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2018 (4) TMI 711

ome of the said charitable trust cannot be denied on the ground that the deemed income under sec. 198, i.e tax deducted at source under Sec. 194A of ₹ 13,28,823/- had not been actually spent for the purpose of charity during the year. - A.R had averred that the tax deducted at source for the year under consideration, viz. A.Y 2012-13, which was received by the assessee as a refund on 20.03.2014, i.e in the period relevant to A.Y 2014-15, was shown by the assessee as its income in the said year of receipt, viz. A.Y 2014-15 while working out its entitlement of exemption under Sec. 11 for the said year. We thus set aside the matter to the file of the A.O for the limited purpose of verifying the veracity of the aforesaid claim so raised before us by the ld. A.R. That in case the claim of the ld. A.R that the tax deducted at source of ₹ 13,28,823/- was shown by the assessee as its income in A.Y 2014-15 is found to be in order, then the said amount shall not be treated as the income of the assessee under Sec. 11 for the year under consideration i.e A.Y 2012-13. - ITA No. 6571/MUM/2017 - Dated:- 11-4-2018 - Shri G. S. Pannu, AM And Shri Ravish Sood, JM Assessee by : Shri .....

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280 (Cal) (ii) CIT vs. Janaki Ammal Ayya Nadar Trust (1985) 153 ITR 159) (Mad), and; (iii) CWT vs. Nizam s Supplemental Religious Endowment Trust (1973) 89 ITR 80 (AP) 3. However, the aforesaid contentions of the assessee did not find favour with the Assessing Officer. The Assessing officer was of the view that as the tax deducted at source of ₹ 13,28,823/- was the deemed income of the assessee which was not received by it during the year under consideration, therefore, it was as per the mandate of Explanation 2(i)(a) of Sec. 11(1) vested with an option (to be exercised in writing before the expiry of the time allowed in sub-section (1) of section 139 for furnishing the return of income), to apply such income for its charitable purposes during the previous year in which the same was received or during the previous year immediately following, to the extent the same did not exceed the said amount. It was observed by the Assessing Officer that as the assessee had failed to exercise the aforesaid option, therefore, the claim of the assessee seeking treatment of the amount of TDS of ₹ 13,28,823/- as an application of income under section 11(1)(a) of the Act, was not to be a .....

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rposes of charity by the assessee. The Hon ble High Court while arriving at the aforesaid view had observed as under: 6. In order to qualify for exemption under s. 11(1)(a), it has to be established that the property is held under trust wholly for charitable or religious purpose and the income of the property is being actually applied for such purposes in India. The relief is limited to the extent to which the income is applied for the purpose of the trust in India. If the entire income is not actually applied for the purpose of the trust in the relevant accounting period but is accumulated for application to such purposes, the exemption is limited to the extent to which the accumulated income is not in excess of 25 per cent of the income of the property held under trust or ₹ 10,000, whichever is higher. 7. In the case before us, the assessee has spent in the relevant accounting period, the entire amount of dividend that it had actually received for charitable purposes. There is no dispute about this. A sum of ₹ 76,974 had been deducted from the dividend income on account of income-tax. Any amount that has been deducted from the dividend income is deemed to be income re .....

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the assessee for application or accumulation. Sec. 11 cannot be interpreted to mean that the amount which has been deducted at source by way of incometax shall be included in the "total income" of the trust and brought under taxation. It is true that s. 198 provides that the sums deducted by way of income-tax shall be deemed to be income received. But, the deeming provisions of s. 198 should not be construed in a way to frustrate the object of s. 11. The entire income that has been actually received by the assessee has been applied for charitable purpose. The immunity from taxation that has been granted by s. 11 cannot be denied to the assessee on the ground that the notional income remains unspent or unaccumulated for the purpose of charity. The "accumulation" or "application" in s. 11(1)(a) must be of real income. In my judgment, the immunity from taxation that has been granted to the income of a charitable trust cannot be denied on the ground that the deemed income under s. 198 has not been actually spent for the purpose of charity. 9. The Madras High Court, in the case of CIT vs. Rao Bahadur Calavala Cunnan Chetty Charities (1982) 135 ITR 485 (Mad .....

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poses of the trust or otherwise. It should be noted, in this connection, that the amounts so added back will become chargeable to tax under s. 11(3) to the extent that they represent outgoings for purposes other than those of the trust. The amounts spent or applied for the purposes of the trust from out of the income computed in the aforesaid manner, should be not less than 75 per cent of the latter, if the trust is to get the full benefit of the exemption under s. 11(1). 5. To sum up, the business income of the trust as disclosed by the accounts plus its other income computed as above, will be the income ' of the trust for purposes of s. 11(1). Further, the trust must spend at least 75 per cent of this income and not accumulate more than 25 per cent thereof. The excess accumulation, if any, will become taxable under s. 11(1)." This circular makes it clear that the word "income" in s. 11(1)(a) must be understood in a commercial sense. The entire income of the trust, in the commercial sense, has been spent for the purpose of charity. There is no reason to deny the benefit of exemption granted by s. 11 to that portion of the income which has been taken away by dedu .....

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the assessee as its income in the said year of receipt, viz. A.Y 2014-15 while working out its entitlement of exemption under Sec. 11 for the said year. We thus set aside the matter to the file of the A.O for the limited purpose of verifying the veracity of the aforesaid claim so raised before us by the ld. A.R. That in case the claim of the ld. A.R that the tax deducted at source of ₹ 13,28,823/- was shown by the assessee as its income in A.Y 2014-15 is found to be in order, then the said amount shall not be treated as the income of the assessee under Sec. 11 for the year under consideration i.e A.Y 2012-13. 8. Before parting, we may herein observe that as the amount of TDS of ₹ 13,28,823/- in terms of our aforesaid observations is not to be held as the income of the assessee for the year under consideration, therefore, the observations of the lower authorities in context of whether the same is to be construed as an application of income, or not, is rendered infructuous, and thus are not being adverted to. 9. In the result, appeal of the assessee is allowed for statistical purposes in terms of our aforesaid observations. Order Pronounced in open Court on this 11th day .....

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