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2019 (8) TMI 724

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..... iling 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 assessed as deemed income u/s 11(3). Accordingly, we are of the view that the Ld CIT(A) was justified in confirming the action of the AO in assessing entire amount of ₹ 91.65 lakhs as income of the assessee without granting any benefit of accumulation. Accordingly we confirm the order passed by ld CIT(A) in both the appeals. - Decided against assessee. - ITA Nos.947 And 948/Bang/2017 - Dated:- 26-7-2019 - Shri B.R Baskaran, Accountant Member And Smt. Beena Pillai, Judicial Member For the Appellant : Smt. Tanmayee Rajkumar, Advocate For the Respondent : Shri R.N Siddappaji, Addl. CIT (DR) ORDER PERB.R BASKARAN,ACCOUNTANT MEMBER Both the appeals filed by the assessee are directed against the order passed by the Ld CIT(A),Gulbharga and both relate to asst. year 2008-09. 2. The appeal numbered as ITA No.947/Bang/2017 relates to asst. order passed u/s 143(3) of .....

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..... 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 detection by the department about violation of provisions of sec.11(2) of the Act by not applying funds.Accordingly, the AO added the unutilized amount of ₹ 91.65 lakhs to the total income of the assessee. 6. It is pertinent to note that the assessee appears to have filed anapplicationin Form No.10 for asst. year 2008-09proposing to accumulatea sumof ₹ 180.00 lakhs in terms of sec.11(2) of the Act. However, the income of the assessee for the period relating to asst. year 2008-09 was 148.60 lakhs and hence deduction u/s 11(2) appears to have been restricted to the extent of ₹ 148.60 lakhs. We noticed that,in the reassessment proceedings, the AO added the impugnedamount of ₹ 91.65 lakhs to the above said income of the assessee originally assessed and hence the income before deduction u/s 11(2) of the Act for assessment year 2008-09 ca .....

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..... 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 the accumulated amount in accordance with sec. 11(5) of the Act. The ld AR submitted that, by applying the analogy of Hon ble Calcutta High Court,the assessee should have been allowed deduction u/s 11(2) of the Act. 9. On the contrary, the ld DR placed his reliance on the decision rendered by Mumbai Benchof ITAT inthe case of The Trustees, the B.N.Gamadia Parsi Hunnarshalal (2002) 77 TTJ 274, wherein the Tribunal has expressed the view that deduction u/s 11(1) and 11(2) is allowed in respect of income derived from property . However, the provision of sec. 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. It further held that the income so assessed u/s 11(3) of the Act is by virtue of deeming provisions of sec.11(3) of the Act. Accordingly, the .....

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..... tioned 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.11(2) of the Act. One of the conditions is that the accumulation can be done for a period not exceeding 5 years. If the assessee does not apply the amount so accumulated u/s 11(2) within the period originally mentioned before the AO at the time of accumulation of income, then the same is deemed to be income of the assessee u/s 11(3)(c) of the Act of the previous year immediately following the expiry of the period of accumulation originally intimated to the AO. 12. In the instant case, the assessee had proposed to accumulate a sum of ₹ 1.00 crore during the period from 1/4/2002 to 31/3/2007 as per the resolution passed by it on 1/4/2002, for the purposes of construction and maintenance of community and cultural hall. Accordingly, the assessee was given deduction u/s 11(2) of the Act for the income accumulated during the period from 1.4.2002 to 31.3.2 .....

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..... utions. 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 that any voluntary contributions received by a trust shall for the purposes of section 11 be deemed to be income derived from property. Again section 11(2) speaks of the 'income referred to in clause (a) or clause (b) of sub-section (1) r/w the Explanation to that subsection'. Thus, section 11(2) also deals with the income derived from property held under trust. Sub-clause of 11(2) permits the assessee to accumulate some amount up to a period not exceeding 10 years. Section 11(3) of the Act deals with the consequences if the amount accumulated is not utilised for the specified purposes. Section 11(3) is extracted here for immediate reference "Section 11(3): Any income referred to in sub-section (2) which- (a) is applied to purposes other than charitable or religious purposes as aforesaid or ceases to be accumulated or set apart for application .....

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..... son' 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 also be looked from another angle. The assessee would be allowed to accumulate income if there is real income. Something which is not in the possession of the assessee cannot be accumulated or utilised at a later date. Under section 11(3) the sum which is applied to the purposes other than the charitable or religious purposes would also be treated as deemed income of the assessee though the accumulated income is not available with the assessee because it was applied for a different purpose. Reversing to section 11(1)(a) and 11(2) of the Act, 25 per cent of the income can be accumulated or set apart for an application to some specified purposes in India which means such amount should be available with the assessee for application. In the case of deemed income where the amount is already spent by an assessee (for the purposes other than charitable purposes) i .....

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..... his 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 Lordships notice. In fact, a different view was expressed by the Hon'ble Calcutta High Court in [1993] 199 ITR 215 (Cal.) (supra) in a later decision. Under these circumstances, and in the light of the decision of the Hon'ble Bombay High Court in the case of CIT v. Thane Elec. Supply Co. [1994] 206 ITR 727 (Bom.) at 738 we hold that the assessee is not entitled to the benefit of accumulation of deemed income which is taxable under section 11(3) of the Act. 12. The assessee relied upon certain decisions in support of its contention that a legal fiction has to be carried to its logical conclusion. We fully agree with this proposition that a legal fiction no doubt has to be carried to its logical conclusion but at the same time it cannot be stretched to an extent that frustrates the object of the particular provision. In the instant case, we have high .....

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..... 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 available to deemed income, since there will not be any fund available for such accumulation. The Ld A.R submitted that the above said observations made by Mumbai bench of ITAT would apply only to income assessed u/s 11(3)(a) of the Act. In the instant case, income is assessed u/s 11(3)(c) of the Act, since the assessee did not apply the accumulated income within the period of accumulation. Accordingly she submitted that the assessee is in possession of accumulated income and hence the same should be allowed to be accumulated. However we noticed that the Mumbai Bench of 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) of the Act cannot be considered to be .....

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