CIT vs. Industrial Extension Bureau; [2014] 43 taxmann. com 392 (Guj)
The assessee, a registered public charitable trust, being unable to utilise income from property to extent of 85 % wrote a letter conveying department to exercise option available under Clause (2) of Explanation to section 11(1) for allowing accumulation of income. The Assessing Officer added to the income of assessee on ground that for claiming exemption the assessee had to give declaration in the prescribed form which was not done by the assessee. While exercising option a mistake was committed by the assessee, as the amount was wrongly mentioned to a lower figure, but later on the same was rectified. On appeal, the Commissioner (Appeals) allowed only that part which was declared by the assessee in original letter before due date and disallowed remaining revised amount by observing that the revision option was not exercised within due date. On cross appeals, the Tribunal allowed the assessee’s claim and deleted entire amount on ground that the mistake was bona fide and the requirement of exercising option within prescribed time was only directory in nature.
On appeal by the Revenue, the Gujarat High Court upheld the decision of the Tribunal and held as under:
“i) U/s. 11, a charitable trust unable to utilise its income derived from property held under trust wholly for charitable or religious purposes to the extent of 85 % would have an option either in terms of clause (2) of Explanation to s/s. (1) thereof, or as provided u/s/s. (2). When such an option is covered u/s/s. (2) i.e., the income is sought to be accumulated or set apart for the period prescribed, that the requirement of making a declaration in the prescribed manner arises. In case of an option under Clause (2) of Explanation to s/s. (1), there is no such requirement of making declaration but the requirement is exercising of such option in writing before the expiry of the time allowed u/s/s. (1) of section 139 for furnishing the return of income.
ii) In the present case, the assessee did exercise such option as is apparent from the letter dated 22-09-2009. In such letter, the assessee conveyed to the department that the assessee gave a notice of option exercised by the trust to allow to spend surplus amount of Rs. 59,17,600 that may remain at the end of the previous year ended on 31-03-2009, during the immediately following the previous year, i.e., 2009-10. In the caption, the assessee referred to as the subject-notice of option exercised as required under Clause (2) of Explanation to section 11(1). These things are thus abundantly clear – firstly, that such option was exercised before last date of filing the return, which was 30-09-2009 and secondly, that such option was exercised in terms of clause (2) of Explanation to section 11(1). That was clearly not an option u/s/s. (2) of section 11. The caption of the said communication dated 22-09–00- as well as the contents of the letter make this clear. If that be so, the assessee cannot be precluded from pursuing such option on the ground as was done by the Assessing Officer that no declaration in the prescribed form was made. As we have noticed that such declaration was required only if the assessee’s option was to be covered by the provision of section 11(2).
iii) It is true that in such option exercised on 22/09/2009, the assessee indicated a smaller figure of Rs. 57,17,600 and it was only later that the same was corrected to Rs. 1,05,67,047. However, the Tribunal has taken note of facts on record namely that the option in fact was exercised within the time permitted under the statute. It was a bona fide error to indicate a wrong figure. The intention to avail carry over of the un-spend income to the next year was clear.
iv) The requirement of exercising an option within the time permitted under Clause (2) of Explanation to section 11(1) is directory and not mandatory. Substantial compliance thereof would therefore be sufficient.
v) Even otherwise, without going to the extent of holding such time limit as directory and not mandatory, in the facts of the present case, the Tribunal committed no error in granting the benefit to the assessee for the entire amount since it was a mere oversight or bona fide error in not indicating the correct and full amount for the option under clause (2) of Explanation to section 11(1).”
