By TIOL News Service

MUMBAI, APRIL 12, 2017: THE ISSUE IS - Whether benefit of accumulation u/s 11(2) can be denied to a trust, merely on ground of non filing of Form 10 as prescribed under Rule 17 at the time of filing of return, if the same was filed during assessment proceedings. NO is the verdict.

Facts of the case:

The assessee is a charitable trust, registered u/s 12A. For the subject A.Ys, the Assessee had not filed any return of income as, according to it, it had no income. This in view of the fact that the donations received by it, were specifically earmarked for use towards Kargil War Relief Fund and Orissa Relief Fund. Therefore, as the Assessee did not have any discretion to utilize the aforesaid donations, the same were directly taken to the Balance Sheet under the head 'Earmarked Fund' and not routed through its Income & Expenditure Account. Consequently, there was no occasion for the Assessee to seek accumulation of such income which is not utilized as provided u/s 11(2). The AO thereafter, issued two separate notices u/s 148 seeking to reopen the Assessments for the A.Ys 2000-01 and 2001-02. This on the ground that the Assessee Trust had taken donations received towards Kargil War Relief and Orissa Relief directly to the Balance Sheet as earmarked funds and not routed it through its Income and Expenditure Account. This was not permitted as these Earmarked funds were not corpus donations u/s 11(1)(d). Consequent to the above, the Assessee filed its return of income. Along with the return, the Assessee did not enclose notices in Form 10 as required under Rule 17 of Income Tax Rules for the purpose of accumulation of income as provided u/s 11(2). Thus, on the basis of the return, the facility of accumulating income not utilized, was not available.

However, during the course of Assessment Proceedings, the assessee filed Form 10 as prescribed under Rule 17 for the purpose of availing an accumulation of income. The AO however rejected Form 10, on the ground that the same was not filed along with the return and consequently denied accumulation of income. This resulted in two orders bringing to tax an income of Rs.3.39 Crores and the other for A.Y 2001-02 bringing to tax an income of Rs.1.25 Crores. On appeal, the ITAT held that Form 10 under Rule 17 of the Rules had to be filed before Assessment is completed and not after.

On appeal, the HC held that,

++ the Revenue accepts that even if the Form 10 is filed during the reassessment proceedings, the benefit of accumulation u/s 11(2) is available. So also, the time allowed in Rule 17 of the Rules for furnishing the form before the expiry of time to file the return of income u/s 139(1) get extended to include the time within which a return of income could be filed u/s 139(4). Therefore, filing of Form 10 during reassessment proceedings is filing of the same within the time allowed for furnishing the return of income u/s 139(4). It it only with regard to the decision of the Apex Court in Nagpur Hotel Owners' Association that Revenue's counsel expressed reservation. According to him, the observations of the Apex Court that Form 10 has to be filed before completion of Assessment Proceedings were rendered in the context of fact that it was not filed during the Assessment Proceedings. Therefore, the fact situation being different, the observations therein cannot be applied to the present facts. In fact, we note that the Apex Court in the above case has observed that for the purposes of excluding an income of the trust from the net of taxation, the intimation in Form 10 has to be filed with the AO before he completes the Assessment. In fact, it is the context of the above finding of the Apex Court, that it observed that Form 10 has to be filed before completion of Assessment Proceedings. In the above view, the question as proposed stands concluded against the Revenue by the decision of the Apex Court in Nagpur Hotel Owners' Association and the decision of this Court in Tulsidas Gopalji Charitable and Chaleshwar Temple Trust and the Delhi High Court in case of Association of Corporation and Apex Societies of Handlooms.

(See 2017-TIOL-697-HC-MUM-IT)