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TMI Blog2019 (8) TMI 724X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee is a trust and it filed its return of income for the year under consideration declaring NIL income. The saidreturn of income was processed u/s 143(1) of the Act. Subsequently the AO noticed that the assessee has claimed deduction u/s 11(2) of the Act in the assessment year 2003-04 for accumulation ofincome generated during the period from 1/4/2002 to 31/3/2007 to the extent of Rs. 100.00 lakhs, i.e., as per the resolution passed on 1/4/2002 the assessee had proposed to accumulate a sum of Rs. 1 crore duringthe period from 1/4/2002 to 31/3/2007 for the purpose of construction and maintenance of community and cultural hall. Accordingly, it appears that the assessee has accumulated funds and claimed deduction u/s 11(2) of the Act over the period from 1.4.2002 to 31.3.2007. The AO noticed that the assessee has accumulated a sum of Rs. 91.65 lakhs during the above said period. The AO noticed that theassessee has not utilized the accumulated income for the purpose for which it was accumulated as mentioned in Form No.10 before the expiry of 31/3/2007 or before 31.3.2008. The AO further noticed that the unutilized amount is liable to be taxed as income of the assessee u/s 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed u/s 11(2) of the Act against the addition of Rs. 91.65 lakhs made by the AO u/s 11(3) of the Act. The AO took the view that the entire income of Rs. 91.65 lakhs should be assessed u/s 11(3) of the Act. Hence the AO passed a rectification order u/s 154 of the Act without giving deduction u/s 11(2) of the Act against the income assessed u/s 11(3) of the Act. 7. The assessee filed appeals challenging the orders passed u/s 143(3)r.w.s. 147 of the Act as well as u/s 154 of the Act. The ld CIT(A) however aggreed with the view taken by the AO and accordingly dismissed both the appeals. Aggrieved by the orders so passed by Ld CIT(A), the assessee has filed these appeals before us. 8. The ld AR submitted that the provisions of sec. 11(2) allow accumulation of income for 5 years. However, in the instant case, the assessee had sought for accumulation for 4 years only. Accordingly, the Ld A.R submitted that the assessee should have been given extension of at least one year to utilize the accumulated income towards the objects mentioned in Form No.10 of the Act.She submitted that the above said form was available before the AO before the completion of assessment proceedings and hence t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11(2) for failure to comply with three typesconditions. U/s 11(3)((a) of the Act,if the accumulated income is applied for purposes other than charitable orreligious purposesorceases to be accumulated are set apart from application thereto, thenthe same is assessable as income of the assessee u/s 11(3) of the Act. The ld AR submitted that, in this kind of situation, the accumulated income will not be in the possession ofassessee, as the same would have already been used for other purposes. Hence the income assessed u/s 11(3)(a) will not be available for further accumulation and yet the same is assessed as income of the assessee, meaning thereby, the deemed income concept would apply to this category of income assessed u/s 11(3) of the Act. On the contrary, in the instant case, the income of the assessee is assessed u/s 11(3)(c) of the Act for failure of the assessee to utilize the amount for the purposes for which it was accumulated before the period mentioned in FromNo.10. Hence, the assessee is still in possession of accumulated income. Accordingly the Ld A.R contended that the income so assessed will not, in strict sense, fall under the category of "deemed income". Hence the accu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the option of accumulation granted u/s 11(2) of the Act every year. Accordingly the assessee has put a plea before the AO that the income so assessed u/s 11(3)(c) of the Act should also be allowed to be accumulated u/s 11(2) of the Act. 14. We noticed that the Mumbai Bench of the Tribunal has considered an identical issue in the case of The Trustees, the B.N. Gamadia Parsi Hunnarshala (Supra) and has taken the view that the benefit of accumulation shall not be available to income assessed u/s 11(3) of the Act. For the sake of convenience we extract below the relevant discussions made by the Mumbai Bench in the above said case. "7. We have carefully considered the rival submissions and perused the record. We are unable to persuade ourselves to agree with the view taken by the Hon'ble Calcutta High Court (cited supra). A careful perusal of the language employed in section 11 of the Act makes it crystal clear that exemption is available only on the 'income (within the meaning of section 11 and not on the 'deemed income'). Consequently, the assessee cannot accumulate deemed income either under section 11(1)(a) or 11(2) of the Act. Section. 11(l)(a) reads as under: " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us year immediately following the expiry of the period aforesaid.' [underline, italicised in print, is ours] 8. It may be noted that wherever the legislature intended to confer any benefit to the assessee under section 11 of the Act, the benefit was restricted to the 'income derived from property' as could be seen from section 11(1)(a), (b) and (c ) of the Act. Section 11(l)(d) uses the expression 'income' in the form of voluntary contributions. However, specific exemption was granted if such income is received with a specific direction that they shall form part of the corpus of the trust. In other words, voluntary contributions for the purposes of incurring day-to-day expenditure of the trust would not fall under sub-clause (d). Section 12 of the Act governs such voluntary contributions wherein it was stated that such contributions would be deemed to be income derived from property held under trust. Thus, income from voluntary contributions are deemed as income specified under section 11 (1)(a), (b) and (c) of the Act. The intention of the legislature, as could be seen from a reading of section 11 of the Act, is to allow a charitable trust to accumulate a por ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ysed the meaning of the word 'income' used in section 11 of the Act. The Hon'ble Calcutta High Court observed that the 'income' contemplated by the provisions of section 11 is the real income and not income as assessed or assessable. They have also followed the earlier decision of the same High Court in the case of CIT v. Jayshree Charity Trust [1986] 159 ITR 280 (Cal.) wherein the Hon'ble Court observed that what is deemed to be income can neither be spent nor accumulated for charitable purposes and the word 'application' or accumulation' can only be of real income which has actually been received by assessee. Their Lordships further observed that the deeming provisions should not be construed in a way to frustrate the object of section 11, the objects of section 11 being application of income received by it for charitable purposes. 10. The Hon'ble Calcutta High Court has also referred to the decision of Hon'ble Madras High Court in the case of CIT v. Rao Bahadur Calavala Cunnan Chelly Charities [1982] 135 TTR 485 (Mad.) and agreed with the view expressed by the Hon'ble Madras High Court: It may be noted that the Hon'ble Madras ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intended to be applied for charitable purposes and not otherwise. 13. The circular issued by the CBDT (supra) is in consonance with the intention of the legislature and also the plain meaning that can be ascribed to section 11 of the Act. Under these circumstances, we do not find any infirmity in the orders of tax authorities. We, therefore, dismiss the appeal filed by the assessee." 15. We notice that the Mumbai Bench of ITAT has drawn a distinction between the expression 'income derived from property' and 'income of such person' as used in sec. 11(1) and 11(3) of the Act respectively. It has also brought out that the provisions of sec.11(2) allows accumulation of income derived from property only. Admittedly the income assessed during the year under consideration does not falls under the category of 'income derived from property'. Under the deeming provisions of sec. 11(3) of the Act, it falls under the category of "income of such person". 16. The Ld A.R placed her reliance on the decision rendered by Hon'ble Calcutta High Court in the case of Natwarlal Chouwdhury Charitable Trust (supra). It can be noticed that the Mumbai bench of Tribunal has considered the above said deci ..... X X X X Extracts X X X X X X X X Extracts X X X X
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