Maharaja Ranjit Singh War Museum Society,Ludhiana v. Commissioner Of Income Tax,Jalandhar
IN THE HIGH COURT OF PUNJAB AND HARYANA
AT CHANDIGARH * * * ITA No.259 of 2019 (O&M) Date of Decision : 20/3/2020 Maharaja Ranjit Singh War Museum Society, Ludhiana Appellant
Versus
Commissioner of Income Tax, Jalandhar Respondent CORAM: HON'BLE MR. JUSTICE AJAY TEWARI, JUDGE HON'BLE MR. JUSTICE AVNEESH JHINGAN, JUDGE
Present:
Mr. Deepak Agrawal, Advocate for the appellant.
* * * AVNEESH JHINGAN, J.
[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 :-
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[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, Rupeesne 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:-
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[4] The relevant portion of section 11 of the Act is reproduced below:-
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(? " $ & '! $%& " [5] The contention raised by learned counsel for the appellant is two-fold:- • Firstly, that from explanation of section 11(2) and clause (d) in sub-section (3) to Section 11, it is evident that appellant is entitled to pay or credit the accumulated amount to any Trust or institution not specified in the said provisions;
• Secondly, that the aims and objects of the doneeSociety and donor-Society were similar hence there is no violation of conditions prescribed under section 11 and amount cannot be treated as income of the appellantSociety during the relevant year, as same was applied through donee.
[6] Before dealing with the issue we take over all view of provisions of section 11(1) to 11(3A) of the Act, relevant for the present appeal. Chapter III of the Act deals with the 'income which do not form
part of the total income'. Section 11 is for 'Income from property held for charitable or religious purposes'. Sub-section (1) provides that subject to section 60 to 63 of the Act, incomes mentioned in sub clauses (a) to (d) received in previous year are not to be included in total income. Sub-clause (a) provides that if income derived from the property held under the Trust for charitable or religious purpose is applied for the purpose in India and amount accumulated or set apart for application for the purpose in India is not exceeding 15%; subclause (b) deals with the Trust created before the commencement of the Act; sub-clause (c) is with regard to promotion of international welfare in which India is interested and sub-clause (d) includes voluntary contribution given with the specific direction to form part of corpus.
The explanations to sub-section (1) are not relevant for the present case. Sub-section (1A) deals with the consideration received from transfer of property held under the Trust; sub-section (1B) is related to income for which option was exercised under clause (2) of explanation to sub-section (1), same is not applied for charitable and religious purpose within the specified time, same shall be deemed to be income of the person in receipt thereof.
[7] Sub-section (2) provides for accumulation out of 85% of the income referred to in sub-section (1) for application for a specified purpose in India. Clauses (a) to (c) provide the conditions. As per clause (a), statement in a prescribed form is to be furnished to the assessing officer mentioning the purpose and the period for which income is being accumulated or set apart. The period shall not exceed five years {earlier it was ten years and was substituted with five years
by the Finance Act, 2015 w.e.f. 01.04.2016; clause (b) provides that the money so accumulated or set apart is to be deposited or invested as per sub-section (5); and clause (c) stipulates the time for filing statement under clause (a). The proviso to sub-section (2) excludes the period of injunction of Court for computing period of accumulation. The explanation to sub section (2) was added by the Finance Act, 2002 w.e.f. 01.04.2003 which states that the amount paid or credited out of the accumulated or set apart amount to a Trust or institution registered under section 12AA or to any fund or any Institution or Trust or any University or Educational Institution or Hospital or Medical Institution referred to in sub clause (iv), (v), (vi) and (via) of clause (23C) of section 10 shall not be considered as application of the income for charitable or religious purposes.
[8] Sub-section (3) provide, in clauses (a) to (d), situations when the amount accumulated or set apart in sub-section (2) shall be deemed to be income of such person in the previous year in which it was to be applied or ceases to be accumulated or set apart. Clause (a) states when the accumulated amount is applied for other than for charitable and religious purposes; clause (b) deals when the amount no longer remain invested as per sub-section (5) of section 11; clause (c) contemplates if the amount is not utilized for the purpose, during the specified period; clause (d) was added by the Finance Act, 2003 w.e.f. 01.04.2003 and it provides that if the accumulated or set apart amount is credited or paid to a Trust or Institution registered under section 12AA of the Act or fund or institution or Trust referred to in clauses (iv), (v), (vi) and (via) of section 10(23C) of the Act.
[9] Sub-section (3A) of section 11 starts with a non-obstante clause and authorized the assessing officer that for the reasons beyond the control, purpose for which the amount was accumulated can be changed but the change shall be in conformity with the objects of the Trust. Two provisos were added to sub-section (3A) by the Finance Act, 2002 w.e.f. 01.04.2003. The first proviso restricted the power under sub-section that change would not be for the purpose mentioned in section 11(3)(d); the second proviso provides that in case of dissolution of Trust or institution, the assessing officer can permit the application of the accumulated or set apart income in the year of dissolution for the purposes referred to in section 11(3)(d).
[10] There is fallacy in the contention raised by learned counsel for the appellant. The requirement of section 11 is that atleast 85% of the income is to be applied for religious or charitable purpose in year of receipt and the accumulation cannot be more than 15%. However, subsection (2) provides for accumulation out of 85% income but the same has to be for a specified purpose and for a specific period. The reasons behind allowing such an accumulation is that in case there is a future project for which larger amount is required, the same may be accumulated and thereafter applied. As a built-in mechanism in section 11 itself, sub-section (3) provides that in case eventualities mentioned in clauses (a) to (d), the income shall be deemed to be income of the person in receipt, in the previous year in which it was to be applied or ceased to be accumulated.
[11] By insertion of explanation to sub section (2) and clause (d) in sub-section (3) by the Finance Act, 2002, the accumulated amount
cannot be transferred to a registered Trust or institution or to the Trust or Institution or funds as specified in sub-clause (iv), (v), (vi) and (via) to section 10(23C). In case of such credit payment, same shall not be treated as application for charitable and religious purpose and further, it would be treated as income of such person i.e. the person who had made the payment.
[12] From sub-section (2) and sub-section (3), it is clear that accumulation has to be for a specified purpose and the same is to be utilized within the time frame.
[13] The aims and objects of the Trust cannot be reproduced as a specific purpose. The purpose must have some individuality, it is so because only from the purpose, the assessing officer would be able to monitor the amount so accumulated.
[14] In the present case, it was not the claim of the appellant that the amount was being accumulated for the payment to PSWHMMS. At this stage, we are not dilating as to whether for such purpose there could be accumulation or not. In such circumstances, there is a clear violation of the conditions referred in sub-section (2) and sub-section (3) of section 11. The amount has been spent for the purpose other than for what it was accumulated, it comes within the mischief of section 11(3)(c).
[15] The second limb of the argument raised is that by adding explanation to sub- section (2) and adding clause (d) to sub-section (3) of section 11 it is rather clarified that the assessees like appellant can pay or credit the accumulated sum to an unregistered or funds or Trust or institution not specified therein.
[16] The argument is not well founded.
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, = , [18] From the changes made by Finance Act, 2002 in section 11, it is clear that restrictions have been imposed on transfer of accumulated or set apart amount but the utilization of income received during the year has not been touched. It is settled that income received during the year can be transferred to other Trust or institution for charitable or religious purpose and same shall be held to be application for such purpose.
[19] The argument raised that since there is a restriction only for payment or credit of accumulated amount to a registered Trust or institution recognized under the Act and it would mean that payment can be made to un-registered Trust, institution or to institutions or Trusts not even recognized by the Act as charitable is far-fetched. This would lead to adding words to the provisions of the Statute which is not permissible.
[20] There is another aspect of the matter, it has not been even the case of the appellant that the donee is indulged in charitable or religious purpose what has been stated is that the aims and objects of the donor and donee are similar.
[21] To fortify the second limb of the contention of learned counsel for the appellant places reliance on Circular No.8 of 2002. Relevant clauses 21.1 to 21.4 of the Circular reads as under:- "#
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8 # ( 3++% ( "( " " 3++%3++: '=" , [22] The Circular nowhere supports the argument raised by the appellant rather clause 21.1 clarifies that payment to other Trust or institution out of the receipt of the year will continue to be treated as application, however no payment can be made from the accumulated income and the same shall be taxed; clause 21.2 reproduces Section 11(3)(d) stating that transfer shall be deemed to be income or person making such payment or credit.
[23] Learned counsel for the appellant relies upon the decisions of Gujarat High Court in Commissioner of Income Tax Vs. Sarladevi Sarabhai Trust No.2 reported as (1988) 172 ITR 0698 and of Delhi High Court in Commissioner of Income Tax Vs. Shri Ram Memorial Foundation reported as (2004) 269 ITR 0035. These decisions deal with the application of income under section 11(1)(a) and do not deal with the accumulated income under section 11(2). Moreover, the
decisions are prior to amendment by the Finance Act, 2002 and would have no application in the present case.
[24] Further reliance is placed on decisions of Madras High Court in Commissioner of Income Tax Vs. M.CT. Muthiah Chettiar Family Trust & Ors reported as (2000) 245 ITR 0400. This decision also deals with the provisions prior to amendment of 2002, same does not enhance the case of the appellant rather paragraph No.10 of the judgment states that the accumulation has to be for specific purpose and amount cannot be accumulated merely by stating that it is for the aims and objects of the Trust. Paragraph No.10 of the judgment is reproduced as under:- #+ ## / '" / @ A @ @
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[25] The case before the Madras High Court was factually different. In that case, the amount was accumulated for the specific purpose, since the magnitude of the project was too big to achieve the same expeditiously, a separate Trust was formed. The amounts were transferred with the condition of carrying out the object and utilize the fund for said object and not for any other purpose. At the cost of repetition, it may be stated that the case pertains prior to amendment of 2002 when there was neither explanation to section 11(2) nor 11(3)(d). [26] In view of above, the addition of amount transferred to PSWHMMS is upheld. The question is answered against the appellant. The appeal is dismissed.
[AVNEESH JHINGAN] [AJAY TEWARI] JUDGE JUDGE 20/3/2020