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2019 (8) TMI 724

..... 11(2) - HELD THAT:- 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 [2001 (4) TMI 928 - ITAT MUMBAI] and has taken the view that the benefit of accumulation shall not be available to income assessed u/s 11(3). Tribunal has expressed the view as an alternative view. In the first instance, it has held that the benefit of accumulation shall be available only to the “income derived from the property” and not to “deemed income”. Since the income assessed u/s 11(3) cannot be considered to be an income derived from the property, the above said argument of the assessee shall fail. In any case if the argument of the assessee is accepted as correct for a moment then the provisions of sec. 11(3)(c) would be renders otiose, since the assessee would be filing application for accumulation u/s 11(2) after every expiry of the period of accumulation without applying it for stated objectives. This would result in non-taxing of income perpetually and it would defy the intention of the legislature in introducing sec. 11(3). Assessee shall not be eligible to accumulate the income a .....

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..... orm 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(3) of the Act during the year relevant to the asst. year 2008- 09. Accordingly he re-opened the assessment of AY 2008-09 by issuing notice us/ 148 of the Act. 5. Before the AO, the assessee filed another Form No.10 on 04/12/2010 requesting for extension of time for application of unutilized amount by changing the object of accumulation in terms of sec. 11(3A) of the Act. In this connection, the assessee submitted that it had filed Form No.10 on 29-09-2008 proposing to accumulate a sum of ₹ 10.00 crores from 1.4.2007 to 31.3.2012 for construction of Baldota Kala Academy . Accordingly, it was prayed that the unutilized accumulated funds may be considered as accumulated as per the above said Form No.10 u/s 11(2) of the Act and accordingly, not to be assessed as income of the assessee for asst. year 2008-09. However, the AO did not accept the request of the assessee for the reason that the assessee has made this application u/s 11(3A) of the Act only during the course of re-assessment proceedings, that too, after de .....

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..... r 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 the same should have been considered by the AO as per the decision rendered by Hon ble Supreme Court in the case of Nagpur Hotel Owners Association (2001)(114 Taxman 225/ 247 ITR 201). Accordingly, the Ld A.R submitted that the AO was not justified in assessing the unutilized amount of accumulated funds in asst. year 2008-09. In the alternative, the ld ARsubmitted that the income so assessed forms part of current year s income and hence the AO should have allowed deduction u/s 11(2) of the Act by admitting fresh Form No.10 filed by the assessee before him seeking accumulation of ₹ 10 crores with the objective of construction of Baldota Kala Academy. The ld AR placed her reliance on the decision rendered by Hon ble Kolkatta High Court in the case of CIT Vs. Natwarlal Chowdhury Charity Trust (1990) 52 Taxmann330,wherein the deduction of 25% u/s 11(1)(a) was allowed against the income assessed u/s 11(3)(b) of the Act for failure of the assessee to invest or deposit t .....

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..... e, 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 accumulated income, assessed as income of the assessee, should be given the benefit of accumulation u/s 11(2) of the Act. 11. We have heard the rival contentions and perused the record. The Income-tax Act provides exemption to income derived from property held for charitable or religious purposes as per the provisions of sec. 11 to 13 of the Act. As per sec. 11(1) of the Act exemption is given to the extent the income is applied for charitable or religious purposes and further deduction is given for the income accumulated up to 15% of the income, meaning thereby, the charitable or religious trust is required to apply 85% of its income for the purposes mentioned in its objects. However, if the assessee is not able to apply 85% of the income for charitable or religious purposes, then another option is given under the provisions of sec. 11(2), whereby the assessee can apply to the assessing officer in prescribed form for accumulating income subject to the conditions prescribed in sec.1 .....

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..... aning 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: "Sec. 11(1): Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income (a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of twenty-five per cent of the income from such property." Sec. 11(1)(d) speaks of income in the form of voluntary contributions. Explanation (1) to section 11 reads as under: "For the purposes of clause (a) and (b) (1) in computing the twenty-five per cent of the income which may be accumulated or set apart, any such voluntary contributions as are referred to in section 12 shall be deemed to be part of the income." Section 12 in turn says th .....

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..... ome 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 portion of income derived from property and not other incomes. However, 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 twenty-five per cent of the income which may be accumulated, voluntary contributions should be taken into account as they are deemed to be part of the income. Thus, it can be seen that wherever the legislature intended to include deemed income as part of the income 'derived from property' it was spelt out clearly. However, section 11(3) of the Act uses the expression 'income of such person' in contradistinction to the words 'income derived from property' used in other sub-sections of section 11. Thus, it cannot be said that deemed income under section 11(3) of the Act should be taken as part the income derived from property for the purposes of allowing the benefit of accumulation. 9. The matter may als .....

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..... IT 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 High Court observed that in the context of section 11(1)(a) of the Act "income' means the income which is available in the hands of the assessee because accumulation of 25 per cent is possible only from the income available with the assessee and not the deemed income. It could thus be seen that deemed income under section 11(3) of the Act is different from the income contemplated under section 1 l(1)(a) and 11(2) of the Act and, therefore, the assessee is not entitled to claim the benefit of accumulation out of such deemed income. 11. In the case of CIT v. Natwarlal Chowdhury ( cited supra), the Hon'ble High Court, with due respect, has not analysed this section in the correct perspective. In our humble opinion the different expressions i.e., 'income derived from property' and 'income', used by the legislation under sections 11 and 12 of the Act missed the attention of their Lordships or the impact of the difference in the expressions were not brought to their Lo .....

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..... ed 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 decision rendered by Hon ble Calcutta High Court and has taken the view that the same cannot be followed for the reasons discussed in the order, particularly in view of the fact that the difference between the expressions income derived from property held under the trust and income were not brought to the notice of Lordships. Since the Mumbai bench of Tribunal has rendered its decision by critically analyzing the provisions of sec. 11(1) to 11(3) of the Act and has passed a reasoned order, we are inclined to follow the same. Accordingly we are of the view that the decision taken by the Mumbai Bench in the above said case can be applied to the case on hand. 17. The ld AR submitted that the Mumbai bench has considered the possibility of non-availability of funds, if the accumulated income is used for other purposes. Even, in the absence of availability of funds, the funds so diverted shall be assessed as deemed income of the assessee. Accordingly it held that the benefit of accumulation of income shall not be .....

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