TMI Blog2023 (6) TMI 114X X X X Extracts X X X X X X X X Extracts X X X X ..... by assessee for purposes other than charitable purposes, it cannot be said that the assessee accumulated such income with an intention to apply it for rightful purpose. Therefore deemed income u/s 11(3) of the Act is not eligible for claim of exemption under Section 11(1)(a) and Section 11(2) of the Act. Decided against assessee. - I.T.A. Nos. 273 And 274/Ahd/2021 - - - Dated:- 31-5-2023 - Smt. Annapurna Gupta, Accountant Member And Shri Siddhartha Nautiyal, Judicial Member For the Appellant : Shri Brijesh Shah, A.R. For the Respondent : Shri M. Anand Kumar, Sr. D.R. ORDER PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER: These two appeals have been filed by the Assessee against the order passed by the Ld. CIT(Appeals), National Faceless Appeal Centre(in short NFAC ), Delhi in Order No. ITBA/NFAC/S/250/2021-22/1035072583(1) ITBA/NFAC/S/250/2021-22/1035072587(1) vide order dated 25.08.2021 passed for Assessment Years 2016-17 2017-18. 2. The assessee has taken the following grounds of appeals:- Assessment Year 2016-17 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer made the following observation:- Here in this case, the assessee has gross receipts of Rs.2,52,83,936/-, out of it assessee has applied income for charitable purpose is of Rs.1,41,02,264/- which is 55.775% of gross receipts for the year under consideration. The assessee is also eligible for amount accumulated u/s 11(1)(a) of the Act at the rate of 15% of gross receipts i.e. Rs. 37, 92,590/-. From the above it is clear that after claiming revenue expenditure of Rs.1,41,02,264/- (i.e. 55.78% of gross receipts) and Rs.37,92,590/- (i.e. 15% of gross receipts), assessee is eligible for accumulation of amount u/s. 11(2) of the Act is only for Rs.73,89,082 i.e. 29.225% (100-15 -55.675) of gross receipts. For getting benefit of exemption u/s. 11(2) 11(1)(a) of the Act, assessee has to accumulate the amount out of previous year's gross receipts only. Here, in this case assessee has claimed exemption u/s. 11 (2) of the Act of Rs. 1 ,30,00,000/- showing it as accumulated amount. In actual assessee is not having such amount of the year under consideration on hand for accumulation. Here in this case, after claiming exemption u/s. 11 (2) of the Act of Rs.1,30,00,000/- assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i. amount applied for charitable purpose Rs.1,41,02,264/- ii. Allowable exemption u/s. 11(2) of the Act Rs. 73,89,082/- iii. Exemption u/s. 11(1)(a) of the Act Rs. 37,92,590/- Rs. 2,52,83,936/- Add: Income chargeable u/s 11(3) of the Act. Rs. 2,00,00,000/- Assessed Income Rs. 2,00,00,000/- 4. In appeal Ld. CIT(Appeals) upheld the order of the Assessing Office with the following observation:- 4.13 From the above factual position, it is evident that the appellant after claiming 15% of accumulation u/s.11(1), has further sought additional accumulation u/s.11(2) in excess of the amount available out of 85% of such income derived during the relevant year from property held under trust. From the facts on record, it is evident that the income derived during the relevant previous year from the property held under trust is only Rs.2,69,01,936/- and 85% ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is whether the assessee is eligible to claim exemption under Section 11(1)(a) and 11(2) of the Act in respect of deemed income under Section 11(3) of the Act. We observe that the Rajkot ITAT in the case of Prabhas Patan Jain vs. Income Tax Officer, (2023)149 taxmann.com 277 (Rajkot Trib.) has held that exemption under section 11 is not available on deemed income and, therefore, assessee was not eligible to claim exemption under section 11(1)(a) and section 11(2) in respect of deemed income under section 11(3) of the Act. The operative part of the decision is reproduced below for ready reference:- 8. We have heard the rival contentions and perused the material on record. After giving a thoughtful consideration to the facts before us and the issue for consideration, we are unable to accept the contention of the counsel for the assessee, for the following reasons: 8.1 Firstly, in the judicial precedents on which the counsel for the assessee has placed reliance, the Circular No. 29 [F. No. 20/22/69-IT(A-I)], dated 23-8-1969 was not brought to the attention of the Honourable High Court of Calcutta for its consideration. We observe that the language of the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 judicial precedents relied upon the counsel for the assessee on this issue. If the Natwarlal Chowdhury cited supra judgment is to be followed, it will result in undue benefit to the trusts and will defeat the legislative intent of section 11. 8.3 Secondly, in our considered view, there is a specific reason why this Circular was introduced and the purpose of introduction of the same is that the assessee should not be eligible to claim double deduction in respect of the same income i.e. recycle the same income, which remained unapplied after the end of the fifth year . Therefore, if exemption under section 11(1)(a)is allowable in respect of the deemed income under section 11(3), then exemption under section 11(2) is also allowable in respect of such deemed income as sub-section (2) of section 11 refers to the income referred to in section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 Chowdhury Charity Trustsupra with the following observations: 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 Lordships notice. In fact, a different view was expressed by the Hon'ble Calcutta High Court in (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould be taken into account as they are deemed to be part of the income. Thus, 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) uses the expression income of such person in contradistinction to the words income derived from property used in other sub-sections of 11. Thus, it could not be said that deemed income under section 11(3) should be taken as part the income derived from property for the purposes of allowing the benefit of accumulation. The matter might 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 the different purpose. Reverting to section 119(1)(a) and 11(2), 25 per cent of the income can be accumulated or set apart for an application to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s provision form another angle, the assessee would be allowed to accumulate the income if there is real income which is in possession of the assessee. Therefore, something which is not in possession of the assessee cannot be accumulated or utilized at a later date. In the case of deemed income under Section 11(3) of the Act, where the amount is already spent by assessee for purposes other than charitable purposes, it cannot be said that the assessee accumulated such income with an intention to apply it for rightful purpose. Therefore, in view of the above observations we are of the considered view that deemed income under Section 11(3) of the Act is not eligible for claim of exemption under Section 11(1)(a) and Section 11(2) of the Act. 10. Another point which needs to be mentioned is that Sections 11(1)(a) and 11(2) of the Act, being beneficial provisions need to only specify the specific heads of income to which exemption under Section 11(1)(a) and Section 11(2) would be available, and cannot be expected to mention / specify all specific heads or sources of income to which benefit of Section 11 is not available i.e. it cannot list down all possible exclusions . As o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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