The Bombay High Court clarified that once the requirements of Section 11(2) of the Income Tax Act stand fulfilled, then ‘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 income’, and the charitable trust after fulfilling the requirements of section 11(2), as a matter of right, become entitled for the exemption benefit, and the AO has no discretion to disallow the claim for accumulation or setting apart the income under Section 11(2).
The Court held that the proceedings under Section 148 of the Income Tax Act cannot be initiated to review the earlier stand adopted by the AO, and he cannot initiate reassessment proceedings to have a re-look or reexamine the documents that were filed and considered by him in the original assessment proceedings. Since, in the present case, the order initiating the re-assessment was based not only on a change of mind but also on the non-application of the mind, the Court quashed the reopening notices as well as the reassessment order, denying the exemption under Section 11(2).
The Division Bench comprising Justice Amit Satyavan Jamsandekar and Justice B.P. Colabawalla found that the Petitioner in Form 10 has specifically stated the particular purpose for which the income is being accumulated to meet the requirements of Section 11(2) of the Income Tax Act. Additionally, the Petitioner has also provided a copy of the Resolution, which was already mentioned in Form 10.
Thus, the failure of the Petitioner in not mentioning a more specific purpose in Form 10 due to the limited space provided therein cannot be treated as non-compliance with Section 11(2). When the Revenue provides the format and the contents of Form 10, which can be filled in and submitted only electronically, then the taxpayer trust cannot be faulted for non-compliance.
The Bench stated that the particulars specified in the limited space provided in Form 10 ought to be supported by providing the date of the resolution. Once the date of resolution of the Trust is provided in the Form, the AO can verify the same by calling upon a certified copy of the resolution during the assessment. In the present case, a certified copy of the resolution passed by the Trustees was already provided to the AO, not only in the original assessment proceedings but also in their replies to the notices issued under Section 148A(b) of the Income Tax Act.
Briefly, the Petitioner, a charitable Trust settled by Sir Jamsetjee Jejeebhoy, First Baronet, filed its ITR declaring income at Rs. 1.96 lacs, after claiming exemption under Section 11 of the Income Tax Act. The Petitioner also filed Form No. 10, pointing out that the Trustees of the Petitioner have passed a Resolution, by which a sum of Rs. 3.17 crores was accumulated for carrying out the purposes of the Trust, such as medical, education and social relief to the Members of the Zoroastrian community.
The AO then sought clarification on the issue of “Accumulation of Income by Trust”. In compliance with the same, the Petitioner duly provided all the details to the NFAC in respect of the accumulation made under Section 11(2) in the last ten years and the utilisation as per the format provided in the notice under Section 142(1). Even though the same was accepted by the NFAC, the Petitioner was shocked to receive a notice under Section 148A(b), asking to show cause as to why the exemption claimed for the accumulation of funds under Section 11(2) should not be disallowed, which ultimately culminated in an order.
Appearances:
Senior Advocate J. D. Mistri, along with Advocates Jeet Kamdar and Atul K. Jasani, for the Petitioner/ Taxpayer
Advocate Dinesh R. Gulabani, for the Respondent/ Revenue
