Non filing of Form 10 does not lead to denial of exemption under section 11
What is section 11 of the Income Tax Act?
Section 11 deals with exemption of Income of Trust.The following main conditions are essential for claiming exemption under section 11:
- Trust must have been created for any lawful purposes ;
2. Such trust/institution must be for charitable or religious purposes. According to section 2(15), charitable purpose includes relief of the poor, education, yoga, medical relief, preservation of environment (including water sheds forests and wild life) and preservation of monuments or places or objects of artistic or historic interest and the advancement of any other object of general public utility.
Trust/institution covered under advancement of any other object of general public utility can do commercial activities upto 20% of its total receipts [Proviso to section 2(15)]
The advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless,—
- such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and
- The aggregate receipts from such activity or activities, during the previous year, do not exceed 20% of the total receipts, of the trust or institution undertaking such activity or activities, for the previous year.
3. The property should be held for charitable or religious purposes. In the case of a charitable trust created on or after April 1, 1962, the further conditions are:
- the trust should not be created for the benefit of any particular religious community or caste;
- no part of the income should ensure directly or indirectly for the benefit of the settlor or other specified persons;
- The property should be held wholly for charitable purposes.
The conditions mentioned at (a) and (b) also apply to religious trust created on or after April 1, 1962.
4. The exemption is confined to only such portion of the trust’s income which is applied to charitable or religious purposes or is accumulated for applying to such purposes within the limits of accumulation permitted under section 11(1) and (2) [see paras 214 and 215].
5. The exemption is restricted to such portion of the income as is applied to charitable or religious purposes in India except in the cases covered by section 11(1)(c).
6. Where trust property comprises a business undertaking, the income shown in the books of account should not be less than the income determined by the Assessing Officer according to the provisions of the Act. However, the exemption from tax will not be available to any religious or charitable trust or institution in respect of business profits, unless—
- the business is carried on by the trust wholly for public religious purposes and the business consists of printing and publication of books or publication of books or is of a kind notified by the Government; or
- the business is carried on by the institution wholly for charitable purposes and the work in connection with the business is mainly carried on by the beneficiaries of the institution;
and the separate books of account are maintained by the trust/institution of such business.
From the assessment year 1992-93, trusts or institutions can carry out business activities if business activities are incidental to the attainment of its objectives and separate books of account are maintained. In other words, irrespective of whether any business is carried on by such a trust or institution or the business undertaking itself is held in trust, in either case, the trust or institution is charged to tax on such profits and gains at the rates of tax applicable in the case of individuals, association of persons, body of individuals, etc., if the above conditions are not satisfied.
7. The trust should be registered online through Form No. 10A for application with the Commissioner of Income tax.
8. The accounts of the trust should be audited [Form No. 10B] for such accounting year in which its income (without giving effect to the provisions of sections 11 and 12) exceeds the exemption limit.
9. The funds of the trust should be invested or deposited in any one or more of the modes or forms mentioned in section 11(5) [see para 213.1].
10. Return of income of the trust/institution should be submitted within the time allowed under section 139(1), if the total income of the trust/institution (before giving exemption under sections 11 and 12) exceeds the maximum amount which is not chargeable to tax (applicable from the assessment year 2018-19).
Fact and Issue of the case
The writ-applicant is a public charitable trust. The writ-applicant seeks to challenge the order passed by the respondent dated 26th August 2019 under Section 119(2)(b) of the Income Tax Act, 1961 (for short, ‘the Act 1961’), rejecting the application filed by the writ-applicant for condonation of delay in filing the Form no.10 of the Act 1961 for the Assessment Year 2014-15.
It is the case of the writ-applicant that being a public charitable trust, it is registered with the Charity Commissioner as well as with the Income Tax authorities under Section 12A of the Act 1961 past more than 30 years. The books of accounts of the writ-applicant are being audited regularly and the return of income is also filed without any issues.
The auditor of the writ-applicant filed the audit report in the Form no.10B under Section 12A(b) of the Act 1961 on 1st September 2014. The writ-applicant had also filed the return of income for the Assessment Year 2014-15 on 27th September 2014. However, as there was some defect, the writ-applicant filed a revised return of income for the Assessment Year 2014-15 on 22nd November 2014, declaring the total income NIL and claiming refund of Rs.1,92,850 after declaring exemption of Rs.73,43,699 under Section 11(1) of the Act 1961 and Rs.17,50,000 under Section 11(2) of the Act 1961. The document was required to be confirmed by the writ-applicant using the online account. Unfortunately, the trustees of the trust failed to confirm the same and, as a result, the audit report did not get e-filed along with the return of income.
It is the case of the writ-applicant that the return of income was processed under Section 143(1) of the Act on 14th January 2016 by the respondent, rejecting the benefit of exemption to the writ-applicant and a demand notice for Rs.2,17,210 came to be issued. The notice referred to above stated the reason for demand on account of non e-filing of the Form no.10 along with the return of income and suggested that the same may be filed with a request to condone the delay.
It is the case of the writ-applicant that the aforesaid notice ultimately brought the fact to their knowledge as regards the non e-filing of the Form no.10 of the Act 1961 along with the return of income.
On receipt of the demand notice referred to above, the writ-applicant e-filed the Form no. 10 claiming exemption under Section 11(2) of the Act 1961 for Rs.17,50,000 and requested to condone the delay in filing the Form no.10 vide letter dated 11th February 2019 addressed to the respondent. It is the case of the writ-applicant that the respondent issued a notice dated 2nd April 2019, to show-cause why the application for condonation under Section 119(2)(b) of the Act 1961 filed by the writ-applicant should not be rejected as no genuine hardship had been shown which prevented it from filing the Form no.10.
On 9th April 2019, the writ-applicant replied to the show-cause notice issued by the respondent, explaining the entire chain of events and requested to condone the delay. However, the application ultimately came to be rejected vide order dated 19th August 2019. It appears from the materials on record that relying on the Circular No.273 dated 3rd June 1980 issued by the Central Board of Direct Taxes as the writ-applicant could not fulfil the conditions mentioned in the said Circular, vide order dated 26th August 2019, the application for condonation of delay came to be rejected.
Observation of the court
Having considered all the relevant aspects of the matter, the court is of the view that the approach in the cases of the present type should be equitious, balancing and judicious. Technically, strictly and liberally speaking, the respondent might be justified in denying the exemption under Section 12 of the Act by rejecting such condonation application, but an assessee, a public charitable trust past 30 years who substantially satisfies the condition for availing such exemption, should not be denied the same merely on the bar of limitation especially when the legislature has conferred wide discretionary powers to condone such delay on the authorities concerned. We may also refer to the decision of this Court in CIT v. Gujarat Oil and Allied Industries Limited, (1993) 201 ITR 325 (Gujarat), wherein it is held that the provision regarding furnishing of audit report with the return has to be treated as a procedural proviso. It is directory in nature and its substantial compliance would suffice. In that case, the assessee had not produced the audit report along with the return of income but produced the same before the completion of the assessment.
This Court took the view that the benefit of exemption should not be denied merely on account of delay in furnishing the same and it is permissible for the assessee to produce the audit report at a later stage either before the Income Tax Officer or before the appellate authority by assigning sufficient cause.
In the result, this writ-application succeeds and is hereby allowed. The impugned order passed by the respondent dated 26th August 2019 (Annexure-D to this writ-application) is hereby quashed and set-aside. The delay condonation application filed by the writ-applicant before the respondent is hereby allowed. In view of the above, the connected two writ-applications also succeed and are hereby allowed. The impugned orders therein are quashed and set-aside and the delay condonation applications stand allowed.
The court concluded that the writ-applicants are entitled to seek exemption under Section 12 of the Act. The authorities below are directed to give effect to such exemption to the assessees and pass necessary consequential orders in this regard. However, as fairly submitted by Mr.Vora, the grant of benefit of exemption under Section 12 of the Act shall be subject to Section 143(2) and Section 142(1) respectively of the Act 1961.
Read the Court Order from belowNon-filing-of-Form-10-does-not-lead-to-denial-of-exemption-under-section-11