Bharat Kalyan Pratisthan vs Director of Income Tax (Exemption)

The assessed is aggrieved by an order dated 21-1-2006 passed by the Income Tax Appellate Tribunal, Delhi Bench ""E"", New Delhi in ITA

No. 1384/D/2002 relevant for the assessment year 1997-98.

After hearing learned Counsel for the parties, we are of the view that the following substantial question of law arises for our consideration:-

Whether the Income Tax Appellate Tribunal was justified in holding that the assessed was not entitled to accumulate income for the objects of the

Charitable Trust without specifying the purposes for which the income is accumulated?

We are of the view that since the question can be answered at this stage because we have heard arguments of learned Counsel for both the

parties. We proceed to dispose of this appeal.

The Appellant is a charitable trust which has been set up for the following charitable purposes

for medical relief;

help to poor; and

educational purposes.

The appellant accumulated a sum of Rs. 11 lakhs and passed a resolution on 10- 10- 1997 to the effect that the amount be utilized for the

purposes of the trust, that is, for medical relief, help to poor and educational purposes. The assessing officer, the Commissioner (Appeals) as well

as the learned Tribunal were of the view that the assessed did not specifically indicate the purposes for which the amount was accumulated and,

Therefore, was not entitled to the benefit u/s 11 (2) of the Income Tax Act, 1961.

Before us, learned Counsel for the appellant has pointed out that the learned Tribunal has considered three judgments in the impugned order.

The first judgment is that of this Court in Commissioner of Income Tax Vs. Hotel and Restaurant Association, the second judgment is that of the

Calcutta High Court in Director of Income Tax (Exemption) Vs. Trustees of Singhania Charitable Trust, and the third judgment is that of the

Madras High Court in CITv. M.CT Muthiah Chettiar family Trust (2000) 245 ITR 4001. While the Tribunal is bound by the decision of the

jurisdictional High Court, that is, this Court, it preferred to follow the decisions of the Calcutta and Madras High Courts. Both of them say that the

purpose of accumulation of income should be specific.

In Hotel& Restaurants Association''s case (supra) the question of law that was considered, was as follows:

Whether, on the facts and circumstances of the case, the Tribunal is justified in holding that the accumulation of income by the assessed u/s 11(2)

of the Income Tax Act, 1961 (hereinafter referred to as ''the Act'') for all objects for which the trust was created and not for specific purpose was

neither prejudicial nor erroneous to the interests of the revenue?"" (Emphasis supplied)

The contention of learned Counsel for the revenue in that case was that the appellate authority had failed to appreciate that the assessed did not

indicate in the prescribed form the specific purpose for which the income was sought to be accumulated and, Therefore, the statutory requirement

had not been complied with thereby disentitling the assessed from relief u/s 11(2) of the Act. While rejecting this contention, this Court observed as

follows:

It is true that specification of certain purpose or purposes is needed for accumulations of the trust''s income u/s 11 (2) of the Act. At the same time

the purpose or purposes to be specified cannot be 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 intended. In the present case, both the appellate authorities below have recorded a

concurrent finding that the income was sought to be accumulated by the assessed to achieve the object for which the assessed was incorporated. It

is not the case of the revenue that any of the objects of the assessed-company were not for charitable purpose. The aforenoted finding by the

Tribunal is essentially a finding of fact giving rise to no question of law.

In other words, the conclusion of this Court was that if the accumulation was for one or more purposes and those purposes were the objects of

the trust, then it was permissible for the assessed to accumulate income for utilization for all these objects of the trust.

The decision rendered by this Court was followed in Director of Income Tax (Exemption) Vs. Daulat Ram Education Society, The only

distinguishing feature in the latter case is that out of 29 purposes/ objects stipulated in the memorandum of association, the assessed had specified

eight purposes and it was held that the assessed was entitled for exemption u/s 11 of the Act.

Learned counsel for the revenue has contended that if the observations of this Court in Hotel & Restaurants Associations case (supra) are

carefully read, then the purpose should be specified. We are of the view that given the question of law in Hotel & Restaurants Association''s case

(supra) the conclusion of this Court was that the details of the purposes for which the income was accumulated need not be specified. For

example, if the purpose of accumulation is educational, the assessed is not required to indicate or specify whether it is elementary education,

primary education or secondary education etc. If the assessed''s case is that the income was accumulated for utilization for educational purposes, it

would not require specification as long as the educational purpose is one of the objects of the assessed.

In the present case, the assessed has only three objects as far as its trust deed, a copy of which has been placed on record, is concerned. The

trust deed requires the trust to utilize its funds for charitable purposes which are medical relief, education and relief to the poor. In the application

seeking exemption, the assessed has specified these three objects. We are of the opinion that it was not required for the assessed to be more

specific with regard to the utilization of the funds.

It is true that the assessed has mentioned that it is accumulating funds for all the objects for which it was created, but as held by this Court in

Hotel & Restaurants Association''s case (supra) plurality of purposes is permitted and if it so happens that an assessed has only three objects or

purposes, it may well utilize the funds for all the three objects and purposes.

In view of two Division Bench decisions of this Court, we see no reason to adopt the view taken by the Calcutta and Madras High Courts.

in the facts and circumstances, we answer the question in the negative and in favor of the assessed. The appeal is, accordingly, disposed of.