TaxTMI 
TaxTMI 
2023 (6) TMI 114
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....389082. 3. The Learned CIT-(A), NFAC erred in law and/or facts in not considering income chargeable u/s 11(3) as income derived from property held under the trust and brought to tax without any relief which is otherwise available to primary income of the trust. 4. The Learned CIT-(A), NFAC erred in law and/or facts in not considering Ground 2 of appeal and disposing appeal considering Ground 1 as sole ground of appeal. Ground 2 read as under: Assessing Officer has considered the income of A.M. College of Science and Technology Anand in total income of the trust even though credit for TDS 673816 not allowed by Assessing Officer which is unlawful and against the law, allow credit for TDS Rs.673816. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal." Assessment Year 2017-18 "1. The Learned CIT-(A), NFAC erred in law and/or on facts in confirming the action of the AO. 2. The Learned CIT-(A), NFAC erred in law and/or on facts in confirming restriction of claim u/s 11 to Rs. 26901936. 3. The Learned CI....
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....ficit of Rs.56,10,918/- and set off this deficit against income u/s. 11(3) of the Act of Rs.2,00,00,000/-. Assessee has used Rs.56,10,918/- for accumulation u/s. 11 (2) of the Act out of income u/s. 11 (3) of the Act of Rs.2,00,00,000/-. The income shown by the assessee u/s. 11 (3) of the Act is that income which was set a part in an earlier year for specific purpose of use only. If this amount is not utilized by the assessee for the specific purpose, assessee cannot take advantage for further accumulation. Out of this income u/s.11(3) of the Act assessee cannot claim further exemption either u/s. 11(1 )(a) or u/s.11(2) of the Act. Here in this case, out of the income u/s. 11(3) of the Act of Rs.2,00,00,000/-, assessee has further made accumulation of Rs. 56,10,918/- which is not allowable. 5.5 Here in this case, assessee has created a notional deficit of Rs. 56,10,918/- and set off the same against income u/s. 11 (3) of the Act which is not is nothing but an attempt to reduce the tax liability on surplus income of the year under consideration. On plain reading of the provisions of Section 11 (2) of the IT Act, it can be seen that the provisions of this section is....
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....ulation u/s. 11(2) could not have exceeded this sum as evident from the plain language of the Act." 5. The assessee in appeal before us against the order passed by Ld. CIT(Appeals). The issue for consideration before us whether "deemed income" under Section 11(3) of the Act is eligible for exemption under Section 11(1)(a) and Section 11(2) of the Act. Before us, the Counsel for the assessee submitted that on a bare perusal of the Act, apparently there is no such prohibition that "deemed income" under Section 11(3) of the Act shall not be eligible for claim of exemption under Section 11(1)(a) and Section 11(2) of the Act. For this proposition, Counsel for the assessee relied upon several judicial precedents including the decision of Natwarlal Chowdhury Charity rendered by Calcutta High Court (189 ITR 656) on this issue. Further, the Counsel for the assessee submitted that wherever the Statute intended that such exemption should not be allowed to the assessee, a specific provision restricting the allowability of exemption has been specifically introduced in the said Statutory provision. In support of his argument, the Counsel for the assessee drew our attention to the provision of....
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....ncome under the provisions of sections 11(1) and 11(2). 2. The legal position is clarified as under : - Under section 11(1)( a), a trust claiming exemption is allowed to accumulate 25 per cent of its income or Rs. 10,000, whichever is higher. Thus, if a trust accumulates a larger income than the limits prescribed for exemption, what would be chargeable to tax is the excess over the exempted limit, and not the entire accumulation including the exempted portion. - Section 11(2), however, provides that if the conditions laid down in the sub-section are satisfied, restrictions as regards accumulation or setting apart of income shall not apply for the period during which the conditions prescribed therein remain satisfied. To avoid taxation under section 11(1)(a), investment in Government securities as prescribed in section 11(2), has to be made, not only in respect of excess amount which is chargeable under section 11(1)(a) but of the entire unspent balance including the exempted portion. - Subsequently, if it is found that the provisions of section 11(2) have been violated and the income has been applied to purposes other than charitable or religious....
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....tion under section 11(1)(a) and 11(2) are allowed in respect of the "deemed income" under section 11(3), then it will result in unintended benefits to the assessee. This can be better understood through the following example. If for instance, during the year under consideration, no fresh income has been received by a Charitable Trust and the entire income consists of "deemed income" u/s 11(3) of the Act, which remained unapplied at the end of the fifth year. For simplicity, let us take this income to be Rs. 1 lakh. Then, if we were to accept that such "deemed income" is eligible for deduction u/s 11(1)(a) and 11(2) of the Act in absence of any express embargo to the same under the Act, then the assessee can claim 15% deduction in respect of such "deemed income" under section 11(1)(a)(i.e. Rs. 15,000/- is exempt u/s 11(1)(a)) and for the remaining Rs. 85,000/- the assessee may either furnish a statement to AO stating the purpose for which it is being set apart under sub-section (a) to section 11(2) or may invest a part thereof under sub-section (b) to section 11(2) of the Act. Therefore, in the above example, the assessee may furnish a statement to AO in respect of a sum of Rs. 30,0....
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....). The form does not allow the assessee to claim exemption under section 11(1)(a)and 11(2) in respect of deemed income under section 11(3). 8.7 In view of the above observations, we are of the considered view that the assessee Trust is not eligible to claim exemption under section 11(1)(a) and Section 11(2) of the Act in respect of "deemed income" under section 11(3) of the Act. 9. In the result, the appeal of the assessee is dismissed for assessment year 2016-17. Since common facts and issues for consideration are involved for both the years under consideration i.e. assessment year 2015-16 and assessment year 2016-17, the appeal of the assessee is dismissed for assessment year 2016-17 as well, in light of the above observations." Respectfully following the aforesaid decision by Rajkot Bench, we are of the considered view that Ld. 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) of the Act. 8. In addition to the above, it is also necessary to deal with the contention of the Counsel for the assessee that there is no restriction unde....
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....htful purpose. Thus, even on the limited count the assessee cannot claim the benefit of accumulation because the accumulation is allowed only if the intention of the assessee is to apply the same for the specific purpose. Thus, assessee could not claim the benefit of accumulation with respect to the deemed income." 9. Therefore, in this case the ITAT Mumbai has made a specific observation that wherever the intent of the Statute was to give exemption under Section 11(1)(a) and Section 11(2) of the Act to any income, the same was specifically included in the Statute. The ITAT Mumbai pointed out that the intention of the legislature as could be seen from the plain language of Section 11 was to allow a charitable trust to accumulate a portion of income "derived from property" and not "other sources". By virtue of Section 12, voluntary contributions are deemed to be "income from property" and therefore, Explanation (1) was added to Section 11(1) of the Act which specified that in computing 25% of the income which may be accumulated, voluntary contributions should be taken into account as they are deemed to be part of the income. Therefore, wherever legislature intended to include "de....