2023 (2) TMI 684 - AT - Income Tax

Exemption u/s 11(2) - treatment of unutilized amount of income earned from charitable activities in preceding year which was accumulated and set apart for utilization for charitable purposes - HELD THAT - The treatment of such unutilized amount of accumulated income is governed by section 11(3) which requires such unutilized amount to be treated as deemed income of the assessee in the year when the period of five years so granted for utilization expires or in the succeeding year. Assessee fairly concedes to the position of law in this regard. His only contention is that since the assessee has already considered this amount by reducing the quantum of application of income for charitable purposes of the assessee during the year, the computation be reworked in accordance with law taking note of this fact. Computation of income for the year reflecting this fact was also produced before us. We direct the AO to recompute the income of the assessee in accordance with law, taking note of and after verifying the fact claimed by the assessee of having considered this unutilized amount of charitable income while computing its income for the year.

Summary

Issues:
Adjustment of unutilized income for charitable purposes under section 11(2) of the Income Tax Act, 1961.

Analysis:
The appeal was filed against the order by the Commissioner of Income Tax (Appeals) regarding the adjustment made to the returned income by adding an amount of Rs.6,30,000 under section 143(1) of the Act, invoking provisions of Section 11(2). The issue raised by the assessee was that the Revenue authorities erred in making this adjustment. The assessee had set apart Rs.6,30,000 for charitable purposes in A.Y 2007-08 but failed to utilize it, leading to its addition back to the income for the relevant year. The contention was that this addition amounted to double counting since the unutilized income had already been considered in the computation of income. The Department argued that the unutilized amount should have been added to the income, as per law. The assessee conceded that the unutilized amount should be treated as deemed income, as per section 11(3) of the Act.

The treatment of unutilized accumulated income for charitable purposes is governed by section 11(3) of the Act. The unutilized amount of Rs.6,30,000 was required to be treated as deemed income of the assessee when the five-year period for utilization expired. The relevant provisions of section 11(3) were cited to support this treatment. The assessee acknowledged this legal position but requested a reworking of the computation to reflect the consideration of the unutilized amount. Consequently, the Tribunal directed the Assessing Officer to recompute the income in accordance with law, considering the fact that the unutilized amount had already been factored into the computation.

In conclusion, the appeal was disposed of with the direction to recompute the income in line with the legal provisions, taking into account the unutilized amount of charitable income considered during the computation.