The petitioner is an autonomous body under the Kerala State Agricultural Department which is registered as a Charitable Society under the Income Tax Act, hereinafter referred to as the 'IT Act'. The petitioner body was constituted for the purposes of generating income and employment opportunities for farmers. For the assessment years 2002-03 and 2003-04, the petitioner had applied for exemption from income tax under Section 11 (2) of the IT Act. As a condition for the grant of exemption under the said provision, the petitioner was obliged to apply 75%/85% of its income to charitable or religious purposes and could accumulate or set apart 25%/15% of its income for future application. In the case of the petitioner, during the aforementioned assessment years, it was not able to apply 75%/85% of the income received by it for the specified purposes and, in respect of the extent of shortfall in the matter of application, it did not comply with the provisions of Section 11 (2) of the IT Act by filing the necessary application for permission to accumulate in respect of the shortfall amount within the period prescribed under the IT Rules. When the petitioner came to know of the technical lapse, in not filing the application before the prescribed authority for permission to accumulate or set apart the shortfall in application amount, it took steps to approach the 2nd respondent with an application for condonation of delay in filing the necessary Form 10 that was mandated as per Rule 17 of the Income Tax Rules. By Ext.P7 order, the 2nd respondent rejected the application preferred by the petitioner, for condonation of delay in filing Form 10, inter alia on the ground that the petitioner had deposited the funds that were set apart by it in the Government Treasury and the Union Bank of India, which were not prescribed modes for investment under Section 11 (5) of the IT Act. It was also found by the 2nd respondent that, the verification of the returns filed by the petitioner in the subsequent years had indicated that the petitioner had not utilized the income set apart for these years for the purposes specified therein, before the time specified. The 2nd respondent therefore found that the petitioner had not complied with the requirements of Section 11 (2) of the IT Act and therefore, was not entitled to the benefit of the said provision. In the writ petition, the petitioner impugns Ext.P7 order inter alia by pointing out that the 2nd respondent while passing the said order had not considered the provisions of Ext.P9 Circular which enabled him to condone technical lapses in connection with the procedure under Section 11 (2) of the IT Act in specified circumstances. 2. A statement has been filed on behalf of the respondents wherein the circumstances under which Ext.P7 order of the 2nd respondent was passed is narrated. It is also pointed out that the stand taken by the 2nd respondent in Ext.P7 order was in accordance with the express provisions of the IT Rules and that, even if the delay in the case was condoned, the petitioner would still not be entitled to the benefit of exemption insofar as he had not complied with the requirement of applying the income for charitable purposes within the time prescribed under the IT Act.
3. I have heard Sri.K.B.Mohamedkutty, the learned Senior counsel appearing on behalf of the petitioner as also Sri.Jose Joseph, the learned Standing counsel appearing on behalf of the Income Tax Department.
4. On a consideration of the facts and circumstances of the case as also the submissions made across the Bar, I find that this is a case where the petitioner, who was claiming an exemption in terms of Section 11 of the IT Act, had occasioned a technical breach in respect of the intimation to be given to the IT authorities with regard to the setting apart or accumulation of the amounts by which he fell short of the requirement of application of income, whereby he had to apply 75%/85% of his income in the relevant assessment year for charitable purposes. As per the provisions of Section 11 (2) of the IT Act, the petitioner had to follow a prescribed procedure so as to enable him to carry forward the shortfall amount to subsequent years for utilization for charitable purposes. The procedure prescribed under the IT Act, read with Rule 17 of the IT Rules, involved the filing of a statutory form (Form No.10) before the authorities concerned, indicating the period for which the shortfall amount would be accumulated, and the specified funds in which the amounts so accumulated would be invested. Admittedly, in the instant case, the petitioner complied with this procedure, albeit belatedly. The findings of the 2nd respondent in Ext.P7 order are to the effect that the delay occasioned by the petitioner in complying with the procedure cannot be condoned primarily because the investment by the petitioner was in funds other than those specified under Section 11 (5) of the IT Act and further, that the amounts sought to be accumulated were not actually used for charitable purposes. In this connection, I must take note of Ext.P9 Circular, that is relied upon by the petitioner, a perusal of which would indicate that even an investment in funds, other than the ones prescribed under Section 11 (5) of the IT Act, is a matter that can be condoned by the 2nd respondent while considering applications by charitable institutions for waiver of technical lapses occasioned in following the procedure under Section 11 (2) of the IT Act. In view of the fact that the petitioner is otherwise qualified for the benefit of exemption under the IT Act, I feel it would in the interest of justice that the 2nd respondent considers the case of the petitioner in the light of the provisions of Ext.P9 Circular and, to that extent, has a fresh look into the matter. To enable the 2nd respondent to do that, I quash Ext.P7 order and direct the 2nd respondent to pass a fresh order on the application preferred by the petitioner, for condonation of delay and other technical lapses occasioned in following the procedure under Section 11 (2) of the IT Act for the assessment years 2002-03 and 2003-04. The 2nd respondent shall pass appropriate orders in the matter after hearing the petitioner, within a period of three months from the date of receipt of a copy of this judgment.
The Writ petition is disposed as above.
A.K.JAYASANKARAN NAMBIAR JUDGE prp