The Dharmodayam Co.,, Trichur vs Assessee

The Dharmodayam Co., Vs. The Income Tax Officer, Ward- Round East, 1(1), Thrissur. Thrissur-680 001. [PAN:AAACD 8589J]

(Assessee-Appellant) (Revenue-Respondent)

Assessee by Shri Jose Pottokkaran, CA sRevenue by Shri K.K. John, Sr. DR

Date of hearing 13/05/2015 Date of pronouncement 14/05/2015

ORDER Per B.R.BASKARAN, Accountant Member:

This assessee has filed this appeal challenging the order dated 23-09-

2014 passed by the Ld. CIT(A)-IV, Kochi and it relates to the assessment year

2004-05.

2. The grounds of appeal urged by the assessee give rise to the following

issues:

(a) Validity of re-opening of the assessment u/s. 147 of the Act.

(b) Assessment of part of income accumulated u/s. 11(2) of the Act.

(c) Interest charged u/s. 234A and 234D of the Act. 2 I.T.A. No.552/Coch/2014

3. The facts relating to the case are stated in brief. The assessee is a public

charitable institution and its main objective is to provide medical aid, education

and carry on other public charitable activities. It was registered u/s. 12A of the

Act. It filed its return of income for the year under consideration declaring a loss

of Rs.9631/- on 25-10-2004 and the same was processed u/s. 143(1) of the Act.

Subsequently, the Assessing officer re-opened the assessment on 03/04/2006 by

issuing notice u/s. 148 of the Act. In response thereto, the assessee filed its

return of income declaring Nil income.

4. The Assessing officer noticed that the assessee has claimed a sum of

Rs.31,35,000/- as deduction u/s. 11(2) of the Act on the ground that it was

accumulated for future application. As per the provisions of sec. 11(2) of the

Act, the money so accumulated or set apart is required to be invested or

deposited in the forms or modes specified in section 11(5) of the Act.

5. The assessee has furnished details of deposit as under:

Deposit No. Date of With whom Amount of Due date Deposit the amount is Deposit deposited 0685101000005345 22.02.03 South Indian 108,243 22.02.06 Bank Ltd., Bazar Branch, Thrissur 0085101000004639 23.09.2002 -do- 518,399 21.09.05 PWD 20022213 23.09.2002 Catholic 519,110 22.09.2005 Syrian Bank Ltd., Thrissur Main 3 I.T.A. No.552/Coch/2014

PWD 012753 31.01.2004 Catholic 750,000 28.02.06 Syrian Bank Ltd., East Fort, Thrissury 00841010000010754 31.01.04 South Indian 750,000 31.01.06 Bank Ltd., Thrissur Main PWD 20040016 20.02.04 Catholic 500,000 20.02.06 Syrian Bank 3145.752 Ltd., Anthikad Branch

The Assessing officer noticed that the first three deposits listed out in the table

extracted above, were found to have been made in the immediately preceding

year and the remaining three deposits have been made during the current year.

The Assessing officer took the view that the assessee should have made

deposits/investments only after taking decision about the accumulation of

income in terms of sec. 11(2) of the Act, i.e., the AO took the view that deposits

should have been made out of the current year's income. Accordingly, he took

the view that the first three deposits aggregating to Rs.11,45,752/- cannot be

considered to be deposits made in terms of section 11(2)(b) of the Act, since

they have not been made out of current year's income. Accordingly, the

Assessing officer restricted the deduction u/s. 11(2) of the Act to Rs. 20.00 lakhs

and thus determined the total income of the assessee at Rs.10,53,240/-.

6. In the appeal filed by the assessee, the Ld. CIT(A) confirmed the validity

of the re-opening of the assessment and also confirmed the disallowance of part 4 I.T.A. No.552/Coch/2014

of deduction claimed u/s. 11(2) of the Act. Aggrieved, the assessee has filed

this appeal before us.

7. The Ld. Counsel appearing for the assessee submitted that the Assessing

officer was not right in holding that the deposits/investments should be made

out of current year's income only in terms of sec.11(2)(b) of the Act. The Ld.

Counsel further submitted that the Co-ordinate Bench of the Tribunal has

considered an identical issue in the case of Ollur Sadhu Samrakshna Sangham in

I.T.A. No.178/Coch/2002 and the Tribunal, vide its order dated 26th October,

2004, has upheld the findings of the CIT(A) that the intention of the law appears

to be that the income set apart should be represented by some assets prescribed

u/s. 11(5) of the Act. The Ld. Counsel further submitted that the above said

order of the co-ordinate Bench was also followed by another Bench in I.T.A. No.

807/Coch/2005 relating to the case of the same assessee. The Ld. AR further

submitted that the Department has challenged the order passed by the Tribunal

on a different ground before the Hon'ble High Court of Kerala and hence, the

order of the Tribunal on this issue has been accepted by the Revenue. He

further submitted that the assessee has been earmarking the lien free deposits in

identical manner in other years also and the same has not been found fault with

by the assessing officer. The Ld. Counsel further submitted that the Act does

not prescribe any condition that only current year's income should be invested in

specified assets in order to avail deduction u/s. 11(2) of the Act. 5 I.T.A. No.552/Coch/2014

8. On the other hand, the Ld. DR submitted that the assessee cannot place

reliance on the decision of the Tribunal in the case of Ollur Sadhu Samrakshna

Sangham, cited supra, since the facts prevailing in that case are totally different.

Inviting our attention to the decision rendered by the Tribunal in the above cited

case, the Ld. DR submitted that the assessee therein had invested in the earlier

years in Kisan vikas Patras. The interest income accrued in the Kisan Vikas

Patras Scheme shall be repaid only on maturity along with the principal amount.

However, the above said assessee was following mercantile system of accounting

and hence, the interest accrued on KVP was taken as its income every year.

Considering these peculiar facts, the Ld. CIT(A) has held that the accrued

interest in Kisan Vikas Patras can be considered to be the prescribed investment

made by the assessee in compliance of section 11(2) of the Act. The Ld D.R

further submitted that the Form No.10 prescribed under rule 17 of the I.T Rules

prescribed a time limit of six months commencing from the end of the previous

year to make investment/deposit of accumulated income. He submitted that this

condition prescribed in Form No.10 amply makes clear that the

deposit/investment should be made out current year's income only.

9. We have heard the rival contentions and perused the record. The solitary

dispute that is contested before us is whether the bank fixed deposits, which

were made in the immediately preceding year, could be earmarked towards the 6 I.T.A. No.552/Coch/2014

income accumulated u/s 11(2) of the Act or not, in compliance with the

provisions of sec. 11(2)(b) of the Act.

10. According to the tax authorities the investment/deposit should be made

out of current year's income only. Since the assessee had earmarked the fixed

deposits that were made in the immediately preceding year to satisfy the

compliance of the provisions of sec. 11(2)(b), the assessing officer has held that

the same cannot be considered to be proper compliance of the conditions

prescribed for accumulation of income u/s 11(2) of the Act, since they have not

been made out of current year's income.

11. In our opinion, the view taken by the revenue appears to be too technical.

In our view, the provisions of sec. 11(2) of the Act should be interpreted in a

holistic way duly considering the objective behind each of the provision. If the

assessee decides to accumulate a portion of income, then it has to pass a

resolution to that effect specifying the purpose of accumulation. Then the

assessee should give a notice in prescribed form to the assessing officer. A

further condition that is imposed is that the money so accumulated or set apart

is invested or deposited in the forms or modes specified in sec. 11(5) of the Act.

Obviously, the objective behind insisting for deposit of the money so

accumulated or set apart is only to ensure that the assessee utilizes the said

money only for the purpose of achieving the objective for which the income was 7 I.T.A. No.552/Coch/2014

accumulated. There will not be any check if the assessee is not mandated to

make deposit/investment of the income so accumulated.

12. In the instant case, there is no dispute that the assessee has passed a

resolution for accumulation of income duly specifying the purpose of

accumulation. Out of the sum of Rs.31.35 lakhs claimed u/s 11(2) of the Act as

accumulation of income, a sum of Rs.20.00 lakhs was found to have been

deposited in bank fixed deposits during the year under consideration. For the

remaining amount, the assessee has earmarked the fixed deposits already

available with it towards the income accumulated u/s 11(2) of the Act.

Considering the objective of the provision of sec. 11(2)(b), in our view, what is

required to be seen is whether the income accumulated has been deposited or

invested in the forms prescribed u/s 11(5) of the Act, i.e., there should be

corresponding investment, which could be identified with the income

accumulated. The period of six months prescribed in Form No.10, in our view, is

the outer limit for making deposit/investment.

13. It is also pertinent to note that the provisions of sec. 11(2)(a) talks about

"income", where as the provisions of sec. 11(2)(b) talks about the "money" so

accumulated. The "money" available with the assessee may be pertaining to the

current year's income or earlier year's income. Further, if the view taken by the

tax authorities that the deposit should have been made out of current year's 8 I.T.A. No.552/Coch/2014

income is accepted as correct for a moment, then the assessee trust shall be

forced to foreclose the existing deposit and thereafter make a new deposit, thus

losing considerable amount towards loss of interest/penalty. The same would be

very much technical in nature. Hence, in our considered view, the earmarking of

existing bank fixed deposits, which is free from any lien, towards the income

accumulated u/s 11(2) of the Act during the year under consideration would be

sufficient compliance with the provisions of sec. 11(2)(b) of the Act, since the

accumulated income is represented by the corresponding deposit/investment.

14. In view of the foregoing discussions, we set aside the order of Ld CIT(A)

on this issue and direct the assessing officer to delete the disallowance of income

accumulated u/s 11(2) of the Act.

15. With regard to the issue relating to validity of re-opening of assessment,

we notice that the return of income filed by the assessee had earlier been

processed u/s 143(1) of the Act only and further the assessment has been

reopened within four years from the end of the relevant assessment year.

Further there was prima facie reason with the assessing officer to believe that

the assessee had not made investment in terms of sec. 11(2)(b) of the Act.

Even though the prima facie reason may go wrong subsequently, the reopening

cannot be held to be invalid on that count. Under these set of facts, by following 9 I.T.A. No.552/Coch/2014

the decision of Hon'ble Supreme Court rendered in the case of Rajesh Jhaveri

Stock Brokers Ltd (291 ITR 500), we uphold the re-opening of assessment.

16. The issues urged by the assessee with regard to charging of interest do

not require adjudication as they are consequential in nature.

17. In the result, the appeal filed by the assessee is allowed.

Pronounced in the open court on 14-05-2015

sd/- sd/- (V. DURGA RAO) (B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Place: Kochi Dated: 14th May, 2015 GJ Copy to:

1. The Dharmodayam Co.. Round East, Thrissur-680 001.

2. The Income Tax Officer, Ward-1(1), Thrissur.

3. The Commissioner of Income-tax(Appeals)-IV, Kochi,

4. The Commissioner of Income-tax, Thrissur.

5. D.R., I.T.A.T., Cochin Bench, Cochin.

6. Guard File.

By Order

(ASSISTANT REGISTRAR) I.T.A.T., Cochin