Maharaja Ranjit Singh War Museum Society Vs CIT (Punjab And Haryana High Court)
The issue under consideration is whether the Money Transferred to Unregistered Trust Can be Treated as Applied for Charitable Purpose?
High Court states that, under s. 11(1)(a), income held under trust for charity, to the extent that such income is applied for charitable or religious purposes will be exempt from income-tax. Where the income or the entire income is not so spent, but is accumulation, it will be exempt to the extent of 25 per cent of its total income or Rs.10,000/- whichever is higher. Under s.11(2), if the trust desires to accumulate more than 25 per cent, of its income and wants to claim exemption from income-tax it has to comply with the conditions which are laid down in s.11(2)(a) and (b). The first condition is that a notice in writing should be given to the ITO in the prescribed manner specifying the purpose for which the income is being accumulated and the period for which the income is to be accumulated. The period should not exceed ten years. Rule 17 of the IT Rules 1962, prescribes that the notice which is required to be given under s. 11(2)(a) should be in Form No.10. The second condition is that the amount so accumulated has to be invested in any Government security as specified in s.11(2)(b). The trust is allowed to accumulate its income for a maximum period of ten years. The condition is that the trust should specify in the prescribed form the purpose for which the income is accumulated or set apart. It is not enough for the trustees to repeat the objects of the trust, but must specify a particular purpose for which the income is being accumulated. We are in agreement with the view of the Calcutta High Court in director o I.T. Vs. Singhania Charitable Trust (1993) 199 ITR 819 (Cal): TC 23 R.1317 wherein the Calcutta High court held that e long-term accumulation should be for a definite and concrete purpose or purposes and the charitable trust cannot use its objects as the purposes for the accumulation of the income under s. 11(2) of the Act. It is only by mentioning the purposes for the accumulation of the income under s.11(2) of the Act. It is only by mentioning the purposes specifically, it accumulated income for the purposes mentioned in Form No.10. Therefore, it is essential that the trust should specify its purposes and the requirement is that the purposes must have some individuality and mere repetition of the objects of the trust would not meet the requirements of s.11(2) of the Act. However, on the facts of the case, it is seen that the assesee-trust had merely repeated its objects when it filed the necessary form No.10 furnished by the assessee, allowed its income to be accumulated for a period of ten years and that it is too late in the date of question the purposes mentioned in Form No.10 and learned senior counsel for the Revenue in his fairness has not disputed that the Department is not in a position how to challenge that the Form No.10 filed is invalid. In view of above, the addition of amount transferred to PSWHMMS is upheld. The question is answered against the appellant. The appeal is dismissed.
FULL TEXT OF THE ITAT JUDGEMENT
[1] Appeal under section 260A of the Income Tax Act, 1961 [for brevity ‘the Act’] is filed against the order dated 28.08.2018 of the Income Tax Appellate Tribunal, Amritsar [hereinafter referred to as ‘the Tribunal’] claiming following substantiation questions of law :-
“a. Whether the Ld. ITAT was justified in upholding that the amount give to PSWHMMS is the income of the appellant-society in terms of section 11(3)(d) by holding that the status of the recipient-society is immaterial for the purposes of application of section 11(3)(d), when the departmental circular itself differentiate between the societies as enumerated in section 11(3)(d) and other societies?
b. Whether in the present circumstances the Ld. ITAT was justified in rejecting the revision of form No.10 when the calculations have been changed by the authorities below?
c. Whether in the present facts and circumstances of the case the order of the Ld. ITAT is perverse?”
[2] The relevant facts are that appellant is a Society working under the Government of Punjab, same being principal donor also. The Society is running the Museum by the name of Maharaja Ranjit Singh War Museum and was registered under section 12AA of the Act on 06.08.1998. The object of the Society is to create sense of patriotism and nationality among the citizens; to preserve and display war history of Punjab. For the assessment year 2014-15, the annual receipts of the Society were `67,65,299/- and assessee had accumulated sum of `1,08,63,246/-. During the relevant year, Rupees one crore was given to Punjab State War Heroes Memorial & Museum Society, Amritsar [for brevity ‘PSWHMMS’] on directions of the Government of Punjab. The donee-Society was not registered under section 12AA at the relevant time though subsequently registered. The income tax return was selected for scrutiny, assessment was framed on 19.12.2016. Apart from other additions the amount transferred to PSWHMMS was considered as income of the appellant, holding that there was violation of section 11(2) and 11(3)(d) of the Act. The first appeal filed was partly allowed on 07.07.2017, however the impugned addition was upheld. In further appeal, the Tribunal partly allowed the appeal on 28.08.2018 but the addition in question was sustained.
[3] Though three substantial questions of law have been claimed, the issue involved and pressed is:-
“Whether the impugned transfer to PSWHMMS is deemed income of the Society in the year of transfer or not?”
[4] The relevant portion of section 11 of the Act is reproduced below:-
Income from property held for charitable or religious purposes.
11. (1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income—
(a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of fifteen per cent of the income from such property;
(b) income derived from property held under trust in part only for such purposes, the trust having been created before the commencement of this Act, to the extent to which such income is applied to such purposes in India; and, where any such income is finally set apart for application to such purposes in India, to the extent to which the income so set apart is not in excess of fifteen per cent of the income from such property;
(c) income derived from property held under trust—
(i) created on or after the 1st day of April, 1952, for a charitable purpose which tends to promote international welfare in which India is interested, to the extent to which such income is applied to such purposes outside India, and
(ii) for charitable or religious purposes, created before the 1st day of April, 1952, to the extent to which such income is applied to such purposes outside India:
Provided that the Board, by general or special order, has directed in either case that it shall not be included in the total income of the person in receipt of such income;
(d) income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution.
Explanation 1.—For the purposes of clauses (a) and (b),—
(1) in computing the fifteen per cent of the income which may be accumulated or set apart, any such voluntary contributions as are referred to in section 12 shall be deemed to be part of the income;
(2) if, in the previous year, the income applied to charitable or religious purposes in India falls short of eighty-five per cent of the income derived during that year from property held under trust, or, as the case may be, held under trust in part, by any amount—
(i) for the reason that the whole or any part of the income has not been received during that year, or
(ii) for any other reason,
then—
(a) in the case referred to in sub-clause (i), so much of the income applied to such purposes in India during the previous year in which the income is received or during the previous year immediately following as does not exceed the said amount, and
(b) in the case referred to in sub-clause (ii), so much of the income applied to such purposes in India during the previous year immediately following the previous year in which the income was derived as does not exceed the said amount,
may, at the option of the person in receipt of the income (such option to be exercised before the expiry of the time allowed under sub-section (1) of section 139 for furnishing the return of income, in such form and manner as may be prescribed) be deemed to be income applied to such purposes during the previous year in which the income was derived; and the income so deemed to have been applied shall not be taken into account in calculating the amount of income applied to such purposes, in the case referred to in sub-clause (i), during the previous year in which the income is received or during the previous year immediately following, as the case may be, and, in the case referred to in sub-clause (ii), during the previous year immediately following the previous year in which the income was derived.
Explanation 2.—Any amount credited or paid, out of income referred to in clause (a) or clause (b) read with Explanation 1, to any other trust or institution registered under section 12AA, being contribution with a specific direction that they shall form part of the corpus of the trust or institution, shall not be treated as application of income for charitable or religious purposes.
[Explanation 3.—For the purposes of determining the amount of application under clause (a) or clause (b), the provisions of sub-clause (ia) of clause (a) of section 40 and sub-sections (3) and (3A) of section 40A, shall, mutatis mutandis, apply as they apply in computing the income chargeable under the head “Profits and gains of business or profession”.]
(1A) For the purposes of sub-section (1),—
(a) where a capital asset, being property held under trust wholly for charitable or religious purposes, is transferred and the whole or any part of the net consideration is utilised for acquiring another capital asset to be so held, then, the capital gain arising from the transfer shall be deemed to have been applied to charitable or religious purposes to the extent specified hereunder, namely:—
(i) where the whole of the net consideration is utilised in acquiring the new capital asset, the whole of such capital gain;
(ii) where only a part of the net consideration is utilised for acquiring the new capital asset, so much of such capital gain as is equal to the amount, if any, by which the amount so utilised exceeds the cost of the transferred asset;
(b) where a capital asset, being property held under trust in part only for such purposes, is transferred and the whole or any part of the net consideration is utilised for acquiring another capital asset to be so held, then, the appropriate fraction of the capital gain arising from the transfer shall be deemed to have been applied to charitable or religious purposes to the extent specified hereunder, namely:—
(i) where the whole of the net consideration is utilised in acquiring the new capital asset, the whole of the appropriate fraction of such capital gain;
(ii) in any other case, so much of the appropriate fraction of the capital gain as is equal to the amount, if any, by which the appropriate fraction of the amount utilised for acquiring the new asset exceeds the appropriate fraction of the cost of the transferred asset.
Explanation.—In this sub-section,—
(i) “appropriate fraction” means the fraction which represents the extent to which the income derived from the capital asset transferred was immediately before such transfer applicable to charitable or religious purposes;
(ii) “cost of the transferred asset” means the aggregate of the cost of acquisition (as ascertained for the purposes of sections 48 and 49) of the capital asset which is the subject of the transfer and the cost of any improvement thereto within the meaning assigned to that expression in sub-clause (b) of clause (1) of section 55;
(iii) “net consideration” means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer.
(1B) Where any income in respect of which an option is exercised under clause (2) of the Explanation to subsection (1) is not applied to charitable or religious purposes in India during the period referred to in sub-clause (a) or, as the case may be, sub-clause (b), of the said clause, then, such income shall be deemed to be the income of the person in receipt thereof—
(a) in the case referred to in sub-clause (i) of the said clause, of the previous year immediately following the previous year in which the income was received; or
(b) in the case referred to in sub-clause (ii) of the said clause, of the previous year immediately following the previous year in which the income was derived.
(2) Where eighty-five per cent of the income referred to in clause (a) or clause (b) of sub-section (1) read with the Explanation to that sub-section is not applied, or is not deemed to have been applied, to charitable or religious purposes in India during the previous year but is accumulated or set apart, either in whole or in part, for application to such purposes in India, 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 the income, provided the following conditions are complied with, namely:—
(a) such person furnishes a statement in the prescribed form and in the prescribed manner to the Assessing Officer, stating the purpose for which the income is being accumulated or set apart and the period for which the income is to be accumulated or set apart, which shall in no case exceed five years;
(b) the money so accumulated or set apart is invested or deposited in the forms or modes specified in sub-section (5);
(c) the statement referred to in clause (a) is furnished on or before the due date specified under sub-section (1) of section 139 for furnishing the return of income for the previous year:
Provided that in computing the period of five years referred to in clause (a), the period during which the income could not be applied for the purpose for which it is so accumulated or set apart, due to an order or injunction of any court, shall be excluded.
Explanation.—Any amount credited or paid, out of income referred to in clause (a) or clause (b) of subsection (1), read with the Explanation to that sub-section, which is not applied, but is accumulated or set apart, to any trust or institution registered under section 12AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, shall not be treated as application of income for charitable or religious purposes, either during the period of accumulation or thereafter. (Inserted by the Finance Act, 2002 w.e.f. 01.04.2003)
(3) Any income referred to in sub-section (2) which—
(a) is applied to purposes other than charitable or religious purposes as aforesaid or ceases to be accumulated or set apart for application thereto, or
(b) ceases to remain invested or deposited in any of the forms or modes specified in sub-section (5), or
(c) is not utilised for the purpose for which it is so accumulated or set apart during the period referred to in clause (a) of that sub-section or in the year immediately following the expiry thereof,
(d) is credited or paid to any trust or institution registered under section 12AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, (Inserted by the Finance Act, 2002 w.e.f. 01.04.2003)
shall be deemed to be the income of such person of the previous year in which it is so applied or ceases to be so accumulated or set apart or ceases to remain so invested or deposited or credited or paid or, as the case may be, of the previous year immediately following the expiry of the period aforesaid.
(3A) Notwithstanding anything contained in sub-section
(3), where due to circumstances beyond the control of the person in receipt of the income, any income invested or deposited in accordance with the provisions of clause (b) of sub-section (2) cannot be applied for the purpose for which it was accumulated or set apart, the Assessing Officer may, on an application made to him in this behalf, allow such person to apply such income for such other charitable or religious purpose in India as is specified in the application by such person and as is in conformity with the objects of the trust; and thereupon the provisions of sub-section (3) shall apply as if the purpose specified by such person in the application under this sub-section were a purpose specified in the notice given to the Assessing Officer under clause (a) of sub-section (2):
Provided that the Assessing Officer shall not allow application of such income by way of payment or credit made for the purposes referred to in clause (d) of subsection (3) of section 11 (Inserted by the Finance Act, 2002 w.e.f. 01.04.2003)
Provided further that in case the trust or institution, which has invested or deposited its income in accordance with the provisions of clause (b) of sub-section (2), is dissolved, the Assessing Officer may allow application of such income for the purposes referred to in clause (d) of sub-section (3) in the year in which such trust or institution was dissolved.
[5] The contention raised by learned counsel for the appellant is two-fold:-
