ITO (Exemption) Vs Uttar Pradesh Police and Armed Forces Sahayata Sansthan (ITAT Lucknow)
No bar on utilizing accumulated income u/s 11(2) – ITAT Lucknow Allows five year accumulation without AO’s artificial restrictions on utilization
Lucknow ITAT has dismissed the Revenue’s appeal for AY 2013-14, holding that the interpretation adopted by AO with respect to accumulation of income u/s 11(2) was legally unsustainable.
Assessee is a trust constituted by the Govt Uttar Pradesh in 1963 for providing education, training & financial assistance to members of the U.P. Police & Armed Forces. It is duly registered u/s 12A. For the year under consideration the trust filed its return declaring Nil income. During scrutiny, AO held that Assessee had not adjusted an amount of Rs 99,45,622 set apart in AY 2010-11 & had carried forward a lesser figure, thereby suppressing income to be taxed in subsequent years. AOr also observed that Assessee had accumulated Rs 3.32 crores during the year despite having surplus of only Rs 2.31 crores & accordingly treated the excess of Rs 1,00,28,184 as taxable. The total income was thus assessed at Rs 1.99 crores.
On appeal, CIT(A) deleted both additions after considering Assessee’s submissions. The trust explained that its receipts mainly comprised interest on maturity of fixed deposits amounting to Rs 3.90 crores, which was rightly treated as capital receipts & interest of Rs 4.63 lakh on FDRs, bank accounts & TDS refunds which was offered in the Income & Expenditure A/c. Since application of income during the year was below 85%, Assessee had passed a valid resolution to accumulate Rs 3.32 crores & had duly filed Form 10B. It was further pointed out that the computation sheet mistakenly mentioned the carried forward figure as Rs 44.62 lakh instead of the correct figure of Rs 1.03 crores, which led to confusion at the assessment stage. It was also stressed that sec 11(2) does not mandate that current year’s income must first be exhausted before utilizing past accumulations.
