Trust's Hospital Fund Accumulation Upheld Despite Form 10 Inaccuracy

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Case Name:

Commissioner of Income Tax (Exemptions) vs Bochaswanasi Shri Akshar Purshottam Public Cable Trust (High Court of Gujarat)

R/Tax Appeal No.1260 of 2018

Key Takeaways:

- The court upheld the Trust's claim for income accumulation under Section 11(2) despite inaccuracies in Form 10.

- The primary requirement is to state the purpose for which the income is being accumulated.

- The Trust's detailed explanation during assessment proceedings was sufficient to meet this requirement.

- The decision emphasizes the importance of the purpose over the formality of the declaration.

Issue

Is it mandatory to specify the object/purpose in Form No. 10 for claiming accumulation under Section 11(2) of the Income Tax Act?

Facts

- The respondent-assessee is a Public Charitable Trust engaged in providing medical facilities.

- For the assessment year 2008-09, the Trust claimed a deduction of Rs. 3.60 crores under Section 11(2).

- The Assessing Officer questioned the claim, citing a lack of specified purpose in Form 10.

- The Trust provided a detailed explanation, including a resolution by the board of trustees, setting apart funds for hospital projects and modernization.

Arguments

Revenue's Arguments:

- The Trust did not specify the purpose for income accumulation in Form 10, a requirement under Section 11(2).

- The declaration in Form 10 was insufficient to fulfill the statutory requirement.

Trust's Arguments:

- The Trust is engaged in providing medical relief and had ongoing and future hospital projects.

- The board of trustees passed a resolution to set apart funds for these projects, which was filed with the return of income.

- The requirements of Section 11(2) were sufficiently met through the detailed explanation provided during assessment proceedings.

Key Legal Precedents

- CIT v. Hostel and Restaurant Association (2003) 261 ITR 190:

This case established that while specifying a purpose for income accumulation is necessary, the purpose must align with the Trust's objectives. Plurality of purposes is allowed as long as they are within the Trust's objectives.

Judgement

The High Court dismissed the Revenue's appeal, upholding the Tribunal's decision. The court found that the Trust had sufficiently stated the purpose for which the income was being accumulated, despite inaccuracies in Form 10. The detailed explanation provided during assessment proceedings met the requirements of Section 11(2).

FAQs

Q1: What was the main issue in this case?

A1: The main issue was whether it is mandatory to specify the object/purpose in Form No. 10 for claiming income accumulation under Section 11(2) of the Income Tax Act.

Q2: What did the court decide?

A2: The court decided that while specifying the purpose in Form 10 is important, inaccuracies in the form are not fatal if the purpose is clearly stated during assessment proceedings.

Q3: What was the Trust's purpose for income accumulation?

A3: The Trust set apart funds for ongoing and future hospital projects and modernization of existing hospitals.

Q4: How did the court justify its decision?

A4: The court justified its decision by emphasizing the importance of the purpose for which the income is being accumulated, which was sufficiently demonstrated by the Trust during assessment proceedings.

Q5: What is the significance of this case?

A5: This case highlights that the primary requirement under Section 11(2) is to state the purpose for income accumulation, and minor inaccuracies in Form 10 do not invalidate the claim if the purpose is clearly demonstrated.

1. These Tax Appeals arise in common back-ground. We may notice facts as emerging from the record of Tax Appeal No. 1260 of 2018.

2. Revenue is in appeal against the judgement of the Income Tax Appellate Tribunal dated 20.04.21018 raising following questions for our consideration:

“A. Whether on the facts and circumstances of the case and in law, the Tribunal was justified in interpreting the provisions of section 11(2) of the Act and holding that it is not mandatory to specify the object/purpose in Form No.10 for claiming accumulation u/s. 11(2) of the Act?

B. Whether on the facts and circumstances of the case and in law, the Appellate Tribunal was justified in allowing the claim of accumulation of Rs. 3,60,00,000/- u/s. 11(2) of the Act?”

3. Both questions are arising out of same issue. Such issue arises in following background:

4. Respondent-assessee is a Public Charitable Trust. For the assessment year 2008-09, the assessee had filed the return of income claiming deduction of a sum of Rs. 3.60 crores under section 11(2) of the Income Tax Act, 1961. Assessing Officer questioned the assessee with respect to such claim prima facie believing that the assessee had not indicated the purpose for which the income was set apart which was one of the requirement of section 11 of the Act. He also referred to the declaration to be made by the assessee under Form 10 in support of such a claim in which also, according to him, there was no specification of the purpose.

5. The assessee appeared before the Assessing Officer and filed a detailed reply. The gist of the reply is that the assessee-Trust is engaged in providing medical facilities at various centers like Ahmedabad, Surat etc. At the time of setting apart of the funds, two hospital projects at Ahmedabad and Atladra were coming up and modern amenities were required to be provided in the existing hospitals. The board of the trustees therefore passed the resolution to set apart such amount to finance future requirement of the trust's projects. We may also note that such resolution was filed along with the return of the income. Board of trustees passed a specific resolution after examining the facts and necessities of the trust. It was for future hospital of the Trust as well as the amount to be set apart to be utilized for purchase of necessary equipments, ambulance van, furniture and fixtures and further expenditure required to be made for modernization of the hospitals.

6. In such background, the assessee argued that requirements of section 11D were sufficiently met with. The Assessing Officer was of the opinion that there was no such specification in the declaration in Form 10. Even otherwise the resolution of the board of trustees also contained any such specification.

7. In appeal CIT(A) confirmed the view of the Assessing Officer upon which, assessee filed further appeal. Tribunal, by the impugned judgement allowed the appeal making following observations:

“5. We have gone through the record and relevant order, The appellant is a Public Charitable Trust and engaged in providing medical relief at various centers. During the course of re-assessment proceedings Assessing Officer purpose to disallowed the claim of accumulation u/s. 11(2) wherein lower authorities held that it was mandatory to set apart specified object in Form No. 10 where fund to be accumulated and since there was no specific object was mentioned. Therefore claim of the appellant was rejected.

6. In the regulation passed at the meeting of the trustees clearly indicated that Rs. 3.60 crore were required for the hospital project in respect of hospital run at several places and so accumulates Rs. 3.60 crore were to be utilized for the current and future project of this said hospitals by way of explanation and in support of its contention Ld. A.R. Also cited a decision in the case of CIT v. Hostel and Restaurant Association (2003) 261 ITR 190 whereas it has been held as under it is true that specification of certain purpose or purpose is needed for accumulation trust's income u/s. 11(2) of the act. At the same time, the purpose or purposes to be specified cannot beyond the objects of the trust. Plurality of the purposes for accumulation is not precluded but it depends on the precise purpose for which the accumulation is needed. In this present case. It has been no dispute that appellant trust is resulted to accumulate the funds for medical purpose that for the providing at various centers as evidence from its reply dated 07.05.2013 reproduced by the Assessing officer in this order. It is not the case of the Revenue that the said object from this trust deed not for the charitable purpose.”

8. Section 11(2) of the Act provides that eighty five percent of the income which is not utilized by the Trust for charitable or religious purposes would not be included in the total income of the previous year of receipt of the income provided the conditions laid down in clause (a) to (c) contained therein are satisfied. Clause (a) in particular, which is applicable, provides that such person furnishes the statement in the prescribed form and in prescribed manner to the Assessing Officer staying 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. Undoubtedly therefore, the statement of purpose for which the income is being accumulated or set apart is one of the requirements which must be satisfied before the assessee can avail the benefit under sub-section (2) of section 11 of the Act. However, that by itself would not mean that any inaccuracy or lack of full declaration in the prescribed format by itself would be fatal to the claimant. The prime requirement of this clause is of stating of the purpose for which the income is being accumulated or set apart. In the present case, we are prepared to accept the Revenue's stand that the declaration made in Form 10 by the assessee was not sufficient to fulfill this requirement. However, as noted, during the course of assessment proceedings, the Assessing Officer called upon the assessee to explain the position in response to which, the assessee in detail pointed out background under which the board of trustees had met, considered the material and eventually passed a formal resolution setting apart the funds for the ongoing hospital projects of the Trust and for modernization of the existing hospitals. There was thus a clear statement made by the assessee setting out the purpose for which the income was being set apart. We therefore do not find any error in view of the Tribunal.

Tax Appeals are dismissed.

(AKIL KURESHI, J)

(B.N. KARIA, J)