V.K. Singhal, J.

1. The Income Tax Appellate Tribunal has referred the following question of law arising out of its order dated February 17, 1981, in respect of the assessment years 1974-75, 1975-76 and 1976-77 under Section 256 of the Income Tax Act, 1961 :

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the order of the Appellate Assistant Commissioner directing the Income Tax Officer to allow exemption in respect of accumulation as claimed under Section 11(2) of the Income Tax Act, 1961, read with Rule 17 of the Income Tax Rules, 1962 "

2. The brief facts of the case are that the assessee has been registered as a charitable institution with the Commissioner of Income Tax under Section 12A(a) of the Income Tax Act, 1961. It derives income from the services rendered to Dargah Khawaja of Ajmer and then applies the same for charitable purposes. The assessee has not furnished the returns of income for the years 1974-75 and 1975-76 on the ground that it had no taxable income. The Income Tax Officer issued notices under Section 148 for the years 1974-75 and 1975-76 and under Section 139(2) for the year 1976-77. The assessee filed the returns and claimed that the sum of Rs. 90,000, Rs. 10,000 and Rs. 60,000, respectively, set apart and accumulated for application for charitable purposes for the above years as per the resolutions dated July 2, 1977, September 2, 1977, and June 6, 1976, respectively, were not liable to be taxed. The Income Tax Officer negatived the claim on the ground that in accordance with the provisions of Rule 17 accumulation for the purpose of capital expenditure was not permissible. The resolution was as under :

"It is hereby resolved that a sum of Rs. 90,000 (ninety thousand) which is available at the end of the year be set apart for eight years to accumulate sufficient funds for carrying out the objects of the trust. The said sum be deposited with the bank in which the trust has its account."

3. The Income Tax Officer was of the opinion that in accordance with the Income Tax Rules, the application for accumulation should have been furnished to the Income Tax Officer before the expiry of six months commencing from the end of the relevant previous year or before June 30 immediately following such previous year, whichever is later. The intimation should have been given for accumulation up to September 30, 1974, which has also not been submitted by the assessee in time. The purposes for accumulation are the same for which the trust has been created, viz., to help poor widows and to give scholarships to students. The amount was disallowed and it was held that the assessee was not entitled to accumulate the said sums under Section 11(2) of the Income Tax Act.

4. In the appeal before the Appellate Assistant Commissioner of Income Tax it was contended that the provisions of Rule 17 imposing a time-limit for submission of the application were ultra vires the rule-making authority and reliance was placed on the decisions in M. Ct. Muthiah Chettiar Family Trust v. Fourth ITO : [1972]86ITR282(Mad) ; Second ITO v. M. C. T. Trust : [1976]102ITR138(Mad) and in the case of CIT v. Shri Krishen Chand Charitable Trust .

5. The appeals of the assessee were allowed by the Appellate Assistant Commissioner and the assessee was held entitled for exemption after verification.

6. The matter was taken by the Revenue before the Income Tax Appellate Tribunal and the Calcutta (E) Bench, Camp Jaipur, dismissed the appeals and upheld the order of the Appellate Assistant Commissioner.

7. The provisions of Section 11(2) contemplate that in order to avail of the benefit the following condition should be complied with, viz., that the trustee should give a notice in writing to the Income Tax Officer in the manner prescribed by the rules specifying the purpose for which the income is being accumulated and the period for which the income is to be accumulated or set apart, such period, however, not to exceed 10 years.

8. Rule 17 of the Income Tax Rules, 1962, as it stood prior to April 1, 1971, did not prescribe any time-limit for filing Form No, 10 and, therefore, the said form could have been filed at any time up to the stage of finalisation of assessment. The rule was substituted with effect from April 1, 1971, and a time-limit was prescribed from the assessment year 1971-72. In this matter, Circular No. 273, dated June 3, 1980 (see : [1980]126ITR27(Bom) ), was issued by the Department and it was mentioned that the power to condone the delay in filing the application which was vested with the Central Board of Direct Taxes has been delegated to the Commissioner of Income Tax.

9. In the case of M. Ct. Muthiah Chettiar Family Trust v. Fourth ITO : [1972]86ITR282(Mad) by the resolution of the board of trustees it was resolved to accumulate the income of the trust for a period of ten years from 1961 to 1970 so as to make a sizable fund for the sole purpose of being utilised in major projects of a charitable nature. The application for accumulation was definitely given beyond the prescribed time and the Department, therefore, negatived the assessees claim for exemption under Section 11(2)(a). It was held by the Madras High Court that (headnote) : "In the prescribed manner" in Section 11(2)(a) of the Income Tax Act, 1961, do not confer power on the rule-making authority to prescribe a time-limit for making an application for exemption under the section. Therefore, paragraphs 2 and 4 in Form No. 10 issued in pursuance of Rule 17 of the Income Tax Rules, 1962, are ultra vires the rule-making authority, in that the rule-making authority has exceeded its limit in including in the Form the said two paragraphs." This judgment was affirmed by the Division Bench in Second ITO v. M. C. T. Trust : [1976]102ITR138(Mad) .

10. In CIT v. Trustees of Shri Techchand Chandiram Trust : [1990]184ITR537(Bom) it was held by the Bombay High Court that a form prescribed by the rules cannot qualify a statutory provision or impose a time-limit which the statute does not provide.

11. The Kerala High Court in CIT v. Shree Padmanabhaswami Temple Trust : [1979]120ITR42(Ker) has held that the words "in the prescribed manner" in Section 11(2)(a) do not confer power on the rule-making authority to prescribe a time-limit. It has been held by the apex court in the case of STO v. K.I. Abraham [1967] 20 STC 367 that the rule-making authority has no power to prescribe the time-limit.

12. From the circular issued by the Department dated June 3, 1980 (see : [1980]126ITR27(Bom) ), and the judgment of the apex court referred to above, it can be considered that the requirement to prescribe (sic) the time-limit is only directory and not mandatory. Non-compliance within the stipulated time should not disentitle an assessee from the exemption to which he is otherwise entitled. The Income Tax Officer has rejected the claim of the assessee only on the ground that the notice for accumulation under Section 11(2) is beyond time. The Appellate Assistant Commissioner has examined this matter and has observed that the Income Tax Officer has not doubted the correctness of the resolution or the accounts of the trust and for that purpose the Income Tax Officer was directed to verify the assessees claim and allow the exemption in respect of accumulations as claimed by the assessee. There is another point that the provisions of Rule 17 which are framed under Section 11(2) before April 1, 1971, did not prescribe any time-limit for filing Form No. 10 and without there being any amendment in the provisions of the, the rule was substituted with effect from April 1, 1971, prescribing the time-limit from the assessment year 1971-72. Prior to the assessment year 1971-72, the form could have been submitted up to the stage of assessment.

13. In these circumstances, the Income Tax Appellate Tribunal was justified in upholding the order of the Appellate Assistant Commissioner directing the Income Tax Officer to allow exemption in respect of accumulation as claimed under Section 11(2) of the Income Tax Act, 1961, read with Rule 17 of the Income Tax Rules, 1962.

14. The reference accordingly answered in favour of the assessee and against the Revenue. No order as to costs.