SHREE SUBRAHMANYA TEMPLE ,THOKUR V. ITO, EXEMPTIONS, WARD-2, MANGALORE

ITA 2437/BANG/2024

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The case involves Shree Subrahmanya Temple, a charitable trust, appealing against the order of the CIT(A) which upheld the AO's decision denying certain tax exemptions under sections 11(1) and 11(2) of the Income Tax Act, 1961. The AO had disallowed the bank deposit amount as application for charitable purposes and denied the accumulation of 15% of income without specific intimation or approval. The CIT(A) upheld these decisions, emphasizing strict compliance with statutory requirements. The Tribunal, however, recognized the entitlement to accumulate 15% of income without conditions and remanded the issue of the remaining accumulation for further examination of the procedural compliance regarding the filing of returns and Form 10B.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 396810 (ITAT-BANGALORE)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-05-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: misc
• Other Referred Cases: CIT v. Anjuman Moinia (280 ITR 56), ACIT v. Stock Exchange, Ahmedabad (210 Taxmann 28), CIT v. Nagpur Hotel Owners' Association (247 ITR 201), Jaya Educational Trust vs. DCIT (2021) 130 taxmann.com 225, CC vs. Dilip kumar and company [2018] 95 taxmann.com 327, PCIT vs. Wipro Ltd. in Civil appeal No. 1449 of 2022
• Laws Referred To: Income Tax Act 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GANESH R GALE; STANDING COUNSEL DEPT
• Assessee Lawyers: SHEETAL BOARKAR
• Keywords: Set aside; Capital asset; Revenue expenditure; Reasonable cause; Capital expenditure; Principle of natural justice; Charitable institution
• Section: 11; 10B

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL ‘SMC’ BENCH, BANGALORE BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA No.2437/Bang/2024 Assessment Year: 2016-17 Shree Subrahmanya Temple, 001 001, Subrahmanya Temple, Haleangady Post, Thokur – 575 414. PAN – AAAJS 5181 N Vs. The Income Tax Officer, Exemption Ward 1, MN . APPELLANT RESPONDENT Assessee by : Smt. Sheetal Boarkar, Advocate Revenue by : Shri Ganesh R Gale, Standing Counsel for Dept. (DR) Date of hearing : 13.03.2025 Date of Pronouncement : 28.05.2025 O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: This is an appeal filed by the assessee against the order passed by the Addl./JCIT(A)-2, Mumbai dated 23/10/2024 in DIN No. ITBA/APL/ S/250/2024-25/1069888736(1) for the assessment year 2016-17. 2. The assessee has raised following grounds of appeal: “1. The learned CIT(A), erred in passing the order in the manner he did. 2. The Learned CIT(A) failed to consider the merit of the case and decided the appeal on technical ground which is against the principle of natural justice. 3. The learned CIT(A) Officer is not justified in law in not considering 15 percent of the gross receipts as accumulation without notice while passing ITA No.2437/Bang/2024 Page 2 of 10 . the assessment order as exemption under Section 111 a of the Income tax Act 1961. 4. The learned CIT(A) is not justified in not considering the investment made in fixed deposits amounting to Rs. 10,88,080 during the year under question as application of income of the Appellant. 5. The learned CIT(A)Officer has overlooked the Board's Instruction No. 883 CBDT F.No.18 054721TA1 dated 24.9.1975 CBDT Bulletin X X1174 page 157 and case law relied on by the Appellant 6. Without prejudice, the impugned additions are excessively arbitrary and unreasonable and liable to be deleted in full. 7. For these and such other grounds that may be urged at the time of hearing the appellant prays that the appeal may be allowed.” 3. The facts in brief are that the assessee is charitable trust. The assessee during the year has shown receipt of Rs. 45,20,536/- against which claimed application toward charitable purposes which are detailed as under: i. Revenue expenditure Rs. 33,13,891/- ii. Capital expenditure Rs. 45,875/- iii. Bank Deposit Rs. 10,88,080/- Total Rs. 44,47,846/- 4. The AO in the assessment proceeding found that the bank deposit is not the application of receipt for charitable purposes nor it directly linked to charitable activity. 5. The AO found that the assessee has not applied its receipt to the extent of 85% for it objective. The assessee also not filed Form 10B suggesting that the amount is accumulated or set apart as per the provision of subsection (2) of section 11 of the Act. Furthermore, the assessee has filed belated return which is in contravention of section 13(9) of the Act and prohibits the benefit of section 11(2) of the Act in case of belated return. ITA No.2437/Bang/2024 Page 3 of 10 . 6. The AO also found that the assessee is not eligible for accumulation of 15% as provided under section 11(1) of the Act. The AO in this regard referred the CBDT circular No. 12-P(LXX-7) of 1968 dated 19-06-1968. In Para 5 of said circular, it is clarified that in case a trust desire to accumulate the profit in excess of the limit allowed i.e. 15% then the condition specified under section 11(2) of the Act should needs to be fulfilled for the entire amount, not only for amount in excess of 15%. If the condition prescribed under section 11(2) of the Act is not complied with then the entire amount shall be liable to tax as income not merely the amount in excess of 15%. 7. Hence, the AO in view of the above computed the taxable income of the assessee trust at Rs. 11,60,770/- (4520,536 – 33,13,891 -45875) i.e. gross receipt minus revenue expenditure and capital expenditure and added to the total income of the assessee. 8. The aggrieved assessee preferred an appeal before the learned CIT(A). 9. Before the learned CIT(A), the assessee submitted that the AO had wrongly disallowed an amount of bank deposit of Rs. 10,88,906/- claimed as application of income. This amount had been invested in capital assets, specifically fixed deposits, which should qualify as application of income under section 11(1)(a) of the AO. The AO had acknowledged that the amount was invested in capital assets, yet treated it as not constituting application of income. The assessee contended that this treatment was contrary to the CBDT Instruction No. 883-CBDT F No. 180/54/72-IT(A1) dated 24-09-1975, which clarifies that ITA No.2437/Bang/2024 Page 4 of 10 . investment of net consideration in fixed deposits should be regarded as investment in new capital assets. Such investments, therefore, should be treated as capital expenditure and allowed as application of income under section 11(1)(a) of the Act. 10. Additionally, the assessee highlighted that the AO had failed to allow the standard accumulation of 15% of gross receipts (amounting to Rs. 6,78,806) under section 11(1)(a) of the Act, which is permitted without the need for specific intimation or approval. The AO’s denial of this benefit was not justified, as such accumulation is statutorily allowed and does not require any procedural compliance or notification. 11. Further, the assessee addressed the issue of Form 10B, stating that it was filed during the course of the assessment proceedings. It was argued that even if there was a delay in filing Form 10, this should not result in denial of exemption under section 11(2) of the ACT. In support of this position, the assessee cited the judgment of Hon’ble Rajasthan High Court in the case of CIT v. Anjuman Moinia (280 ITR 56), where the court held that the time limit for filing Form 10 is directory and not mandatory. Therefore, a delay in submission should not disqualify the assessee from claiming the exemption, especially when the form was filed before the completion of the assessment. 12. Moreover, the assessee relied on the judgment of Hon’ble Gujarat High Court, in the case of ACIT v. Stock Exchange, Ahmedabad (reported in 210 Taxmann 28), held that where an assessee has filed Form 10 under Rule 17 before the completion of the assessment, the requirements of section 11(2) are deemed to be satisfied, and the ITA No.2437/Bang/2024 Page 5 of 10 . assessee is entitled to exemption. Similarly, the assessee also referred the Hon’ble Supreme Court, in the landmark decision of CIT v. Nagpur Hotel Owners’ Association (247 ITR 201), ruled that the income tax rules could not impose a rigid time limit for filing Form 10 and emphasized that the essence of compliance lies in filing it before the conclusion of the assessment. 13. Based on these facts, CBDT guidance, and judicial precedents, the assessee humbly prayed before the ld. CIT(A) for relief and requested that the exemption under sections 11(1)(a) and 11(2) be allowed, and the disallowance made by the AO be set aside. 14. The ld. CIT(A) after considering the facts in totality observed that the assessee neither filed its return of income in time nor submitted Form No. 10 within the prescribed time limit. As a result, the appellant was found ineligible for exemption under section 11(2) of the Act. The learned CIT(A) considered the CBDT Circular No. 7 of 2018, which allows for relaxation in filing Form No. 9A and Form No. 10B for Assessment Year (AY) 2016-17 due to the first-time implementation of e-filing. The circular empowers Commissioners to condone the delay if reasonable cause is shown and the income was invested or applied in accordance with the law. 15. However, the ld. CIT(A) emphasized that exemption provisions must be interpreted strictly, and the burden lies on the assessee to prove the eligibility. The learned CIT(A) in this respect referred the judgment of Hon’ble Supreme Court in the case of CC vs. Dilip kumar and company reported in [2018] 95 taxmann.com 327. ITA No.2437/Bang/2024 Page 6 of 10 . 16. The learned CIT(A) also referred the Hon’ble Supreme Court judgment in the case of PCIT vs. Wipro Ltd. reported in in Civil appeal No. 1449 of 2022 and held that while some statutory timelines may be directory, the conditions for claiming exemptions must be strictly complied with. Hence, since the assessee did not fulfill the filing requirements as per section 11(2) of the Act, the exemption was rightly denied. 17. Furthermore, learned CIT(A) observed that the appellant cited CBDT Instruction No. 883 dated 24.09.1975, which treats fixed deposits of net consideration from capital assets as valid utilization under section 11(1A) of the Act. But the ld. CIT(A) pointed out that the assessee failed to provide details of what capital asset being transferred or how the net consideration was utilized. Therefore, the ld. CIT-A held that the AO was correct in not allowing accumulation under section 11(1)(a) of the Act. 18. Lastly, it was noted that the appellant, in Form 10B filed on 09.03.2017, had only set apart Rs. 72,691 for charitable or religious purposes, which was within the 15% limit but still did not satisfy all the statutory conditions. Since the exemption under section 11 was denied, the income over expenditure became taxable. Hence, the ld. CIT(A) concluded that the AO had correctly disallowed the exemption. 19. Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before Tribunal. ITA No.2437/Bang/2024 Page 7 of 10 . 20. The learned AR before me filed paper book running from pages 1 to 106 and submitted that as per the provisions of section 11(1) of the Act, the assessee can set apart and accumulate the profit to the extent of 15%. The learned AR argued that exemption on such 15% amount income being accumulated, or set apart is unfettered and without any condition. Therefore, the both the assessee and the learned CIT(A) erred in not providing the exemption to the extent of 15% of the income. Regarding the delay in filing of return and Form 10B for accumulation of income as per subsection 2 of section 11 of the Act, the learned AR contended the Form 10B was furnished before the completion of assessment which should have been considered. The learned AR argued that filing of form 10B in prescribed time limit is procedural requirement and purpose of the same is to enable the AO to correctly assess the income. As the same was furnished before the completion of the assessment, the purpose has been achieved. With regard to violation of section 13(9) of the Act, the learned AR placed reliance on the order of Chennai Tribunal in case of Jaya Educational Trust vs. DCIT reported in [2021] 130 taxmann.com 225 and prayed that the assessee should be provided with opportunity to condonation application for delay in filing of return as per section 139(1) of the Act. However, such return was filed well within the time limit allowed under section 139(4) of the Act. 21. On the other the learned DR vehemently supported the finding of the lower authorities. 22. I have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, it is noted that the assessee is a charitable trust that earned receipts of ITA No.2437/Bang/2024 Page 8 of 10 . ₹45,20,536/- during the relevant year. Against this, it applied ₹33,13,891/- as revenue expenditure, ₹45,875/- as capital expenditure, and set aside ₹10,88,080/- as a bank deposit. The AO disallowed the bank deposit as application for charitable purposes and further denied the assessee’s claim for accumulation under section 11(1) and section 11(2) of the Act, mainly because no Form 10 was filed in time and the return was belated. In this regard, I find that under section 11(1) of the Act, the assessee is entitled to accumulate up to 15% of its income without any condition or procedural requirement. This is well-settled law, as held by the Hon’ble Supreme Court in ACIT v. A.I.N. Rao Charitable Trust (1995) 129 CTR 205, where it was clarified that the 15% accumulation is unfettered and automatic. Therefore, the assessee’s claim of accumulation to the extent of ₹6,78,080 (15% of gross receipts) is allowed without any further inquiry or conditions. 23. Regarding the remaining amount that the assessee seeks to set apart under section 11(2) of the Act, the issue is more complex. The AO and CIT(A) denied the exemption because the return was not filed within the time prescribed under section 139(1) of the Act and Form 10B was not timely submitted. However, I note that the assessee’s reliance on judicial precedents, including the Chennai Tribunal’s order in Jaya Educational Trust vs. DCIT (supra), which emphasizes that delays in filing the return should be condoned if the reasons are genuine and reasonable, especially when the return was still filed within the extended time under section 139(4) of the Act. 24. Therefore, the I set aside this issue to the file of the AO with a direction that the assessee shall be given an opportunity to explain the ITA No.2437/Bang/2024 Page 9 of 10 . reasons for the delay in filing the return under section 139(1) of the Act. If the AO, after examining the explanation, finds the reasons to be genuine and reasonable, then following the principles laid down in Jaya Educational Trust (supra) and other binding precedents, the delay in filing of return and form 10B should be condoned. In that case, the assessee shall be eligible for exemption under section 11(2) of the Act, provided all other conditions under that section are fulfilled. 25. In view of the above the ground of appeal of the assessee is partly allowed for statistical purposes by granting the statutory 15% accumulation under section 11(1) of the Act and remands the issue of the remaining accumulation under section 11(2) of the Act to the AO for fresh consideration as per the directions above. 26. In the result appeal of the assessee is partly allowed for statistical purposes. Order pronounced in court on 28th day of May, 2025 Sd/- (WASEEM AHMED) Accountant Member Bangalore Dated, 28th May, 2025 / vms / ITA No.2437/Bang/2024 Page 10 of 10 . Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore "