Madras High Court
M/S.Aurolab Trust vs The National Faceless Assessment ... on 3 April, 2025
Author: C.Saravanan
Bench: C.Saravanan
W.P.(MD).No.13993 of 2024
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Reserved On 15.07.2024
Pronounced On 03.04.2025
Coram:
THE HONOURABLE MR.JUSTICE C.SARAVANAN
W.P.(MD).No.13993 of 2024
and W.M.P.(MD).No.12258 of 2024
M/s.Aurolab Trust
Represented by its President,
Mr.Thulasiraj Ravilla,
No.72, Kuruvikaran Salai, Gandhi Nagar,
Madurai – 625 020.
...Petitioner
Versus
The National Faceless Assessment Centre, Delhi
Represented by Additional/Joint/Deputy/
Assistant Commissioner of Income Tax
Room No.401, 2nd Floor, E-Ramp,
Jawaharlal Nehru Stadium,
Delhi – 110 003.
...Respondent
Writ Petition filed under Article 226 of the Constitution of India
praying for issuance of a writ of certiorari to call for the records in the file
of the respondent relating to impugned order u/s.143(3) r.w.s.144B dated
27.03.2024 having DIN:ITBA/AST/S/143(3)/2023-24/1063442687(1)
issued by the respondent and quash the same as invalid in the eyes of law.
For Petitioner : Mr.Ravi Kannan
For Respondent : Mr.N.Dilip Kumar,
Senior Standing Counsel
1/32
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W.P.(MD).No.13993 of 2024
ORDER
In this writ petition, the Petitioner has challenged the Assessment
Order dated 27.03.2024 for the Assessment Year 2022-23 passed under
Section 143(3) r/w. Section 144B of the Income Tax Act, 1961 (hereinafter
referred to as 'IT Act').
2. Relevant Portion of the Impugned Assessment Order dated
27.03.2024 reads as under:
“4. The Judgment of Hon'ble Supreme Court of India in the case
of Civil Appeal No.21762 of 2017 ACIT (Exemption) Vs. Ahemedabad
Urban Development Authority should be perused in this regard. The
order pertains to applicability of tax exemption to charitable trust and
institutions engaged in commercial (revenue based) activities in the sixth
category of “Charitable purpose” as laid down under Section 2(15) of the
Income Tax Act, 1961 viz., “The advancement of any other object of
general purpose utility (GPU)” i.e., charitable activity other then relief of
the poor, education, yoga, medical relief, preservation of environment
and preservation of monuments or places or objects of artistic or historic
interest. As per section 2(15)(ii) and as per the judgment of the Hon'ble
Supreme Court, in the course of achieving the object of GPU the receipt
of such business, commercial activity or service should not exceed the
quantified limit as amended over the year(s). The amended limit w.e.f.
01.04.2016 stands at 20% of the total receipts of the assessee trust. Here,
it is important to state that the assessee trust is engaged in the activity of
manufacturing or helping to produce or manufacture medical equipment
including, ophthalmic instruments, lenses, surgical equipment and other
accessories that are necessary for the treatment of patients. The assessee
has himself stated that in attainment of object of the trust “nothing
hereinafter stated shall be deemed to include any object or purpose which
is not a “charitable purpose” within the meaning of section 2(15) of
Indian Income Tax Act, 1961”. Since the objective of manufacturing or
helping to produce medical instrument can only be stated to have been
covered under the object of “General Public Utility” as stated u/s.2(15)
of the Income Tax Act. The object of GPU is restricted to the quantum as
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stated in section 2(15)(ii). The aggregate receipts from GPU should not
exceed 20% of the toal receipts of the trust. In case of the assessee trust,
the quantum of receipt from sale of medical equipments [rendered in the
form of GPU] is much beyond the statutory limit of 20% [as per limit
prescribed u/s.2(15)(ii) and also illucidated by the Hon'ble Supreme
Court in its judgment]. Therefore, the activity of assessee trust is
violative of the statutory limit propounded in section 2(15)(ii) as also
propounded by the Hon'ble Supreme Court in its above discussed order.
In light of the above discussion, the exemption claimed by the trust u/s.
11/12/12A ought to be disallowed.
In view of the above facts, it is hereby proposed to add Rs.
191,92,40,000/- which is accumulated from AY 2012-13 to AY 2016-17
and has not been utilized for the purpose for which it is so accumulated or
set apart during the period specified not exceeding 5 years under Section
11(2) of the Income Tax Act, 1961. Penalty u/s.270A of the Act are being
separately initiated.”
3. The case of the Petitioner is that the Petitioner is a Trust registered
under Section 12A of the IT Act vide Order dated 09.10.1992 of the
Commissioner of Income Tax, Madurai. It is stated that the main object of
the Petitioner Trust is to provide medical relief by manufacturing high
quality ophthalmic products for eye care for the public. It is further stated
that the Petitioner has been availing the benefits under Sections 11 & 12 of
the IT Act since its inception.
4. However, the registration granted to the Petitioner under Section
12A of the IT Act by the Order dated 09.10.1992 was cancelled vide Order
dated 30.12.2010 of the Commissioner of Income Tax, Madurai.
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5. Aggrieved by the aforesaid order, the Petitioner has preferred an
appeal in ITA.No.135/Mds/2011 before the Income Tax Appellate Tribunal
(ITAT), Chennai 'A' Bench which was dismissed by the ITAT vide Order
dated 11.05.2011.
6. Aggrieved over the order of the ITAT, the Petitioner has preferred
a Tax Case Appeal in TCA No. 227 of 2011 before this Court and the same
is pending.
7. The Petitioner Trust had filed an application on 31.03.2022 under
the new regime for registration as a Charitable Trusts under Section 12AB
of the Act which was introduced by the Taxation and Other Laws
(Relaxation and Amendment of Certain Provisions) Act, 2020 with effect
from 01.04.2021.
8. The application was scrutinized. The Petitioner has been granted
registration on 07.04.2022 in Form No.10AC by the Director of Income
Tax. The registration granted under Section 12AB of the Act in Form No.
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10AC is valid for the Assessment Years between 2022-2023 and
2026-2027.
9. The Petitioner Trust filed a return of income under Section 139(1)
of the Act on 29.10.2022 by declaring ‘NIL’ income for the Assessment
Year 2022-2023. The case of the Petitioner was selected for scrutiny and
consequently, notices were issued by the Respondent Department.
10. The Impugned Assessment Order preceeds a Notice dated
02.06.2023 issued under Section 143(2) of the IT Act, pursuant to which, a
Notice dated 18.10.2023 was issued under Section 142(1) of the IT Act and
a Show Cause Notice dated 28.02.2024. The Petitioner has replied to these
notices, pursuant to which, a personal hearing was fixed on 18.03.2024
through video conferencing vide communication dated 17.03.2024.
11. Further, it is the case of the Petitioner that the representative of
the Petitioner explained the stand taken and added that the amounts
accumulated in a year (to be reckoned as 1st year) and the remaining unspent
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amount at the end of 5 years, i.e in the 6th year alone could be taxed under
Section 11(3) of the IT Act and not in any of the year and therefore, the
proposals contained in the said Show Cause Notice to a tax sum of Rs.
191,92,40,000/- was impermissible.
12. It is submitted that the exemption claimed by the Petitioner Trust
under Section 11/12 of the IT Act has been disallowed and therefore, the
aforesaid sum of Rs.191,92,40,000/- has been treated as taxable income at
the hands of the Petitioner by the end of the Assessment Year 2022-23.
13. As far as appellate remedy under Section 246-A of the Act is
concerned, it is submitted that the Impugned Assessment Order dated
27.03.2024 that has been passed was beyond the proposals contained in the
aforesaid Show Cause Notice dated 28.02.2024. It is further submitted that
the Impugned Assessment Order dated 27.03.2024 is fraught with bundle of
contradiction and therefore arbitrary. Hence, it is prayed that the Impugned
Assessment Order is liable to be quashed.
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14. It is further submitted that appellate remedy would be illusory as
the appellant is required to pre-deposit 20% of the disputed tax in terms of
the prevailing circulars issued under Section 119 of the IT Act. On merits,
the learned counsel for the Petitioner would submit that if exemption under
Section 11 of the IT Act is not allowed, an addition for unspent amounts
accumulated under Section 11(2) of the IT Act cannot be brought to tax
under Section 11(3) of the IT Act.
15. That apart, the learned counsel for the Petitioner submitted that
the objections of the Petitioner made during the personal hearing have not
been considered by the Respondent while passing the Impugned
Assessment Order dated 27.03.2024 for the Assessment Year 2022-23
passed under Section 143(3) r/w. Section 144B of the IT Act.
16. It is further submitted that the amount accumulated under Section
11(2) of the IT Act between the Assessment Years 2012-2013 to 2016-2017
had already suffered tax on account of denial of exemption under Section 12
of the IT Act in those Assessment Years.
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17. It is the case of the Petitioner that the Respondent erred in
holding that the activity of manufacturing ophthalmic products is not an
activity pursued for advancing any other object of public utility without
giving opportunity to the Petitioner to properly explain its stand about the
same.
18. During the course of hearing, the Petitioner submitted that the
Petitioner has been recognized as a ‘charitable institution’ by the Income
Tax Department on 07.04.2022 under Section 12A(1)(01)(i)(ac) of the Act
in Form No.10 AC pursuant to an application filed by the Petitioner for such
registration under Section 12(AB) of the Act on 31.03.2022.
19. Learned counsel for the Petitioner also referred to decision of the
Hon'ble Supreme Court in Assistant Commissioner of Income Tax
(Exemptions) Vs. Ahmedabad Urban Development Authority (2023) 4
SCC 561.
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20. It is submitted that the activity of the Petitioner was indeed
charitable in nature within the meaning of Section 2(15) of the IT Act. It is
submitted that the activity of the Petitioner was “charitable purpose” within
the meaning of the aforesaid section as it was for in the advancement of
other object of General Public Utility.
21. It is submitted that even if, the proviso to the aforesaid definition
of “charitable purpose” was not attracted, it was submitted that the
exemption provided to the proviso to Section 2(15) of the IT Act as the
activity was attracted undertaken by the petitioner was in the course of
actual carrying out of such advancement of other object of General utility
and therefore ,the aggregate receipts from such activity or activities during
the previous year did not exceed 20% of the total receipt of the Petitioner
Trust undertaken such an activity during the relevant previous year viz.,
2021-2022.
22. The above Writ Petition is opposed by the learned counsel for the
Respondent Department. It is submitted that there has been no violation of
principles of natural justice and therefore, the writ petition is liable to be
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dismissed. Insofar the merits of the case are concerned, the learned counsel
for the Respondent submitted that the Petitioner Trust is not precluded from
challenging the same before the Appellate Authority.
23. That apart, it is submitted that the Certificate of Registration
granted under Section 12A of the IT Act on 09.10.1992 has been cancelled
on 13.12.2010 by the Commissioner of Income Tax under Section 12AA(3)
of the IT Act and that the appeal filed by the Petitioner before the ITAT was
also dismissed by the ITAT on 11.05.2011.
24. It is submitted that the appeal preferred by the Petitioner before
the Division Bench of this Court under Section 260A of the IT Act is still
pending and therefore, there is no scope for the Petitioner to claim any
exemption as a “charitable institution”.
25. I have considered the arguments advanced by the learned counsel
for the Petitioner and the learned Senior Standing Counsel for the
Respondent.
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26. I have also perused the documents filed by the Petitioner in
support of the present Writ Petition and the definition of “charitable
purpose” in Section 2(15) of the IT Act and the decision of the Hon'ble
Supreme Court in Assistant Commissioner of Income Tax (Exemptions)
Vs. Ahmedabad Urban Development Authority (2023) 4 SCC 561.
27. In Assistant Commissioner of Income Tax (Exemptions) Vs.
Ahmedabad Urban Development Authority (2023) 4 SCC 561, the Hon'ble
Supreme Court has discussed about the scope of Sections 10, 11, 12, 12-A,
12-AA & 13 of the IT Act. Relevant portion of the judgment in the said
case reads as under:
“170. The effect of Sections 11, 12, 12-A 12-AA and 13 has been
the subject of certain decisions [CIT v. Dawoodi Bohara Jamat, (2014) 16
SCC 222;S.RM.M.CT.M. Tiruppani Trust v. CIT, (1998) 2 SCC 584] of
this Court. These decisions have noticed that Section 11 deals with income
from trusts for charitable and religious purposes and sets out which shall
be subject to tax.
170.1. Section 11(1) relates to application of income towards the
objects of the trust and exempts income of trusts with objects wholly
charitable or religious, or parts of income which relate to such objects.
Section 11(1-A) provides for exemption of capital gains derived by trusts.
Section 11(1-B), speaks of failure to apply income as per option under
Explanation (2) to Section 11(1). Section 11(2) relates to setting apart or
accumulation of income. Section 11(3) deals with consequences of
misapplication of income or improper investment, while Section 11(3-A)
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relates to modification of purposes specified in Form 10 under Section
11(2). Sections 11(4) and 11(4-A) relate to business income of charitable
trusts. Lastly, Section 11(5) provides for the prescribed modes of
investment in regard to the said trusts.
170.2. Section 12 enacts that income of trusts created wholly for
charitable or religious purpose from voluntary contributions would be
deemed as income from the property held under such trust for the
purposes of Sections 11 and 13 of the Act. Section 12-A prescribes the
conditions for applicability of Sections 11 and 12 of the Act. It enacts two
essential conditions which are to be satisfied by a charitable or religious
trust for claiming exemption under those sections : firstly, that the person
in receipt of the income has made an application for registration of the
trust on or after 1-6-2007 in the prescribed form and manner to the
Commissioner and such a trust is registered under Section 12-AA and
secondly, where the total income of the trust exceeds the maximum amount
which is not chargeable to income tax in any previous year, the accounts
of the trust must be audited by a chartered accountant and the person in
receipt of the income should furnish such audit report in the prescribed
form along with the return of income. The procedure for grant (or refusal)
of registration is prescribed by Section 12-AA.
170.3. Section 13 enlists the circumstances under which tax
exemption is unavailable to religious or charitable trusts otherwise falling
under Sections 11 or 12. Section 13 therefore, has to be read with the
provisions of Sections 11 and 12 for deciding eligibility of a trust's claim
for exemption.”
28. A charitable trust is exempted from payment of tax in terms of
Sections 11 & 12 of the IT Act provided it has been registered as a
charitable trust/institution.
29. Section 11 of the IT Act deals with “income from property” held
for “charitable or religious purposes” and exempts the same. Section 12 of
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the IT Act exempts income of trusts or institutions from contributions
received. To claim exemption from both the categories of Income, sine qua
non is either “income from property” held for “charitable or religious
purposes” or “income from public contributions”. In the present case, the
income that is the subject matter of assessment is neither from property nor
from contributions to be exempted under Sections 11 & 12 of the IT Act. It
is from manufacturing activity.
30. To avail the benefits, the Petitioner has to also satisfy that its
objects are “charitable”. It will be therefore useful to refer the definition of
the expression, “charitable purpose” in Section 2(15) of the IT Act which
reads as under:
“2(15). “charitable purpose” includes relief of the poor,
education, yoga, medical relief, preservation of environment (including
watersheds, forests and wildlife) and preservation of monuments or places
or objects of artistic or historic interest, and the advancement of any other
object of general public utility:
Provided that 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—
(i) such activity is undertaken in the course of actual carrying out
of such advancement of any other object of general public utility; and
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(ii) the aggregate receipts from such activity or activities during
the previous year, do not exceed twenty per cent. of the total receipts, of
the trust or institution undertaking such activity or activities, of that
previous year.”
31. The “charitable purpose” as defined in Section 2(15) of the IT
Act is an inclusive definition and thus, includes relief of the poor,
education, yoga, medical relief, preservation of environment (including
watersheds, forests and wildlife) and preservation of monuments or places
or objects of artistic or historic interest and the advancement of any other
object of general public utility.
32. The proviso to definition in Section 2(15) of the IT Act itself
makes it clear that the advancement of any other object of general public
utility shall not be considered as 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.
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33. The exceptions to the proviso to Section 2(15) of the IT Act are
two folds where
(i) such activity is undertaken in the course of actual carrying
out of such advancement of any other object of general public
utility; and
(ii) 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, of
that previous year.
34. Sub-section 1 to Section 11 of the IT Act deals with four
categories of income, which are as follows:-
(a) income derived from property held under trust wholly for
charitable or religious purposes, to the extent to which such
income is applied to such purposes in India; and, where any
such income is accumulated or set apart for application to such
purposes in India, to the extent to which the income so
accumulated or set apart is not in excess of fifteen per cent of
the income from such property;
(b) income derived from property held under trust in part only
for such purposes, the trust having been created before the
commencement of this Act, to the extent to which such income
is applied to such purposes in India; and, where any such
income is finally set apart for application to such purposes in
India, to the extent to which the income so set apart is not in
excess of fifteen per cent of the income from such property;
(c) income derived from property held under trust—
(i) created on or after the 1st day of April, 1952, for a
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charitable purpose which tends to promote international
welfare in which India is interested, to the extent to
which such income is applied to such purposes outside
India, and
(ii) for charitable or religious purposes, created before
the 1st day of April, 1952, to the extent to which such
income is applied to such purposes outside India:
Provided that the Board, by general or special order, has
directed in either case that it shall not be included in the total
income of the person in receipt of such income;
(d) income in the form of voluntary contributions made with a
specific direction that they shall form part of the corpus of the
trust or institution, subject to the condition that such voluntary
contributions are invested or deposited in one or more of the
forms or modes specified in sub-section (5) maintained
specifically for such corpus.
35. For the sake of clarity, sub-section (1) to Section 11 of the IT Act
is reproduced below:-
“11. Income from property held for charitable or religious
purposes.—(1) Subject to the provisions of sections 60 to 63, the following
income shall not be included in the total income of the previous year of the
person in receipt of the income—
(a) income derived from property held under trust wholly for
charitable or religious purposes, to the extent to which such
income is applied to such purposes in India; and, where any such
income is accumulated or set apart for application to such
purposes in India, to the extent to which the income so
accumulated or set apart is not in excess of fifteen per cent of the
income from such property;
(b) income derived from property held under trust in part only for
such purposes, the trust having been created before the
commencement of this Act, to the extent to which such income is
applied to such purposes in India; and, where any such income is
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finally set apart for application to such purposes in India, to the
extent to which the income so set apart is not in excess of fifteen
per cent of the income from such property;
(c) income derived from property held under trust—
(i) created on or after the 1st day of April, 1952, for a
charitable purpose which tends to promote international
welfare in which India is interested, to the extent to which
such income is applied to such purposes outside India, and
(ii) for charitable or religious purposes, created before the
1st day of April, 1952, to the extent to which such income is
applied to such purposes outside India:
Provided that the Board, by general or special order, has directed
in either case that it shall not be included in the total income of the
person in receipt of such income;
(d) income in the form of voluntary contributions made with a
specific direction that they shall form part of the corpus of
the trust or institution, subject to the condition that such
voluntary contributions are invested or deposited in one or
more of the forms or modes specified in sub-section (5)
maintained specifically for such corpus.”
36. As per sub-section (4) to Section 11 of the IT Act, the
expression, “property held under trust” includes a business undertaking so
held and where a claim is made that the income of any such undertaking
shall not be included in the total income of the persons in receipt thereof,
the Assessing Officer shall have power to determine the income of such
undertaking in accordance with the provisions of this Act relating to
assessment; and where any income so determined is in excess of the income
as shown in the accounts of the undertaking, such excess shall be deemed to
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be applied to purposes other than charitable or religious purposes. Sub-
Section (4) to Section 11 of the IT Act is reproduced below:
“(4) For the purposes of this section "property held under trust"
includes a business undertaking so held, and where a claim is made that
the income of any such undertaking shall not be included in the total
income of the persons in receipt thereof, the Assessing Officer shall have
power to determine the income of such undertaking in accordance with
the provisions of this Act relating to assessment; and where any income so
determined is in excess of the income as shown in the accounts of the
undertaking, such excess shall be deemed to be applied to purposes other
than charitable or religious purposes.”
37. As per Explanations 1, 2, 3, 4 & 5 of sub-section (1) to Section
11 of the IT Act, if the income from the property is not applied or is not
deemed to have been applied for charitable or religious purposes in India
during the previous year and is accumulated or set apart, either in whole or
in part, for application to such purposes in India, such income so
accumulated or set apart shall not be included in the total income of the
previous year of the person in receipt of the income. However, there are
stipulations in these explanations.
38. Explanations 1, 2, 3, 4 & 5 of sub-section (1) to Section 11 of the
IT Act are reproduced below:
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Section 11(1)
Explanation 1 of Explanation 2 of Explanation 3 of Explanation 4 of Explanation 5 of
sub-section 1 to sub-section 1 to sub-section 1 to sub-section 1 to sub-section 1 to
Section 11 Section 11 Section 11 Section 11 Section 11
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Section 11(1)
Explanation 1.— Explanation 2.— Explanation 3.— Explanation 4.— Explanation 5.—
For the purposes of Any amount For the purposes of For the purposes of For the purposes of
clauses (a) and (b), credited or paid, determining the determining the this sub-section, it
— out of income amount of amount of is hereby clarified
(1) in computing referred to in application under application under that the calculation
the fifteen per cent clause (a) or clause clause (a) or clause clause (a) or clause of income required
of the income (b) read with (b), the provisions (b),— to be applied or
which may be Explanation 1, to of sub-clause (ia) accumulated
(i) application for
accumulated or set any fund or trust or of clause (a) of during the previous
charitable or
apart, any such institution or any section 40 and sub- year shall be made
religious purposes
voluntary university or other sections (3) and without any set off
from the corpus as
contributions as educational (3A) of section or deduction or
referred to in
are referred to in institution or any 40A, shall, mutatis allowance of any
clause (d) of this
section 12 shall be hospital or other mutandis, apply as excess application
sub-section, shall
deemed to be part medical institution they apply in of any of the year
not be treated as
of the income; referred to in sub- computing the preceding the
application of
clause (iv) or sub- income chargeable previous year.
(2) if, in the income for
clause (v) or sub- under the head
previous year, the charitable or
clause (vi) or sub- "Profits and gains
income applied to religious purposes:
clause (via) of of business or
charitable or
clause (23C) of profession". (ii) application for
religious purposes
section 10 or other
in India falls short Explanation 3A.— charitable or
trust or institution
of eighty-five per For the purposes of religious purposes,
registered under
cent of the income this sub-section, from any loan or
section 12AA or
derived during that where the property borrowing, shall
section 12AB, as not be treated as
year from property held under a trust
the case may be, application of
held under trust, or institution
being contribution income for
or, as the case may includes any
with a specific
be, held under trust temple, mosque, charitable or
direction that it
in part, by any gurdwara, church religious purposes:
shall form part of
amount— or other place
the corpus, shall
notified under
(i) for the reason not be treated as
clause (b) of sub-
that the whole or application of
section (2) of
any part of the income for
section 80G, any
income has not charitable or
sum received by
been received religious purposes.
such trust or
during that year, or
institution as
(ii) for any other voluntary
reason, contribution for the
purpose of
then— renovation or
(a) in the case repair of such
referred to in sub- temple, mosque,
clause (i), so much gurdwara, church
of the income or other place,
applied to such may, at its option,
purposes in India be treated by such
during the previous trust or institution
year in which the as forming part of
income is received the corpus of the
or during the trust or the
previous year institution, subject
immediately to the condition
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39. Sub-section (1A) to Section 11 of the IT Act has to be read in
conjunction with sub-section (1) to Section 11 of the IT Act. Sub-section
(1A) to Section 11 of the IT Act is not relevant. However, for the sake of
clarity, sub-section (1A) to Section 11 of the IT Act is also reproduced
below:-
“(1A) For the purposes of sub-section (1),—
(a) where a capital asset, being property held under trust wholly for
charitable or religious purposes, is transferred and the whole or any part
of the net consideration is utilised for acquiring another capital asset to
be so held, then, the capital gain arising from the transfer shall be deemed
to have been applied to charitable or religious purposes to the extent
specified hereunder, namely:—
(i) where the whole of the net consideration is utilised in acquiring
the new capital asset, the whole of such capital gain;
(ii) where only a part of the net consideration is utilised for
acquiring the new capital asset, so much of such capital gain as is
equal to the amount, if any, by which the amount so utilised
exceeds the cost of the transferred asset;
(b) where a capital asset, being property held under trust in part only for
such purposes, is transferred and the whole or any part of the net
consideration is utilised for acquiring another capital asset to be so held,
then, the appropriate fraction of the capital gain arising from the transfer
shall be deemed to have been applied to charitable or religious purposes
to the extent specified hereunder, namely:—
(i) where the whole of the net consideration is utilised in acquiring
the new capital asset, the whole of the appropriate fraction of such
capital gain;
(ii) in any other case, so much of the appropriate fraction of the
capital gain as is equal to the amount, if any, by which the
appropriate fraction of the amount utilised for acquiring the new
asset exceeds the appropriate fraction of the cost of the transferred
asset.
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Explanation.—In this sub-section,—
(i) "appropriate fraction" means the fraction which represents the
extent to which the income derived from the capital asset
transferred was immediately before such transfer applicable to
charitable or religious purposes;
(ii) "cost of the transferred asset" means the aggregate of the cost
of acquisition (as ascertained for the purposes of sections 48 and
49) of the capital asset which is the subject of the transfer and the
cost of any improvement thereto within the meaning assigned to
that expression in sub-clause (b) of clause (1) of section 55;
(iii) "net consideration" means the full value of the consideration
received or accruing as a result of the transfer of the capital asset
as reduced by any expenditure incurred wholly and exclusively in
connection with such transfer.”
40. Sub-section 2 to Section 11 of the IT Act deals with 85% of the
income referred to in Clause (a) & Clause (b) of sub-section (1) to Section
11. Consequences, for not applying 85% of income referred to in Clause (a)
& Clause (b) of sub-section (1) to Section 11 r/w. Explanations of sub-
section (1) to Section 11 of the IT Act is prescribed in sub-section (2) to
Section 11 of the IT Act. For the sake of clarity, sub-section (2) to Section
11 of the IT Act is also reproduced hereunder:
“(2) Where eighty-five per cent of the income referred to in clause
(a) or clause (b) of sub-section (1) read with the Explanation to
that sub-section is not applied, or is not deemed to have been
applied, to charitable or religious purposes in India during the
previous year but is accumulated or set apart, either in whole or in
part, for application to such purposes in India, such income so
accumulated or set apart shall not be included in the total income
of the previous year of the person in receipt of the income,
provided the following conditions are complied with, namely:—
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(a) such person furnishes a statement in the prescribed
form and in the prescribed manner to the Assessing Officer,
stating 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;
(b) the money so accumulated or set apart is invested or
deposited in the forms or modes specified in sub-section
(5);
(c) the statement referred to in clause (a) is furnished [at
least two months prior to] the due date specified under
sub-section (1) of section 139 for furnishing the return of
income for the previous year:
Provided that in computing the period of five years referred to in
clause (a), the period during which the income could not be
applied for the purpose for which it is so accumulated or set apart,
due to an order or injunction of any court, shall be excluded.
Explanation.—Any amount credited or paid, out of income
referred to in clause (a) or clause (b) of sub-section (1), read with
the Explanation to that sub-section, which is not applied, but is
accumulated or set apart, to any trust or institution registered
under section 12AA or section 12AB or to any fund or institution
or trust or any university or other educational institution or any
hospital or other medical institution referred to in sub-clause (iv)
or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause
(23C) of section 10, shall not be treated as application of income
for charitable or religious purposes, either during the period of
accumulation or thereafter.”
41. Income from trust referred to in sub-section (2) to Section 11 of
the IT Act shall be deemed to be the income of such person of the previous
year under sub-section (3) to Section 11 of the IT Act, if,
(i) in income is applied for non-charitable purposes or ceases to
be so accumulated or set apart or under clause (a); or
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(ii) it ceases to remain so invested or deposited as above; or
(iii) is not utilized or accumulated or set apart and is not
utilised for the purpose for which it is so accumulated or set
apart;
(iv) is credited or paid to any fund or institution or trust or any
university or other educational institution or any hospital or
other medical institution referred to in sub-clause (iv) or sub-
clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C)
of Section 10.
42. For the sake of clarity, sub-section (3) to Section 11 of the IT Act
is reproduced hereunder:
(3) Any income referred to in sub-section (2) which—
(a) is applied to purposes other than charitable or religious
purposes as aforesaid or ceases to be accumulated or set
apart for application thereto, or
(b) ceases to remain invested or deposited in any of the
forms or modes specified in sub-section (5), or
(c) is not utilised for the purpose for which it is so
accumulated or set apart during the period referred to in
clause (a) of that sub-section [***],
(d) is credited or paid to any trust or institution registered
under section 12AA or section 12AB or to any fund or
institution or trust or any university or other educational
institution or any hospital or other medical institution
referred to in sub-clause (iv) or sub-clause (v) or sub-
clause (vi) or sub-clause (via) of clause (23C) of section 10,
shall be deemed to be the income of such person of the previous
year,—
(i) in which it is so applied or ceases to be so accumulated
or set apart under clause (a); or
(ii) in which it ceases to remain so invested or deposited
under clause (b); or
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(iii) being the last previous year of the period, for which
the income is accumulated or set apart but not utilised for
the purpose for which it is so accumulated or set apart
under clause (c); or
(iv) in which it is credited or paid to any fund or institution
or trust or any university or other educational institution or
any hospital or other medical institution under clause (d).
43. Sub-section (3A) to Section 11 of the IT Act provides for other
certain relaxation to in sub-section (3) to Section 11 of the IT Act. As per
sub-section (3A) to Section 11 of the IT Act, where due to circumstances
beyond the control of the person in receipt of the income, any income
invested or deposited in accordance with the provisions of clause (b) of sub-
section (2) cannot be applied for the purpose for which it was accumulated
or set apart, the Assessing Officer may, on an application made to him in
this behalf, allow such person to apply such income for such other
charitable or religious purpose in India as is specified in the application by
such person and as is in conformity with the objects of the trust; and
thereupon the provisions of sub-section (3) shall apply as if the purpose
specified by such person in the application under this sub-section were a
purpose specified in the notice given to the Assessing Officer under clause
(a) of sub-section (2) to Section 11 of the IT Act.
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44. There are two exception to relaxation in sub-section (3A) to
Section 11 of the IT Act. They are as follows:
Exception No.1 Exception No.2
Provided that the Assessing Officer shall not Provided further that in case the trust or
allow application of such income by way of institution, which has invested or deposited its
payment or credit made for the purposes referred income in accordance with the provisions of
to in clause (d) of sub-section (3) of Section 11. clause (b) of sub-section (2), is dissolved, the
Assessing Officer may allow application of such
income for the purposes referred to in clause (d)
of sub-section (3) in the year in which such trust
or institution was dissolved.
45. For the sake of clarity, sub-section (3A) to Section 11 of the IT
Act is reproduced hereunder:
“(3A) Notwithstanding anything contained in sub-section (3),
where due to circumstances beyond the control of the person in
receipt of the income, any income invested or deposited in
accordance with the provisions of clause (b) of sub-section (2)
cannot be applied for the purpose for which it was accumulated or
set apart, the Assessing Officer may, on an application made to
him in this behalf, allow such person to apply such income for
such other charitable or religious purpose in India as is specified
in the application by such person and as is in conformity with the
objects of the trust; and thereupon the provisions of sub-section (3)
shall apply as if the purpose specified by such person in the
application under this sub-section were a purpose specified in the
notice given to the Assessing Officer under clause (a) of sub-
section (2):
Provided that the Assessing Officer shall not allow application of
such income by way of payment or credit made for the purposes
referred to in clause (d) of sub-section (3) of section 11:
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Provided further that in case the trust or institution, which has
invested or deposited its income in accordance with the provisions
of clause (b) of sub-section (2), is dissolved, the Assessing Officer
may allow application of such income for the purposes referred to
in clause (d) of sub-section (3) in the year in which such trust or
institution was dissolved.”
46. Sub-section (3A) to Section 11 of the IT Act is also not relevant
since the income that is referred to in the impugned Assessment Order is
income from manufacture and sale of ophthalmic lenses.
47. The Petitioner has claimed the benefit of sub-section (4A) to
Section 11 of the IT Act. Sub-section (4A) to Section 11 of the IT Act
states that sub-section (1) or sub-section (2) or sub-section (3) or sub-
section (3A) shall not apply in relation to any income of a trust or
institution, being profits and gains of business, unless the business is
incidental to attainment of the objectives of the trust or as the case may be,
institution and separate books of account are maintained by such trust or
institution in respect of such business. For the sake of clarity, sub-section
(4A) to Section 11 of the IT Act is reproduced hereunder:
“(4A). Sub-section (1) or sub-section (2) or sub-section (3) or sub-
section (3A) shall not apply in relation to any income of a trust or an
institution, being profits and gains of business, unless the business is
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incidental to the attainment of the objectives of the trust or, as the case
may be, institution, and separate books of account are maintained by such
trust or institution in respect of such business.”
48. While dealing with the scope of sub-section (4A) to Section 11 of
the IT Act, the Hon'ble Supreme Court in New Noble Educational Society
Vs. Commissioner of Income Tax (2023) 6 SCC 649 has observed as
under:
“76. In view of the above discussion, it is held that charitable
institutions and societies, which may be regulated by other State laws,
have to comply with them just as in the case of laws regulating education
(at all levels). Compliance with or registration under those laws, are also
a relevant consideration which can legitimately weigh with the
Commissioner or other authority concerned, while deciding applications
for approval under Section 10(23-C).
77. This reasoning equally applies especially in Section 11(4-A)
which speaks of profits incidental which specifies that exemption in
relation to income or trust of an institution which are profits or means of
business cannot be exempted “unless the business is incidental, trust or as
the case may be institution and separate books of accounts are maintained
by such trusts or institution in respect of such business”. Thus, the
underlying objective of the seventh proviso to Section 10(23-C) and of
Section 11(4-A) are identical. These have to be read in the light of the
main provision which spells out the conditions for exemption under
Section 10(23-C) — the same conditions would apply equally to the other
sub-clauses of Section 10(23-C) that deal with education, medical
institution, hospitals, etc.”
49. A reading of the impugned Assessment Order dated 27.03.2024
and Notices that preceeded the impugned Assessment Order, the affidavit
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filed in support of this writ petition indicates that the income which was the
subject matter of the impugned Assessment Order is neither an income from
the property held for “charitable or religious purposes” nor income of the
Petitioner Trust from contributions as specified in Sections 11 & 12 of the
IT Act.
50. Thus, there is no merit in the present case. Hence, this Writ
Petition is liable to be dismissed. However, liberty can be granted to the
Petitioner to file an appeal before the Appellate Authority and challenge the
impugned Assessment Order dated 27.03.2024, within a period of 30 days
from the date of receipt of a copy of this order. On filing of such appeal by
the Petitioner, the Appellate Authority shall dispose of the same, as
expeditiously as possible.
51. Accordingly, this Writ Petition is dismissed with the above
liberty. No costs. Consequently, connected miscellaneous petition is
closed.
03.04.2025
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jen/mrr
Index : Yes/No
Neutral Citation: Yes/No
Speaking Order (or) Non-Speaking Order
To
1.The Income Tax Officer,
TDS Ward, Income Tax Office,
Erode, Erode District.
2.The Managing Director,
Erode District Central Cooperative Bank Ltd.,
No.1, Bhavani Main Road,
Erode, Erode District.
3.The Assessment Officer,
Income Tax Department,
Erode, Erode District.
C.SARAVANAN, J.
jen/mrr
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Pre-Delivery Order in
03.04.2025
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