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TMI Blog2023 (6) TMI 114X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 CIT-(A), NFAC erred in law and/or facts in not considering income chargeable u/s 11(3) as income derived from property held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- 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 applicable to those cases where 85% of the income earned/received during the year is not utilized and accordingly assessee has to accumulate u/s. 11 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Section 115 BBI of the Act wherein the Act itself has included within the definition of specified income, "deemed income" under Section 11(3) of the Act. Accordingly, the Counsel for the assessee submitted that in view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, 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, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ritable 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. 30,000/- giving the purpose why 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 under the provisions of Section 11(1)(a) and Section 11(2) of the Act, restricting the claim of exemption in respect of "deemed income" under Section 11(3) of the Act. In this case, it would be useful to place reliance on the observations of the Mumbai ITAT decision of in the case of Trustees, The B. N. Gamadia Parsi Hunnarshala (2002) 77 TTJ 274. The relevant ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cific 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 "deemed income" as part of "derived from property", the legislature inserted the same in the Act in clear and express words. Further, the Mumbai ITAT also observed that the exemption under Section 11(1) uses the expression "income derived from property" whereas Section 11(3) uses the term "income of such person". Therefore, it cannot be inferred that "deemed income" under Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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