Income Tax | Form-10 Under Rule 17(2) Supplied After Limitation But Before Completion Of Assessment to Be Considered By AO: Allahabad High Court

The Allahabad High Court has held that if Form-10 under rule 17(2) for claiming exemption has been supplied to the assessing authority after the prescribed period but before completion of assessment, it ought to be considered by the Assessing Authority for granting benefit of exemption under Section 11(2) of the Income Tax Act, 1961 in original assessment proceedings.

Placing reliance on judgment of Supreme Court in Commissioner of Income-tax Vs. Nagpur Hotel Owners' Association and the decision of the Allahabad High Court in CIT Vs. Moti Ram Gopi Chand Charitable Trust, the bench comprising of Justice Siddhartha Varma and Justice Shekhar B. Saraf held

“It is crystal clear that Form-10 under Rule 17 of the Rules is required to be filed before the Assessing Officer before he completes the assessment. In a case, where Form-10 is filed late but is filed before the Assessing Officer completes the assessment, benefit of Section 11(2) of the Act shall be available to the assessee.”

Section 11 of the Income Tax Act, 1961 provides for circumstances under which income shall not be included in the total income for the purpose of assessment.

Sub -clause (2) of Rule 17 (Exercise of option etc. under Explanation 3 to the third proviso to clause (23C) of Section 10 or Section 11) of Income Tax Rules, 1961 provides

“(2) The statement to be furnished to the Assessing Officer or the prescribed authority under clause (a) of the Explanation 3 to the third proviso to clause (23C) of section 10 of the Act or under clause (a) of sub-section (2) of section 11 of the Act or under the said provision as applicable under clause (21) of section 10 of the Act shall be in Form No. 10 and shall be furnished before the expiry of the time allowed under sub-section (1) of section 139 of the Act, for furnishing the return of income.”

Form-10 under Rule 17(2) of the Income Tax Rules, 1961 is a statement by fund /institution / trust / any university / other educational institution /any hospital / other medical institution/association filed before an Assessing Authority to declare what percentage of income shall be kept apart for carrying out the purposes of the institution for claiming exemption under Section 11 of the Income Tax Act, 1961.

Factual Background

Petitioner is a society registered under Societies Registration Act, 1860, carrying out charitable work by imparting education through its institutions run by it. Books of account and other records of the petitioner were subjected to audit under section 12-A(b) of the Income Tax Act, 1961. For assessment year 2013-14, petitioner had disclosed nil income after claiming exemption under Section 11 (Income From Property Held For Charitable Or Religious Purposes) of the Act.

Petitioner issued a statement in Form-10 as per Rule 17 of Income Tax Rules, 1961 before the Department as overall utilization during the year fell short by 17.02% (Rs.1,58,56,689/-) from prescribed limit of 85%. The return filed by petitioner-society was selected for scrutiny and notice under section 143(2) was issued. Thereafter, notices under section 142(1) of the Act were also issued.

After taking note of Form-10 filed by the petitioner and accepting the NIL income disclosed by the petitioner assessment order under Section 143(3) was passed in the year 2016. On 31^st March 2021, after the lapse for 4 years, a notice under Section 148 of the Act was issued to the petitioner. It was alleged that income had escaped assessment as Form-10 for accumulation of income was filed belatedly and not within the due date of filing Return of Income u/s 139(1) of the Act. The reply filed by the petitioner was rejected based on the same ground.

During the pendency of the writ petition, order under Section 147 read with Section 144(B) of the Act was passed assessing the income of petitioner as Rs. 1,58,86,689/- and imposing a demand of Rs. 1,03,00,246/-.

Counsel for petitioner argued that the rejection order was a non-speaking order and was passed in hurried manner by the Assessing Officer. It was further argued that entire reassessment was based on change of opinion on the issue of availability of exemption under Section 11 of the Act by new the Assessing Officer. The Assessing Officer while passing the regular assessment order had considered Form-10 filed by the petitioner. It was also argued that the Supreme Court and various High Courts have held that delay in filing Form-10 is condonable and Rule 17 of the Act is directly and not mandatory.

Counsel for department submitted that petitioner could not have claimed exemption under Section 11 of the Act without filing Form-10 in time. It was urged that since the Assessing Officer came to know about the late filing of Form-10 at a later stage, it would amount to new material coming to light and justify the reassessment proceedings.

High Court Verdict

The Court placed reliance on CIT Vs. Moti Ram Gopi Chand Charitable Trust wherein in the assesee had produced sufficient material before the Assessing Officer in form of information before completion of assessment. The Allahabad High Court had held that

“There was sufficient material before the Assessing Officer both in the shape of the information furnished within the prescribed period and the proof of not only setting apart 85 per cent of the amount to be spent in the next year but also the expenditure of that amount in the next year. The insistence of furnishing of information on Form 10 as a condition precedent, is insistence on the form and not the substance of the provisions of the Act.”

The Court further relied on the decision on the Supreme Court in Commissioner of Income-tax Vs. Nagpur Hotel Owners' Association wherein it was held that particulars required under Rule 17 and Form 10 should be made available to the Assessing Authority for assessment for claiming exemption under Section 11 of the Act.

The Court held that Form 10 has to be filed before the Assessing Officer completes assessment. However, if it is filed beyond prescribed time but before completion of assessment proceedings, benefit of Section 11(2) of the Act shall be available to the assessee. The Court held that the Assessing Officer had failed to consider the law laid down by the Supreme Court and various High Courts.

“We, accordingly, have no hesitation in holding that the entire process of reassessment that has been initiated by the Department holds no water and is without any legal basis whatsoever.”

Accordingly, the notice under Section 148 of the Act along with the rejection order and the order imposing penalty were quashed.

Case Title: M/S Maa Bhagwati Shiksha Samiti vs. Commissioner Of Income Tax And Two Others 2023 LiveLaw (AB) 477 [Writ Tax No. 476 Of 2022]

Citation: 2023 LiveLaw (AB) 477

Counsel for Petitioner: Ashish Bansal, Ashish Raj Shukla

Counsel for Respondent: Gaurav Mahajan, Manu Ghildyal, Praveen Kumar

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