2023 (6) TMI 114 - AT - Income Tax

Tribunal upholds decision on tax exemption exclusion.

The Tribunal upheld the Assessing Officer's decision to restrict the assessee's claim under Section 11(2) and confirmed that 'deemed income' under Section ... Exemption u/s 11(1)(a) and Section 11(2) for Deemed income u/s 11(3) - as per assessee apparently there is no such prohibition that “deemed income” u/s 11(3) shall not be eligible for claim of exemption - HELD THAT:- We observe that in the case of Prabhas Patan Jain vs. Income Tax Officer,[2023 (2) TMI 963 - ITAT RAJKOT] has held that exemption under section 11 is not available on “deemed income” and, therefore, assessee was not eligible to claim exemption under section 11(1)(a) and section 11(2) in respect of “deemed income” under section 11(3) of the Act. CIT(Appeals) has not erred in facts in law in holding that “deemed income” under Section 11(3) of the Act is not eligible for claim of exemption under Section 11(1)(a) and 11(2). Assessee would be allowed to accumulate the income if there is “real income” which is in possession of the assessee - something which is not in possession of the assessee cannot be accumulated or utilized at a later date. In the case of “deemed income” u/s 11(3) where the amount is already spent by assessee for purposes other than charitable purposes, it cannot be said that the assessee accumulated such income with an intention to apply it for rightful purpose. Therefore “deemed income” u/s 11(3) of the Act is not eligible for claim of exemption under Section 11(1)(a) and Section 11(2) of the Act. Decided against assessee. Issues Involved:1. Confirmation of the Assessing Officer's action by the CIT(A), NFAC.2. Restriction of claim of accumulation under Section 11(2).3. Consideration of income chargeable under Section 11(3) as income derived from property held under trust.4. Non-consideration of Ground 2 of appeal by CIT(A), NFAC.Issue 1: Confirmation of the Assessing Officer's ActionThe CIT(A), NFAC, confirmed the action of the Assessing Officer, which was challenged by the assessee. The Assessing Officer restricted the claim of the assessee under Section 11(2) to Rs. 73,89,082/-, citing that the assessee had claimed exemption on 'deemed income' under Section 11(3), which was not allowable. The CIT(A) upheld this restriction.Issue 2: Restriction of Claim of Accumulation under Section 11(2)The assessee argued that there was no prohibition under the Act against claiming exemption on 'deemed income' under Section 11(3). However, the Rajkot ITAT in Prabhas Patan Jain vs. Income Tax Officer held that exemption under Section 11 is not available on 'deemed income.' The Tribunal observed that allowing such exemption would result in unintended benefits and double deductions, which was not the legislative intent.Issue 3: Consideration of Income Chargeable under Section 11(3)The Tribunal noted that 'deemed income' under Section 11(3) should not be considered as income derived from property held under trust for the purpose of exemption under Section 11(1)(a) and 11(2). The Tribunal relied on the Mumbai ITAT decision in Trustees, The B.N. Gamadia Parsi Hunnarshala, which distinguished between 'income derived from property' and 'deemed income.'Issue 4: Non-consideration of Ground 2 of Appeal by CIT(A), NFACThe assessee contended that the CIT(A), NFAC, did not consider Ground 2 of the appeal, which related to the inclusion of income from A.M. College of Science and Technology and the non-allowance of TDS credit. The Tribunal did not specifically address this issue in the judgment.Conclusion:The Tribunal dismissed the appeals for both assessment years 2016-17 and 2017-18, holding that 'deemed income' under Section 11(3) is not eligible for exemption under Section 11(1)(a) and 11(2). The Assessing Officer was directed to re-compute the exemption available to the assessee by excluding 'deemed income' under Section 11(3).