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TMI Blog2023 (2) TMI 963X X X X Extracts X X X X X X X X Extracts X X X X ..... gnored for the purpose of computing income in accordance with Sec. 11(l)(a) or Sec. 11(2) of the Act. That the appellant craves for leave to add, amend and/or modify the ground of appeal." Assessment year 2016-17 "1. That the Learned CIT(A)-3 Rajkot has grievously erred in contending that the deemed income arising u/s 11(3) of the Act is to be ignored for the purpose of computing income in accordance with Sec. 11(l)(a) or Sec. 11(2) of the Act. 2. That the appellant craves for leave to add, amend and/or modify the ground of appeal." 4. The brief facts of the case are that the assessee is a public charitable trust and for the year under consideration, assessee filed its original return of income declaring "Nil" taxable income. During the course of assessment, the AO assessed the returned income of "Nil" declared by the assessee at Rs. 5,05,737/- containing the deemed income u/s 11(3) of the Act amounting to Rs. 39,04,142/- on the ground that the same cannot be subject to provisions of section 11(1)(a) of the Act. The basic contention of the AO was that the assessee has already claimed deduction of the said deemed income in the assessment year in which such amount was compute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e basic contention of the assessee before us is that if the public charitable trust is unable to spend the accumulated income at the end of the fifth year, then in accordance with section 11(3) of the Act, such amount shall be deemed to be income of the previous year in which it ceases to be so accumulated. Therefore, the counsel for the assessee submitted that once subsection (3) of section 11 stands attracted, such unapplied accumulated amount becomes "deemed income" of the year in which it ceases to be so accumulated. Therefore, since nothing more is provided under the Act and therefore once the unapplied accumulated amount becomes deemed income of the year in which it ceases to be so accumulated, then all the provisions of the Act would be applicable to such income i.e. it would be eligible for exemption under sections 11(1)(a) and 11(2) of the Act, especially when there is no embargo under the Act. Accordingly, such income would be eligible to claim of deduction under section 11(1)(a) and 11(2) of the Act. The counsel for the assessee in support of his contention relied on the decision of Gujarat State Lion Consideration Society v. DCIT in ITA number 69/Rjt/ 2017 and also on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... table or religious, or the amounts cease to be accumulated or set apart, the entire accumulation covered by section 11(2) will be subjected to tax under section 11(3). 3. Thus, while under section 11(1)(a), the tax will be levied in the year to which the income relates, under section 11(3) the income would be chargeable in the year in which the amounts cease to be accumulated for the specific purpose mentioned. Thus, when the amounts are taxed under section 11(3), the benefit which would have been available to a trust in respect of 25 per cent of its income or Rs. 10,000 under section 11(1)(a ) would also be lost. 8.2 Therefore, in view of the express language of the Circular referred to above, the intention of the Act is quite clear that when the unapplied amount is deemed to be the income of the assessee under section 11(3) of the Act, then the benefit of section 11(1)(a) of the Act would be lost. We observe that the above rulings on which reliance has been placed by the counsel for the assessee did not consider the above Circular i.e. the above Circular was not brought to the notice of the Court/ITAT for their consideration. Accordingly, we are unable to place reliance on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this amount has been set apart under sub-section (a) to section 11(2) and for the balance Rs. 50,000/-, the assessee may make investment thereof sub-section (b) to section 11(2) of the Act. Therefore, the entire amount of Rs. 1 lakhs would not be subject to tax, which was "deemed income" of the assessee u/s 11(3) of the Act. The assessee can then repeat the whole process again in respect of the income which remains unapplied at the end of fifth year and becomes "deemed income" of the assessee u/s 11(3) of the Act. Clearly, in our considered view, such a practise cannot be accepted and any reading of the provisions of law, which may perpetuate such a practise cannot be accepted by us as well. 8.5 Thirdly, the Mumbai ITAT in the case of The Trustees, The B.N. Gamadia Parsi Hunnarshala [2002] 77 TTJ 274 (Mum.) held that exemption under section 11 is available only on 'income' within meaning of section and not on 'deemed income' and, therefore, an assessee cannot claim benefit or accumulation with respect to 'deemed income". The ITAT in the above case distinguished the decision of Natwarlal supra with the following observations: 11. In the case of CIT v. Natwarlal Chowdhury (cited s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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