The High Court of Punjab and Haryana held that the amount accumulation by the society in excess of 15% must be for a specific purpose and not for the other future aims and objects for the purpose of section 11 of the Income Tax Act, 1961.
Maharaja Ranjit Singh War Museum Society, Ludhiana, is a society working under the Government of Punjab, is running the Museum by the name of Maharaja Ranjit Singh War Museum. The object of the Society is to create a sense of patriotism and nationality among the citizens, to preserve and display the war history of Punjab.
For the assessment year 2014-15, the society accumulated a certain sum of money and the amount was given to Punjab State War Heroes Memorial & Museum Society, Amritsar (PSWHMMS), which is not a registered society on directions of the Government of Punjab.
When the appellant society was picked up for scrutiny the amount transferred to the Punjab State War Heroes Memorial & Museum Society, Amritsar (PSWHMMS) was also considered as the income of the appellant society.
During the relevant assessment year, the Assessing Officer observed that the amount transferred to PSWHMMS can be deemed as the income of the appellant, and there was a violation of section 11(2) and 11(3)(d) of the Income Tax Act.
On the second appeal, the Tribunal upheld the addition and therefore, the assessee-society approached the High Court for relief.
Rejecting the contentions of the assessee, the division bench consisting of Justice Ajay Tewari and Justice Avneesh Jhingan observed that the requirement of section 11 is that at least 85% of the income is to be applied for a religious or charitable purpose in the year of receipt and the accumulation cannot be more than 15%.
“However, subsection (2) provides for accumulation out of 85% income but the same must be for a specified purpose and for a specific period. The reason behind allowing such an accumulation is that in case there is a future project for which a larger amount is required, the same may be accumulated and thereafter applied. As a built-in mechanism in section 11 itself, sub-section (3) provides that in case eventualities mentioned in clauses (a) to (d), the income shall be deemed to be Income of the person in a receipt, in the previous year in which it was to be applied or ceased to be accumulated,” the bench observed.
The Court upheld the orders of the lower authorities and observed that the accumulated amount can be considered as a deemed income of the assessee on the grounds that the accumulation has to be for specific purpose and amount cannot be accumulated merely by stating that it is for the aims and objects of the Trust.
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