THE DIRECTOR OF INCOME TAX V. ENVISIONS

ITA/752/2009

AI Insights

The case revolves around an appeal by the Revenue against the decision of the Income Tax Appellate Tribunal, which had granted the benefit of Section 11(2) of the Income Tax Act, 1961 to the respondent, a registered charitable trust. The trust had declared its total income as nil for the Assessment Year 2005-06, despite receiving donations. The core issue was whether the trust could accumulate income for unspecified purposes under Section 11(2) without complying with the provisions of Section 11(5). The Tribunal and subsequent appeals found that the purposes stated by the trust were covered by the objects of the trust deed, and thus, the accumulation was permissible.

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 701352 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 13-03-2015
• Assessment Year: misc
• Other Referred Cases: DIRECTOR OF INCOME TAX (EXEMPTION) vs TRUSTEES OF SINGHANIA CHARITABLE TRUST, COMMISSIONER OF INCOME TAX vs HOTEL & RESTAURANT ASSOCIATION, DIRECTOR OF INCOME TAX vs MITUSI AND CO.ENVIRONMENTAL TRUST
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: A SHANKAR; M LAVA
• Assessee Lawyers: K V ARAVIND
• Keywords: Accumulation of income; Charitable Trust; Income Tax; Section 11(2)
• Section: 11(2); 11(5); 260-A

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 13TH DAY OF MARCH 2015 PRESENT THE HON’BLE MR.JUSTICE VINEET SARAN AND THE HON’BLE MRS.JUSTICE S.SUJATHA ITA No. 752 OF 2009 (IT) BETWEEN : 1. THE DIRECTOR OF INCOME TAX, EXEMPTIONS, C.R. BUILDING, QUEENS ROAD, BANGALAORE. 2.THE DEPUTY COMMISSIONER OF INCOME TAX(EXMP) CIRCLE-17(1) C.R. BUILDING, QUEENS ROAD, BANGALORE ... APPELLANTS (By Sri: K V ARAVIND, ADVOCATE) AND ENVISIONS NO.203, CAMELOT KENSINGTON ROAD ® 2 ULSOOR, BANGALORE ... RESPONDENT (By Sri: A SHANKAR & M LAVA, ADVOCATES) This ITA is filed U/S.260-A of I.T.Act, 1961 arising out of Order passed in ITA No.8/BNG/2009 dated 26/06/2009, for the Assessment Year 2005-2006, praying that this Hon'ble Court may be pleased to allow the appeal and set aside the orders passed by the Income Tax Appellate Tribunal, Bangalore in ITA No.8/BNG/2009 dated 26/06/2009 confirming the order passed by the Appellate Commissioner and confirm the order passed by the Dy. Director of Income Tax Exmp Circle, 17(2), Bangalore THIS APPEAL IS COMING ON FOR ADMISSION THIS DAY, VINEET SARAN, J. DELIVERED THE FOLLOWING: JUDGMENT This is an appeal filed by the Revenue against the order of the Tribunal whereby the benefit of Section 11(2) of the Income Tax Act, 1961 ( for short ‘the Act) has been granted in favour of the assessee. 2. This appeal was admitted to consider the following substantial question of law:- “Whether the Appellate Authority were correct in holding that the assessee was entitled to accumulation of income of 85% of the donations received during the current assessment year u/s 11(2) of 3 the Act(without specifying the object of accumulation) as it was for the purposes of the trust without complying with the other provisions of the said section including Section 11(5) of the Act and failing to carry on any charitable activity during the current assessment year ?” 3. The brief facts of this case are : That the respondent – assessee is a registered charitable trust. For the relevant Assessment Year 2005-06, the Assessee had declared its total income as nil. In the said year, the Assessee – Trust had collected donations of Rs.32,47,909/- and had made incidental expenses of Rs.7527/-. The remaining amount was claimed by the Assessee as accumulation u/s 11(2) of the Act by filing Form -10 in which the following purposes were stated: a) To conduct various activities in the field of Academics, Architecture, Music and Literature for preservation of our heritage. b) To run maintain educational or other institution for providing and promoting education for poor and weaker sections of the society. c) To run, maintain or assist any medical institution to grant assistance to indigent needy people for meeting the cost of medical treatment. 4 4. After holding that though the purpose stated in Form -10 by the assessee may be in terms of some of the 14 objects of the trust deed, the Assessing Officer disallowed the accumulation holding the purpose stated was vague and thus the benefit of Section 11(2) of the Act was denied. Reliance in this regard was placed by the learned Assessing Officer on the decision of the Calcutta High Court rendered in the case of DIRECTOR OF INCOME TAX (EXEMPTION) vs TRUSTEES OF SINGHANIA CHARITABLE TRUST, (1993) 199 ITR 819 (CAL). 5. Challenging the said order, the assessee filed appeal before the Commissioner of Income Tax which was allowed by the order dated 14.2.2008 after holding that in Form -10, the three purposes given were covered by 14 objects of the Trust and since the law did not prohibit or preclude plurality of purpose for accumulation, the same were held to be within the scope of Section 11(2) of the Act. Challenging the order of the Commissioner, the revenue filed an appeal before the Tribunal which has been dismissed by order 5 dated 26.6.2003. Aggrieved by the same, this further appeal has been filed by the revenue. 6. We have heard Sri K.V. Aravind, learned counsel for the appellant as well as Sri A.Shankar, learned counsel for the respondent, at length and perused the records. 7. It is not disputed by the parties that the objects of the trust, as given in the trust deed, were 14 in number. The three purposes for which accumulation was prayed for and mentioned in Form -10 by the assessee were undisputedly covered by the objects of the trust. As such, it cannot be disputed that the purpose mentioned by the assessee while claiming the benefit, was for achieving the objects of the trust. 8. The Calcutta High Court in the case of Singhania Charitable Trust (supra), was dealing with a case where in the declaration given by the assessee claiming benefit u/s 11 (2) of the Act, all the purpose mentioned were for achieving the charitable objects for which the assessee- trust was created. Though it was held the accumulation of income for more than one purpose was 6 permissible, but the generality of the purpose for which the benefit was claimed u/s 11(2) of the Act was not found to be permissible as the purpose for which the trust required that accumulation of income was not specified and clearly mentioned. Hence the matter was remanded back to the Tribunal permitting the assessee to adduce fresh evidence. 9. The said judgment of the Calcutta High Court was considered by the Delhi High Court in the case of COMMISSIONER OF INCOME TAX vs HOTEL & RESTAURANT ASSOCIATION, ( 2003) 261 ITR 190 (Del). The Delhi High Court, while considering the case for grant of benefit u/s 11(2) of the Act, held that specification of certain purpose or purposes is needed for accumulation of income of the trust, and the same cannot be beyond the objects of the trust. It was further held that plurality of purpose for accumulation was not precluded and as long as the purpose was to achieve the objects of the trust, the assessee would be entitled to the benefit of Section 11(2) of the Act. In another case of DIRECTOR OF INCOME TAX vs 7 MITUSI AND CO.ENVIRONMENTAL TRUST, (2008) 303 ITR 111 (Delhi), the Delhi High Court noted the judgment of the Calcutta High Court in the case of Singhania Charitable Trus (supra) and reiterated view taken in the case of Hotel and Restaurant Association (supra). 10. In the present case, we find that the revenue does not dispute the fact that all the three purposes specified by the Assessee in Form 10 are for achieving the objects of the trust, and that the purposes as well as objects, are both charitable. Merely because more than one purpose has been specified and details about the plan of such expenditure has not been given, the same would not, in our view, be sufficient to deny the benefit u/s 11(2) of the Act to the Assessee. As long as the objects of the trust are charitable in character and as long as the purpose or purposes mentioned in Form 10 are for achieving the objects of the trust, merely because of non-furnishing of the details, as how the said amount is proposed to be spent in future, the assessee cannot be 8 denied the exemption as is admissible under sub-section 2 of Section 11 of the I.T.Act, 1961. 11. For the reasons stated above, we dismiss this appeal and answer the substantial question of law in favour of assessee and against the revenue. Sd/- JUDGE Sd/- JUDGE nm "