The Delhi Bench of Income Tax Appellate Tribunal (ITAT) remanded the matter to the Assessing Officer (AO) to review the non-taxability of interest from Fixed Deposit Receipts (FDRs) as part of the Corpus Fund under Section 11(1)(d) of the Income Tax Act,1961.
National Culture Fund,appellant-assessee,was set up by the Ministry of Human Resources Development in 1996 and registered under section 12A in 1997. The assessee filed its income return for 2017-18, showing income of Rs.84,24,460/-. The AO noticed that the assessee had filed Form 10 late and had set apart a large sum under section 11(2) of the Act.
The assessee explained that the Rs.84,24,458/- was part of a sum accumulated in AY 2010-11 and not yet fully utilized. It argued that interest earned from fixed deposits was not taxable based on a Delhi High Court ruling (CIT vs Divine Light Mission). The assessee also argued that as it had complied with most conditions under section 11(2), it should still qualify for exemption.
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However, the AO disagreed. The AO referred to section 11(3)(c), stating that unutilized income accumulated under section 11(2) is taxable in the following year. The AO noted that the assessee had reported the amount as taxable in its return and confirmed this with the audit report in Form 10B.
As a result, the AO added Rs.84,28,458/- to the assessee’s income under section 11(3), recalculating the total taxable income to Rs.2,70,29,803/-.
The assessee appealed to the Commissioner of Income Tax( Appeals )[CIT(A)], who upheld the AO’s decision and dismissed the appeal on 13.11.2023. The CIT(A) noted the assessee’s failure to comply with multiple hearing notices. On the issue of late filing of Form 10B and ITR, the CIT(A) agreed with the AO that all three conditions under section 11(2) must be met for exemption, and since the filings were delayed, the exemption was denied. The appeal was dismissed due to non-compliance and lack of new submissions.
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The tribunal, after hearing both parties and reviewing the record, found two issues in the appeal: the taxability of Rs.84,24,460/- and the non-allowance of Rs.2,85,12,371/- under section 11(2) of the Act.
The main issue was whether the interest of Rs.3,35,31,966/- from deposits, under section 11(5), was part of the Corpus Fund and thus non-taxable. The assessee had not raised this issue before the AO or the CIT(A), and the CIT(A) had not considered the condonation application for the late filing of Form 10B.
The two member bench comprising Mahavir Singh(Vice President) and Brajesh Kumar Singh(Accountant Member) set aside the CIT(A)’s order and sent the matter back to the AO to review the legal submission regarding the non-taxability of the interest and the condonation application. The AO was instructed to redo the assessment, giving the assessee a chance to be heard.
In short,the appeal filed by the assessee was allowed for statistical purposes.
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