Judgment:
1. Both the appeals have been directed by the assessee against the separate orders of the learned GIT(A), dt. 31st March, 1995, pertaining to asst. yr. 1993- 94. While ITA No. 1150/Alld/1995 related to the order of the AO under Section 143(3) of the Act which was the subject-matter of appeal before the learned CIT(A), ITA No.1149/Alld/1995 relates to the order under Section 154 of the Act passed by the AO which was the subject-matter of appeal before the learned CIT(A). For the sake of convenience, we will first take up the appeal in respect of assessment under Section 143(3) of the Act.
2. Though various grounds have been raised, all the grounds are related to the finding of the learned CIT(A) to the effect that the assessee was not entitled to exemption under Section 11 of the Act in respect of accumulation of funds.
3. Briefly, the facts of the case are that the return of income filed by the assessee was processed under Section 143(1)(a) of the Act on 31st March, 1994, determining the 'nil' income. During the course of scrutiny, the AO noted that the receipts of the assessee consisted of interest and dividend on various investments. He also noted that a sum of Rs. 1,50,100 has been spent on making charities. He also noted that a sum of Rs. 2,47,000 has been transferred and accumulated at charity fund. The assessee also filed Form No. 10 along with the return. In the Form No. 10, the accumulated amount was mentioned at Rs. 1,50,100, whereas the amount sought to be accumulated was Rs. 2,47,000. When the assessee was questioned about the same, it was stated that it was only a typographical error. It was in this connection the assessee also drew the attention of the AO towards column No. 5 of the return in which the figure of Rs. 2,47,000 was mentioned. The AO also noted that in Form No. 10, the purpose for accumulation of funds was mentioned as under : "for the purpose of advancement of education, medical relief to poor and/or any other object of general public utility".
4. The AO observed that by Taxation Amendment Laws, 1975, applicable from 1st April, 1976, Section 11(1)(a) was amended putting restriction on the accumulation of funds and limiting the same to 25 per cent of the gross receipts of the accounting period. Section 11(2) was also amended w.e.f. 1st April, 1971, which specifies the various requirements such as giving notice in Form No. 10 to the AO seeking permission for accumulation of funds in excess of 25 per cent of gross receipts. With effect from 1st April, 1983, the restriction was placed for deployment of excess funds available with the trust inasmuch as the modes were specified in Sub-section (5) of Section 11. After considering the case of the assessee, the AO was of the opinion that the assessee has failed to comply with the provisions of Section 11 of the Act in respect of purpose for accumulation as well as not adhered to the limits prescribed in this regard for filing Form No. 10. The AO, therefore, held that the assessee loses the benefit of Section 11 and thus the entire surplus of income over the expenditure for the year under consideration loses exemption under Section 11 of the Act. He noted that the gross receipts of the assessee amounted to Rs. 5,27,488 and the expenditure/utilisation was to the extent of Rs. 1,50,607. The remaining amount of Rs. 3,76,881 was, therefore, brought to tax in the status of 'AOP'. The same was challenged before the learned CIT(A). The learned CIT(A) also upheld the finding of the AO. However, he also held that merely because Form No. 10 was filed late will not disentitle the assessee to claim exemption under Section 11 of the Act. The order of the learned CIT(A) to the extent he has upheld the finding of the learned AO has been challenged before us. It is argued by the learned counsel that the only reasoning given by the learned CIT(A) in disallowing the claim of the assessee has been mentioned in para 4 of his order. In para 4 of his order, the learned CIT(A) had observed that Sub-section (2) of Section 11 requires specification of the purpose for which the accumulated income was being set apart. While relying on the decision of the Hon'ble Calcutta High Court in the case of Director of IT (Exemption) v. Trustee of Singhania Charitable Trust (1993) 199 ITR 819 (Cal), the learned CIT(A) held that as in the instant case, the specific purpose for which the accumulation of income was being made was not mentioned, the AO was justified in disallowing the claim of the assessee. The learned counsel stated that in the case of the assessee the income has been accumulated for a specific purpose. He stated that vide resolution of the managing council, dt. 12th Aug., 1993, the following purpose for accumulation was mentioned : "Resolved that out of surplus in the income and expenditure account of the foundation for the year ended 31st March, 1993, a sum of Rs. 2,47,000 be accumulated and set apart for a period of not more than 10 years for the purpose of advancement of education/medical relief/relief to poor and/or other objects of general public utility and Rs. 1,29,881 be transferred to general funds of the foundation".
The learned counsel stated that in the resolution itself it was made clear that the accumulation of income was made for the specific purpose of advancement of education, medical relief/relief to poors and other objects of general public utility. He also stated that the reliance on the decision of the Hon'ble Calcutta High Court in the case of Trustee of Singhania Charitable Trust (supra) was not justified as in that case, the institution had many objects. He stated that, for example, the purposes of that institution were the following : 1. To assist, finance, support, fund, establish and maintain any institution meant for the relief of the poor, advancement of education and medical relief.
2. To open, fund, establish or finance, assist and contribute to the maintenance of hospitals, charitable dispensaries, etc.
4. To help needy people in marriage, funeral and cremation of the dead.
5. To open, fund, establish, maintain and assist leper asylums or other institutions for the treatment of leprosy.
6. To open, fund, establish, assist and maintain schools, colleges and boarding houses.
7. To open, fund, establish or contribute to the maintenance of orphanages, widows' homes, lunatic asylums, etc.
8. To open, fund, establish and assist schools/colleges for mentally and physically handicapped.
9. To distribute Dhotis, blankets, rugs, woollen clothings, etc. to the poor.
10. To grant fees, stripends, scholarships, interest-free loans, etc. for pursuing studies.
12. To establish scholarships, teaching and research chairs in Indian universities.
13. To print, publish, distribute journals, periodicals, books and leaflets for the promotion of the objects of the society.
14. To assist, support and give monetary help to any individual in distress, poor or poors.
The learned counsel stated that it was in this background that the Hon'ble Calcutta High Court held that the specific purpose for which the accumulation was being made was not mentioned. But in the instant case, the purpose for which the institution was founded was very limited. The decision of the Hon'ble Calcutta High Court was, therefore, not applicable in the instant case. The learned counsel further submitted that in the instant case there was no dispute that the amount has been spent for the purposes for which the foundation was formed. While relying on the decision of the Hon'ble Supreme Court in the case of Addl. CIT v. A.L.N. Rao Charitable Trust (1995) 216 ITR 697 (SC), the learned counsel stated that Section 11(2) does not operate to whittle down or to cut across the exemption provisions contained in Section 11(1)(a) so far as such accumulated income of the previous year is concerned. It has also appreciated that Sub-section (2) of Section 11 does not contain any non obstante clause like "notwithstanding the provisions of Sub-section (1)". Consequently, it must be held that after Section 11(1)(a) has full play and if still any accumulated income of the previous year is left to be dealt with, and to be considered for the purpose of income-tax exemption, Sub-section (2) of Section 11 can be pressed into service. The learned counsel, therefore, argued that the learned CIT(A) was not justified in disallowing the claim of the assessee. On the other hand, the learned Departmental Representative supported the order of the learned CIT(A).
5. We have considered the rival submissions. From the order of the learned CIT(A) it was clear that the claim of the assessee has been denied merely on the ground that in the managing council's resolution the specific purpose for which the accumulation was being made was not mentioned. For this purpose, the learned CIT(A) has relied on the decision of the Hon'ble Calcutta High Court in the case of Trustee of Singhania Charitable Trust (supra). But while doing so, the learned CIT(A) omitted to consider a very vital fact that in the case of Trustee of Singhania Charitable Trust (supra), there were many objects.
It was not specific as to for which object the income was being accumulated. We have also verified the object of that institution and the purpose for the accumulation of income as given in Form No. 10. We find that in Form No. 10 the assessee has mentioned all the objects for which the institution was founded. It was under these circumstances, it was held that the specific purpose for which the income was being accumulated was not specified. But in the case of the assessee, the specific purpose has been mentioned which is evident from the managing council's resolution, a copy of which is on record. The decision of the Hon'ble Calcutta High Court, therefore, cannot be applied in the assessee's case. We also find that the Hon'ble Supreme Court in the case of A.L.N. Rao Charitable Trust (supra) has held that the purpose of Section 11(2) was not to restrict the scope of exemption under Section 11(1)(a) of the Act. The observations made by the Hon'ble Supreme Court in this connection have been mentioned earlier. In view of this decision, the claim of the assessee deserves to be allowed. We also find that the Hon'ble Supreme Court in the case of S. RM. M. CT.M. Tiruppani Trust v. CIT (1998) 230 ITR 636 (SC), has considered similar issue. In that case, the Hon'ble Supreme Court held that accumulation beyond 25 per cent of the receipts could be done and the procedure laid down in Section 11(2) will apply to such accumulation.
But, the accumulation of income of less than 25 per cent could be done without following the procedure laid down in Section 11(2) of the Act.
In the instant case, the AO has not allowed even the exemption of 25 per cent which was accumulated by the assessee. In this case also, the Hon'ble Supreme Court reiterated that Section 11(2) does not in any manner restrict the operation of Section 11(1). The accumulated income which is exempt under Section 11(1)(a) need not be invested in Government securities. It is only in respect of any additional accumulated income beyond 25 per cent that, if the assessee wants exemption of this additional accumulated income also, the assessee is required to invest the additional accumulated income in the manner laid down in Section 11(2) after following the procedure laid down therein.
Keeping in view these facts, we hold that the learned CIT(A) has not correctly appreciated the facts of the case in disallowing the claim of the assessee. We, therefore, direct the AO to allow the claim of the assessee for exemption of accumulated income under Section 11(2) of the Act. The grounds of appeal raised by the assessee are, therefore, allowed.
7. Now, we will take up the appeal directed against the order under Section 154 of the Act.
8. Briefly, the facts of the case are that the assessee is a public charitable trust, whose income is exempt under Section 11 of the Act.
When it filed the return of income, the entire income of Rs. 5,27,488 was claimed exempt under Section 11 of the Act. The return was processed under Section 143(1)(a) of the Act on 31st March, 1994, and the claim of the assessee was accepted. However, subsequently, the AO noted that the assessee has accumulated a sum of Rs. 2,47,000 and applied for permission in Form No. 10 for accumulation of Rs. 1,50,100 only. Since the assessee accumulated funds in excess of 25 per cent of the gross receipts, the notice under Section 154 was issued by the AO requiring it to explain as to why the income be not brought to tax because it has not complied with the provisions of the Act. The AO observed that in Form No. 10 seeking permission for accumulation of income, the assessee has not mentioned the specific purpose for which the accumulation was being made. He, therefore, held that in the intimation under Section 143(1)(a), an apparent mistake from record has crept in which was being rectified. He passed an order under Section 154 of the Act and brought to tax the sum of Rs. 3,76,881 in the status of 'AOP'. On appeal, the same was upheld which has been challenged before us. It is argued by the learned counsel that the AO has invoked the provisions of Section 154 of the Act on the ground that Form No. 10 seeking permission for accumulation of income does not contain the specific purpose for which the accumulation was being made. He argued that in the resolution of the managing council, the specific purpose was mentioned. If the AO wants to interpret the resolution in some other way, it could not be said to be a mistake apparent from record.
He stated that in the earlier year as well as in the subsequent year, the AO himself vide his order under Section 143(3) has accepted the claim of the accumulation of income on the basis of similar resolution.
The issue was, therefore, highly debatable and in view of the Hon'ble Supreme Court decision in the case of T.S. Balaram, ITO v. Volkart Brothers and Ors. (1971) 82 ITR 50 (SC), the debatable issues could not be brought within the purview of Section 154 of the Act. The order passed by the AO and upheld by the learned CIT(A), therefore, deserves to be cancelled. On the other hand, the learned Departmental Representative supported the order of the learned CIT(A).
9. We have considered the rival submissions. Admittedly, in the instant case, the AO has resorted to the provisions of Section 154 of the Act.
The powers of the AO under Section 154 of the Act extend to the rectification of mistakes which are apparent from record. But, if the issue could be decided by long drawn process of law, the same could not be considered under Section 154 of the Act. In the instant case, whether the resolution of the managing council was specific or not was a highly debatable issue. The AO and CIT(A) were not justified in resorting to the provisions of Section 154 of the Act on the issue which was debatable. Accordingly, the order passed by the AO and upheld by the learned CIT(A) is cancelled.