 ---------------------- THE ABOVE INCOME OF RS.13,73,920 QUALIFIES FOR EXEM PTION IF THE TRUST SATISFIES THE CONDITIONS LAID DOWN IN SECTION 11(2) OF THE AC T INCLUDING FILING OF FORM 10 AND INVESTING THE AMOUNT IN THE SPECIFIED SECURITIES. 18. IN RESPECT OF GROUND NO.2 OF THE APPEAL WHICH I S RELATED TO ALLOWANCE OF DEDUCTION OVER AND ABOVE 25% OF THE INCOME, FOR WHI CH THE ASSESSEE IS TO SATISFY THE CONDITIONS LAID DOWN IN SECTION 11(2) O F THE ACT. AS PER THE DISCUSSION MADE ABOVE, THE REQUIREMENT OF SECTION 11(2) IS THA T IF SUCH INCOME IS ACCUMULATED OR SET APART, THEN SUCH INCOME SHALL NO T BE INCLUDED IN THE TOTAL INCOME OF THE PREVIOUS YEAR IF SUCH PERSON SPECIFIE S BY NOTICE IN WRITING GIVEN TO THE ASSESSING OFFICER IN PRESCRIBED MANNER, THE PUR POSE FOR WHICH THE INCOME IS BEING ACCUMULATED OR SET APART AND THE PERIOD FOR W HICH THE INCOME IS TO BE ACCUMULATED OR SET APART, WHICH SHALL, IN NO CASE E XCEED 10 YEARS. THE MONEY SO ACCUMULATED OR SET APART IS INVESTED OR DEPOSITE D IN THE FORMS OR MODES SPECIFIED IN SUB SECTION (5) OF SECTION 11 OF THE A CT. A REGARDS THE CONDITION IN RESPECT OF FURNISHING OF PRESCRIBED FORM 10 WE HAVE GIVEN THE FINDING THAT FORM NO.10 SUBMITTED BEFORE THE COMPLETION OF THE ASSESS MENT IS REQUIRED TO BE CONSIDERED IF THE CONDITION AS LAID DOWN IN SECTION 11(2)(A) IS SATISFIED. HOWEVER, AS REGARD THE CONDITION (B) OF SECTION 11(2) THAT T HE MONEY SO ACCUMULATED OR SET APART IS INVESTED OR DEPOSITED IN THE FORM OR MODE SPECIFIED IN SUB SECTION (5) OF ITA 54/RJT/2009.. A.Y.1994- 95... 17 SECTION 11 IS SUBJECT TO VERIFICATION. WE, THEREFO RE, THINK PROPER TO SEND THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTI ON TO VERIFY THE SAID CONDITION OF CLAUSE (B) OF SECTION 11(2) OF THE ACT AS TO WHETHE R THE ASSESSEE HAS MADE INVESTMENT IN THE PRESCRIBED SECURITIES OR NOT. TH E ASSESSING OFFICER WILL DECIDE THIS ISSUE AFTER PROVIDING OPPORTUNITY OF HEARING T O THE ASSESSEE. 19. IN THE RESULT, THE APPEAL OF THE APPEAL OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED, FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 31-05-2011. SD/- SD/- (N.R.S. GANESAN) ( A. L. GEHLOT) JUDICIAL MEMBER. ACCOUNTANT MEMBER. RAJKOT, DT : 31 ST MAY, 2011. NVA/- COPY TO: 1. KANDLA DOCK LABOUR BOARD, GANDHIDHAM. 2. THE I.T.O GANDHIDHAM. 3. THE CIT(A)- RAJKOT. 4. THE C.I.T. 5. THE D.R., I.T.A.T., RAJKOT. BY ORDER ASSTT.REGISTRAR, ITAT, RAJKOT.