Deemed income considered for accumulation benefit under Income Tax Act

The Tribunal allowed the appeal, holding that deemed income should be included for computing the benefit of accumulation under section 11 of the Income Tax Act, 1961. Consequently, the addition of Rs 1,63,82,140 was deleted, and the appeal was allowed.

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Issues Involved:
1. Confirmation of the addition of Rs 1,63,82,140 out of Rs 3,56,64,506 under section 11(1B) of the Income Tax Act, 1961.
2. Non-following of the Calcutta High Court decision in the case of CIT Vs Natwarlal Chowdhury Charity Trust.

Detailed Analysis:

Issue 1: Confirmation of Addition under Section 11(1B)
The appellant challenged the correctness of the order dated 6th January 2017, passed by the CIT(A), which confirmed the addition of Rs 1,63,82,140 out of Rs 3,56,64,506 made by the Assessing Officer under section 11(1B) of the Income Tax Act, 1961. The core question was whether deemed income under section 11(1B) should be included for computing the benefit of accumulation under section 11. The Assessing Officer relied on the Tribunal's decision in B N Gamadia Parsi Hunnarshala Vs ADIT, which held that deemed income is not to be included. The CIT(A) confirmed this decision in principle but modified the quantum of addition.

Issue 2: Non-following of Calcutta High Court Decision
The appellant contended that the CIT(A) erred by not following the Calcutta High Court's decision in CIT Vs Natwarlal Chowdhury Charity Trust, which supported the inclusion of deemed income for accumulation purposes. The Tribunal found that the issue was covered in favor of the assessee by the Calcutta High Court decision, which approved the view that the legal fiction in section 11(3) should be fully applied, allowing charitable trusts to accumulate up to 25% of their income, including deemed income.

Tribunal's Findings:
The Tribunal noted that the Calcutta High Court's decision in Natwarlal Chowdhury Charity Trust was binding and should be followed. It emphasized that the hierarchical judicial system mandates lower courts to respect higher court decisions, even if they come from non-jurisdictional High Courts. The Tribunal cited the Supreme Court's stance in Asstt. Collector of Central Excise v. Dunlop India Ltd., which underscored the necessity for lower courts to accept the decisions of higher courts.

The Tribunal disagreed with the coordinate bench's decision in B N Gamadia Parsi Hunnarshala Vs ADIT, which had ignored the binding precedent of the Calcutta High Court. The Tribunal held that the right approach is to follow the higher wisdom of superior courts rather than attempting to reinterpret established legal principles.

Conclusion:
Respecting the Calcutta High Court's decision, the Tribunal upheld the plea of the assessee that deemed income should be included for computing the benefit of accumulation under section 11. Consequently, the addition of Rs 1,63,82,140 was deleted, and the appeal was allowed.

Final Order:
The appeal was allowed, and the decision was pronounced in the open court on the 8th day of June, 2018.

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