Abheraj Baldota Foundation , Hospet V. Deputy Commissioner of Income Tax Circle-1 , Bellary

ITA 947/BANG/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 6817 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-07-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 27-04-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Rectification of order; Search and seizure; Charitable institution; Deemed to accrue or arise in india; Reassessment proceedings
• Section: 143(3); 143(1); 12; 10; 154; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI B.R BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA NOS.947 & 948/BANG/2017 ASSESSMENT YEAR : 2008-09 ABHERAJBALDOTA FOUNDATION, BALDOTA ENCLAVE, ABHERAJBALDOTA ROAD, HOSPET 583 203. PAN AABTA 0454 B VS. THE DY. COMMISSIONER OF INCOME-TAX CIRCLE-1, BELLARY. APPELLANT RESPONDENT APPELLANT BY : SMT. TANMAYEE RAJKUMAR, ADVOCATE RESPONDENT BY : SHRI R.N SIDDAPPAJI, ADDL. CIT (DR) DATE OF HEARING : 22.07.2019 DATE OF PRONOUNCEMENT : .07.2019 O R D E R 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 BOT H RELATE TO ASST. YEAR 2008-09. 2. THE APPEAL NUMBERED AS ITA NO.947/BANG/2017 RELA TES TO ASST. ORDER PASSED U/S 143(3) OF THE ACT AND OTHER APPEAL RELATES TO RECTIFICATION ORDER PASSED U/S 154 OF THE ACT. SIN CE ISSUE URGED IN BOTH THE APPEALS ARE ARISING OUT OF COMMON SET OF F ACTS, THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CO MMON ORDER, FOR THE SAKE OF CONVENIENCE. ITA NO.947 & 948/BANG/2017 PAGE 2 OF 17 3. IN BOTH THE APPEALS, THE ASSESSEE IS AGGRIEVED B Y THE DECISION OF LD CIT(A) IN CONFIRMING ASSESSMENTOF UNUTILIZED AMOUNT OUT OF ACCUMULATED INCOME U/S 11(3) OF THE ACT. 4. THE FACTS RELATING TOTHE CASE ARE STATED IN BRIE F:- THE ASSESSEE IS A TRUST AND IT FILED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION DECLARING NIL INCOME. THE SAIDRETURN OF INCOME WAS PROCESSED U/S 143(1) OF THE ACT. SUBSEQ UENTLY THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED DEDUCTION U/S 11(2) OF THE ACT IN THE ASSESSMENT YEAR 2003-04 FOR ACCUMULATION OFINCOME GENERATED DURING THE PERIOD FROM 1/4/2002 TO 31/3/2 007 TO THE EXTENT OF RS.100.00 LAKHS, I.E., AS PER THE RESOLUT ION PASSED ON 1/4/2002 THE ASSESSEE HAD PROPOSED TO ACCUMULATE A SUM OF RS.1 CRORE DURINGTHE PERIOD FROM 1/4/2002 TO 31/3/2007 F OR THE PURPOSE OF CONSTRUCTION AND MAINTENANCE OF COMMUNIT Y AND CULTURAL HALL. ACCORDINGLY, IT APPEARS THAT THE AS SESSEE HAS ACCUMULATED FUNDS AND CLAIMED DEDUCTION U/S 11(2) O F THE ACT OVER THE PERIOD FROM 1.4.2002 TO 31.3.2007. THE AO NOTI CED THAT THE ASSESSEE HAS ACCUMULATED A SUM OF RS.91.65 LAKHS DU RING THE ABOVE SAID PERIOD. THE AO NOTICED THAT THEASSESSEE HAS NOT UTILIZED THE ACCUMULATED INCOME FOR THE PURPOSE FOR WHICH IT WAS ACCUMULATED AS MENTIONED IN FORM NO.10 BEFORE THE E XPIRY OF 31/3/2007 OR BEFORE 31.3.2008. THE AO FURTHER NOTI CED THAT THE UNUTILIZED AMOUNT IS LIABLE TO BE TAXED AS INCOME O F THE ASSESSEE U/S 11(3) OF THE ACT DURING THE YEAR RELEVANT TO TH E ASST. YEAR 2008- 09. ACCORDINGLY HE RE-OPENED THE ASSESSMENT OF AY 2008-09 BY ISSUING NOTICE US/ 148 OF THE ACT. ITA NO.947 & 948/BANG/2017 PAGE 3 OF 17 5. BEFORE THE AO, THE ASSESSEE FILED ANOTHER FO RM NO.10 ON 04/12/2010 REQUESTING FOR EXTENSION OF TIME FOR APP LICATION OF UNUTILIZED AMOUNT BY CHANGING THE OBJECT OF ACCUMU LATION IN TERMS OF SEC. 11(3A) OF THE ACT. IN THIS CONNECTIO N, THE ASSESSEE SUBMITTED THAT IT HAD FILED FORM NO.10 ON 29-09-200 8 PROPOSING TO ACCUMULATE A SUM OF RS.10.00 CRORES FROM 1.4.2007 T O 31.3.2012 FOR CONSTRUCTION OF BALDOTA KALA ACADEMY. ACCORDI NGLY, 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 TH E ASSESSEE FOR ASST. YEAR 2008-09. HOWEVER, THE AO DID NOT ACCEPT THE REQUEST OF THE ASSESSEE FOR THE REASON THAT THE ASSESSEE HAS M ADE THIS APPLICATION U/S 11(3A) OF THE ACT ONLY DURING THE C OURSE OF RE- ASSESSMENT PROCEEDINGS, THAT TOO, AFTER DETECTION B Y THE DEPARTMENT ABOUT VIOLATION OF PROVISIONS OF SEC.11(2) OF THE A CT BY NOT APPLYING FUNDS.ACCORDINGLY, THE AO ADDED THE UNUTILIZED AMOU NT OF RS.91.65 LAKHS TO THE TOTAL INCOME OF THE ASSESSEE. 6. IT IS PERTINENT TO NOTE THAT THE ASSESSEE APP EARS TO HAVE FILED ANAPPLICATIONIN FORM NO.10 FOR ASST. YEAR 2008-09PR OPOSING TO ACCUMULATEA SUMOF RS.180.00 LAKHS IN TERMS OF SEC.1 1(2) OF THE ACT. HOWEVER, THE INCOME OF THE ASSESSEE FOR THE P ERIOD RELATING TO ASST. YEAR 2008-09 WAS 148.60 LAKHS AND HENCE DEDUC TION U/S 11(2) APPEARS TO HAVE BEEN RESTRICTED TO THE EXTENT OF RS.148.60 LAKHS. WE NOTICED THAT,IN THE REASSESSMENT PROCEED INGS, THE AO ADDED THE IMPUGNEDAMOUNT OF RS.91.65 LAKHS TO THE A BOVE SAID INCOME OF THE ASSESSEE ORIGINALLY ASSESSED AND HENC E THE INCOME ITA NO.947 & 948/BANG/2017 PAGE 4 OF 17 BEFORE DEDUCTION U/S 11(2) OF THE ACT FOR ASSESSMEN T YEAR 2008-09 CAME TO BE WORKED OUT TO RS.240.26 LAKHS. THE AO, IN THE REASSESSMENT PROCEEDINGS, INADVERTENTLY ALLOWED DED UCTION OF RS.180.00 LAKHS U/S 11(2) OF THE ACT AGAINST THE AB OVE SAID INCOME OF RS.240.26 LAKHS AND THE SAME HAS RESULTED IN NET ADDITION OF RS.60.26 LAKHS ONLY, ASAGAINST THE PROPOSED ADDITIO N OF RS.91.65 LAKHS U/S 11(3) OF THE ACT, I.E., DEDUCTION TO THE EXTENT OF RS.31.40 LAKHS (BEING THE SHORTFALL BETWEEN PROPOSED ACCUMUL ATION OF RS.180 LAKHS AND ACTUAL INCOME OF RS.148.60 LAKHS) CAME TO BE ALLOWED U/S 11(2) OF THE ACT AGAINST THE ADDITION OF RS.91. 65 LAKHS MADE BY THE AO U/S 11(3) OF THE ACT. THE AO TOOK THE VIEW THAT THE ENTIRE INCOME OF RS.91.65 LAKHS SHOULD BE ASSESSED U/S 11( 3) OF THE ACT. HENCE THE AO PASSED A RECTIFICATION ORDER U/S 154 O F THE ACT WITHOUT GIVING DEDUCTION U/S 11(2) OF THE ACT AGAIN ST THE INCOME ASSESSED U/S 11(3) OF THE ACT. 7. THE ASSESSEE FILED APPEALS CHALLENGING THE ORDER S PASSED U/S 143(3)R.W.S. 147 OF THE ACT AS WELL AS U/S 154 OF T HE ACT. THE LD CIT(A) HOWEVER AGGREED WITH THE VIEW TAKEN BY THE A O AND ACCORDINGLY DISMISSED BOTH THE APPEALS. AGGRIEVED B Y THE ORDERS SO PASSED BY LD CIT(A), THE ASSESSEE HAS FILED THES E APPEALS BEFORE US. 8. THE LD AR SUBMITTED THAT THE PROVISIONS OF SEC. 11(2) ALLOW ACCUMULATION OF INCOME FOR 5 YEARS. HOWEVER, IN TH E INSTANT CASE, THE ASSESSEE HAD SOUGHT FOR ACCUMULATION FOR 4 YEAR S ONLY. ACCORDINGLY, THE LD A.R SUBMITTED THAT THE ASSESSEE SHOULD HAVE BEEN GIVEN EXTENSION OF AT LEAST ONE YEAR TO UTILIZ E THE ACCUMULATED ITA NO.947 & 948/BANG/2017 PAGE 5 OF 17 INCOME TOWARDS THE OBJECTS MENTIONED IN FORM NO.10 OF THE ACT.SHE SUBMITTED THAT THE ABOVE SAID FORM WAS AVAI LABLE BEFORE THE AO BEFORE THE COMPLETION OF ASSESSMENT PROCEEDI NGS AND HENCE THE SAME SHOULD HAVE BEEN CONSIDERED BY THE AO AS P ER THE DECISION RENDERED BY HONBLE SUPREME COURT IN THE C ASE OF NAGPUR HOTEL OWNERS ASSOCIATION (2001)(114 TAXMAN 225/ 24 7 ITR 201). ACCORDINGLY, THE LD A.R SUBMITTED THAT THE AO WAS N OT JUSTIFIED IN ASSESSING THE UNUTILIZED AMOUNT OF ACCUMULATED FUND S IN ASST. YEAR 2008-09. IN THE ALTERNATIVE, THE LD ARSUBMITT ED THAT THE INCOME SO ASSESSED FORMS PART OF CURRENT YEARS INC OME AND HENCE THE AO SHOULD HAVE ALLOWED DEDUCTION U/S 11(2) OF T HE ACT BY ADMITTING FRESH FORM NO.10 FILED BY THE ASSESSEE BE FORE HIM SEEKING ACCUMULATION OF RS.10 CRORES WITH THE OBJEC TIVE OF CONSTRUCTION OF BALDOTA KALA ACADEMY. THE LD AR PLA CED HER RELIANCE ON THE DECISION RENDERED BY HONBLE KOLKAT TA 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 AC CUMULATED AMOUNT IN ACCORDANCE WITH SEC. 11(5) OF THE ACT. THE LD A R SUBMITTED THAT, BY APPLYING THE ANALOGY OF HONBLE CALCUTTA HIGH CO URT,THE ASSESSEE SHOULD HAVE BEEN ALLOWED DEDUCTION U/S 11( 2) OF THE ACT. 9. ON THE CONTRARY, THE LD DR PLACED HIS RELIANCE O N THE DECISION RENDERED BY MUMBAI BENCHOF ITAT INTHE CASE OF THE T RUSTEES, THE B.N.GAMADIA PARSI HUNNARSHALAL (2002) 77 TTJ 274, W HEREIN THE TRIBUNAL HAS EXPRESSED THE VIEW THAT DEDUCTION U/S 11(1) AND 11(2) IS ALLOWED IN RESPECT OF INCOME DERIVED FROM PROPERTY. ITA NO.947 & 948/BANG/2017 PAGE 6 OF 17 HOWEVER, THE PROVISION OF SEC. 11(3) OF THE ACT USE S THE EXPRESSION INCOME OF SUCH PERSON IN CONTRADISTINCTION TO THE WORDS INCOME DERIVED FROM PROPERTY USED IN OTHER SUB SECTIONS O F 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 AC T. ACCORDINGLY, THE TRIBUNAL HAS EXPRESSED THE VIEW THAT THEDEEMED INCOME ASSESSED U/S 11(3) OF THE ACT SHOULD NOT BE TAKEN A S PART OF INCOME DERIVEDFROMPROPERTY FOR THE PURPOSE OF ALL OWING BENEFIT OF ACCUMULATION U/S 11(2) OF THE ACT. ACCORDINGLY, TH E LD DR SUBMITTED THAT THE ORDERS PASSED BY LD CIT(A) DO NO T CALL FOR ANY INTERFERENCE AS THE SAMEIS IN ACCORDANCE WITH THE V IEW EXPRESSED BY MUMBAI BENCH OF ITAT IN THE ABOVE SAID CASE. 10. IN THE REJOINDER, THE LD AR SUBMITTED THAT THE PROVISIONS OF SEC. 11(3) MANDATES ASSESSMENT OF INCOME ACCUMULATE D U/S 11(2) FOR FAILURE TO COMPLY WITH THREE TYPESCONDITIONS. U/S 11(3)((A) OF THE ACT,IF THE ACCUMULATED INCOME IS APPLIED FOR P URPOSES OTHER THAN CHARITABLE ORRELIGIOUS PURPOSESORCEASES TO BE ACCUMULATED ARE SET APART FROM APPLICATION THERETO, THENTHE SAM E IS ASSESSABLE AS INCOME OF THE ASSESSEE U/S 11(3) OF THE ACT. TH E LD AR SUBMITTED THAT, IN THIS KIND OF SITUATION, THE ACCU MULATED INCOME WILL NOT BE IN THE POSSESSION OFASSESSEE, AS THE SA ME WOULD HAVE ALREADY BEEN USED FOR OTHER PURPOSES. HENCE THE INC OME ASSESSED U/S 11(3)(A) WILL NOT BE AVAILABLE FOR FURTHER ACCU MULATION AND YET THE SAME IS ASSESSED AS INCOME OF THE ASSESSEE, MEA NING THEREBY, THE DEEMED INCOME CONCEPT WOULD APPLY TO THIS CATEG ORY OF INCOME ASSESSED U/S 11(3) OF THE ACT. ON THE CONTRARY, IN THE INSTANT CASE, THE INCOME OF THE ASSESSEE IS ASSESSED U/S 11(3)(C) OF THE ACT FOR ITA NO.947 & 948/BANG/2017 PAGE 7 OF 17 FAILURE OF THE ASSESSEE TO UTILIZE THE AMOUNT FOR T HE PURPOSES FOR WHICH IT WAS ACCUMULATED BEFORE THE PERIOD MENTIONE D IN FROMNO.10. HENCE, THE ASSESSEE IS STILL IN POSSESSI ON OF ACCUMULATED INCOME. ACCORDINGLY THE LD A.R CONTENDE D 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 DER IVED 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 APPL IED FOR CHARITABLE OR RELIGIOUS PURPOSES AND FURTHER DEDUCTION IS GIVE N FOR THE INCOME ACCUMULATED UP TO 15% OF THE INCOME, MEANING THEREB Y, THE CHARITABLE OR RELIGIOUS TRUST IS REQUIRED TO APPLY 85% OF ITS INCOME FOR THE PURPOSES MENTIONED IN ITS OBJECTS. HOWEVE R, IF THE ASSESSEE IS NOT ABLE TO APPLY 85% OF THE INCOME FOR CHARITAB LE OR RELIGIOUS PURPOSES, THEN ANOTHER OPTION IS GIVEN UNDER THE PR OVISIONS OF SEC. 11(2), WHEREBY THE ASSESSEE CAN APPLY TO THE ASSESS ING OFFICER IN PRESCRIBED FORM FOR ACCUMULATING INCOME SUBJECT TO THE CONDITIONS PRESCRIBED IN SEC.11(2) OF THE ACT. ONE OF THE CO NDITIONS 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 A O 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 PREVIOU S YEAR IMMEDIATELY ITA NO.947 & 948/BANG/2017 PAGE 8 OF 17 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 RS.1.00 CRORE DURING THE PERIOD FROM 1/4/2 002 TO 31/3/2007 AS PER THE RESOLUTION PASSED BY IT ON 1/ 4/2002, FOR THE PURPOSES OF CONSTRUCTION AND MAINTENANCE OF COMMUNI TY 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 31.3.2007. THE AGGREGATE AMOUNT SO ACC UMULATED WAS RS.91.65 LAKHS. ADMITTEDLY THE ASSESSEE DID NOT UT ILIZE THE AMOUNTS SO ACCUMULATED FOR THE ABOVE SAID PURPOSE A ND HENCE, AS PER THE PROVISIONS OF SEC. 11(3)(C) OF THE ACT, THE SAME IS LIABLE TO THE ASSESSED AS INCOME OF THE ASSESSEE FOR ASST. YEAR 2 008-09. ADMITTEDLY THE ASSESSEE DID NOT OFFER THE AMOUNT VO LUNTARILY WHILE FILING RETURN OF INCOME FOR ASST. YEAR 2008-09 AND HENCE THE AO WAS CONSTRAINED TO REOPEN THE ASSESSMENT U/S 147 OF THE ACT. 13. WE NOTICE THAT THE ASSESSEE IS EXERCISING TH E OPTION OF ACCUMULATION GRANTED U/S 11(2) OF THE ACT EVERY YEA R. ACCORDINGLY THE ASSESSEE HAS PUT A PLEA BEFORE THE AO THAT THE INCOME SO ASSESSED U/S 11(3)(C) OF THE ACT SHOULD ALSO BE ALL OWED TO BE ACCUMULATED U/S 11(2) OF THE ACT. 14. WE NOTICED THAT THE MUMBAI BENCH OF THE TRIBUNA L HAS CONSIDERED AN IDENTICAL ISSUE IN THE CASE OF THE TR USTEES, THE B.N. GAMADIA PARSI HUNNARSHALA (SUPRA) AND HAS TAKEN THE VIEW THAT THE BENEFIT OF ACCUMULATION SHALL NOT BE AVAILABLE TO INCOME ITA NO.947 & 948/BANG/2017 PAGE 9 OF 17 ASSESSED U/S 11(3) OF THE ACT. FOR THE SAKE OF CON VENIENCE WE EXTRACT BELOW THE RELEVANT DISCUSSIONS MADE BY THE MUMBAI BENCH IN THE ABOVE SAID CASE. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND PERUSED THE RECORD. WE ARE UNABLE TO PERSUADE OURSELVES TO AGREE WITH THE VIEW TAKEN BY THE HON'B LE CALCUTTA HIGH COURT (CITED SUPRA). A CAREFUL PERUSA L OF THE LANGUAGE EMPLOYED IN SECTION 11 OF THE ACT MAKES IT CRYSTAL CLEAR THAT EXEMPTION IS AVAILABLE ONLY ON T HE 'INCOME (WITHIN THE MEANING OF SECTION 11 AND NOT O N 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 UND ER: 'SEC. 11(1): SUBJECT TO THE PROVISIONS OF SECTIONS 60 TO 63, THE FOLLOWING INCOME SHALL NOT BE INCLUDED IN T HE TOTAL INCOME OF THE PREVIOUS YEAR OF THE PERSON IN RECEIP T OF THE INCOME (A) INCOME DERIVED FROM PROPERTY HELD UNDER TRUST W HOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES, TO THE EXTENT TO WHICH SUCH INCOME IS APPLIED TO SUCH PURPOSES IN INDIA; A ND, WHERE ANY SUCH INCOME IS ACCUMULATED OR SET APART F OR APPLICATION TO SUCH PURPOSES IN INDIA, TO THE EXTEN T TO WHICH THE INCOME SO ACCUMULATED OR SET APART IS NOT IN EXCESS OF TWENTY-FIVE PER CENT OF THE INCOME FROM S UCH PROPERTY.' SEC. 11(1)(D) SPEAKS OF INCOME IN THE FORM OF VOLUN TARY 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 IN COME WHICH MAY BE ACCUMULATED OR SET APART, ANY SUCH VOLUNTARY CONTRIBUTIONS AS ARE REFERRED TO IN SECTI ON 12 SHALL BE DEEMED TO BE PART OF THE INCOME.' SECTION 12 IN TURN SAYS THAT ANY VOLUNTARY CONTRIBU TIONS RECEIVED BY A TRUST SHALL FOR THE PURPOSES OF SECTI ON 11 BE DEEMED TO BE INCOME DERIVED FROM PROPERTY. AGAIN ITA NO.947 & 948/BANG/2017 PAGE 10 OF 17 SECTION 11(2) SPEAKS OF THE 'INCOME REFERRED TO IN CLAUSE (A) OR CLAUSE (B) OF SUB-SECTION (1) R/W THE EXPLAN ATION 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 ACCUMUL ATE SOME AMOUNT UP TO A PERIOD NOT EXCEEDING 10 YEARS. SECTION 11(3) OF THE ACT DEALS WITH THE CONSEQUENCE S IF THE AMOUNT ACCUMULATED IS NOT UTILISED FOR THE SPEC IFIED PURPOSES. SECTION 11(3) IS EXTRACTED HERE FOR IMMEDIATE REFER ENCE 'SECTION 11(3): ANY INCOME REFERRED TO IN SUB-SECTI ON (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 THERETO, O R (B) CEASES TO REMAIN INVESTED OR DEPOSITED IN ANY O F THE FORMS OR MODES SPECIFIED IN SUB-SECTION (5), OR (C) IS NOT UTILISED FOR THE PURPOSES FOR WHICH IT I S SO ACCUMULATED OR SET APART DURING THE PERIOD REFERRED TO IN CLAUSE (A) OF THAT SUB-SECTION OR IN THE YEAR IMMED IATELY FOLLOWING THE EXPIRY THEREOF, SHALL BE DEEMED TO BE THE INCOME OF SUCH PERSON OF THE PREVIOUS YEAR IN WHICH IT IS SO APPLIED OR CEASES T O BE SO ACCUMULATED OR SET APART OR CEASES TO REMAIN SO INV ESTED OR DEPOSITED OR, AS THE CASE MAY BE, OF THE PREVIOU S YEAR IMMEDIATELY FOLLOWING THE EXPIRY OF THE PERIOD AFOR ESAID.' [UNDERLINE, ITALICISED IN PRINT, IS OURS] 8. IT MAY BE NOTED THAT WHEREVER THE LEGISLATURE IN TENDED TO CONFER ANY BENEFIT TO THE ASSESSEE UNDER SECTION 11 OF THE ACT, THE BENEFIT WAS RESTRICTED TO THE 'INCOME DERIVED FROM PROPERTY' AS COULD BE SEEN FROM SECTION 11(1)( A), (B) AND (C ) OF THE ACT. SECTION 11(L)(D) USES THE EXPR ESSION 'INCOME' IN THE FORM OF VOLUNTARY CONTRIBUTIONS. HO WEVER, SPECIFIC EXEMPTION WAS GRANTED IF SUCH INCOME IS RECEIVED WITH A SPECIFIC DIRECTION THAT THEY SHALL FORM PART OF THE CORPUS OF THE TRUST. IN OTHER WORDS, VOLUNTA RY CONTRIBUTIONS FOR THE PURPOSES OF INCURRING DAY-TO- DAY EXPENDITURE OF THE TRUST WOULD NOT FALL UNDER SUB-C LAUSE (D). SECTION 12 OF THE ACT GOVERNS SUCH VOLUNTARY CONTRIBUTIONS WHEREIN IT WAS STATED THAT SUCH ITA NO.947 & 948/BANG/2017 PAGE 11 OF 17 CONTRIBUTIONS WOULD BE DEEMED TO BE INCOME DERIVED FROM PROPERTY HELD UNDER TRUST. THUS, INCOME FROM VOLUNTARY CONTRIBUTIONS ARE DEEMED AS INCOME SPECIF IED 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 CONTRIB UTIONS ARE DEEMED TO BE INCOME FROM PROPERTY AND, THEREFOR E, EXPLANATION (1) WAS ADDED TO SECTION 11(1) OF THE A CT WHICH SPECIFIED THAT IN COMPUTING TWENTY-FIVE PER C ENT 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 SUC H PERSON' IN CONTRADISTINCTION TO THE WORDS 'INCOME D ERIVED FROM PROPERTY' USED IN OTHER SUB-SECTIONS OF SECTIO N 11. THUS, IT CANNOT BE SAID THAT DEEMED INCOME UNDER SECTION 11(3) OF THE ACT SHOULD BE TAKEN AS PART TH E 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 S UM WHICH IS APPLIED TO THE PURPOSES OTHER THAN THE CHA RITABLE OR RELIGIOUS PURPOSES WOULD ALSO BE TREATED AS DEEM ED INCOME OF THE ASSESSEE THOUGH THE ACCUMULATED INCOM E IS NOT AVAILABLE WITH THE ASSESSEE BECAUSE IT WAS A PPLIED 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 APPLICATI ON. IN THE CASE OF DEEMED INCOME WHERE THE AMOUNT IS ALREA DY SPENT BY AN ASSESSEE (FOR THE PURPOSES OTHER THAN CHARITABLE PURPOSES) IT CANNOT BE SAID THAT THE ASS ESSEE ACCUMULATES WITH AN INTENTION TO APPLY IT FOR A RIG HTFUL ITA NO.947 & 948/BANG/2017 PAGE 12 OF 17 PURPOSE. THUS, EVEN ON THE LIMITED COUNT THE ASSESS EE CANNOT CLAIM THE BENEFIT OF ACCUMULATION BECAUSE TH E ACCUMULATION IS ALLOWED ONLY IF THE INTENTION OF TH E ASSESSEE IS TO APPLY THE SAME FOR A SPECIFIC PURPOS E. THUS, ASSESSEE CANNOT CLAIM THE BENEFIT OF ACCUMULA TION WITH RESPECT TO THE DEEMED INCOME. IN THE CASE OF DIRECTOR OF INCOME-TAX V. G. SHEWNARAIN TANTIA [199 3] 199 ITR 215 (CAL.), THE HON'BLE HIGH COURT OF CALCU TTA ANALYSED THE MEANING OF THE WORD 'INCOME' USED IN SECTION 11 OF THE ACT. THE HON'BLE CALCUTTA HIGH CO URT OBSERVED THAT THE 'INCOME' CONTEMPLATED BY THE PROVISIONS OF SECTION 11 IS THE REAL INCOME AND NOT INCOME AS ASSESSED OR ASSESSABLE. THEY HAVE ALSO FOLLOWED THE EARLIER DECISION OF THE SAME HIGH COUR T IN THE CASE OF CIT V. JAYSHREE CHARITY TRUST [1986] 15 9 ITR 280 (CAL.) WHEREIN THE HON'BLE COURT OBSERVED THAT WHAT IS DEEMED TO BE INCOME CAN NEITHER BE SPENT NOR ACCUMULATED FOR CHARITABLE PURPOSES AND THE WORD 'APPLICATION' OR ACCUMULATION' CAN ONLY BE OF REAL INCOME WHICH HAS ACTUALLY BEEN RECEIVED BY ASSESSEE. THEIR LORDSHIPS FURTHER OBSERVED THAT THE DEEMING PROVISI ONS SHOULD NOT BE CONSTRUED IN A WAY TO FRUSTRATE THE O BJECT OF SECTION 11, THE OBJECTS OF SECTION 11 BEING APPLICA TION OF INCOME RECEIVED BY IT FOR CHARITABLE PURPOSES. 10. THE HON'BLE CALCUTTA HIGH COURT HAS ALSO REFERR ED TO THE DECISION OF HON'BLE MADRAS HIGH COURT IN THE CA SE OF CIT 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 T HAT IN THE CONTEXT OF SECTION 11(1)(A) OF THE ACT 'INCO ME' 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 B E SEEN THAT DEEMED INCOME UNDER SECTION 11(3) OF THE ACT IS DIFFERENT FROM THE INCOME CONTEMPLATED UNDER SEC TION 1 L(1)(A) AND 11(2) OF THE ACT AND, THEREFORE, THE AS SESSEE IS NOT ENTITLED TO CLAIM THE BENEFIT OF ACCUMULATIO N OUT OF SUCH DEEMED INCOME. 11. IN THE CASE OF CIT V. NATWARLAL CHOWDHURY ( CIT ED SUPRA), THE HON'BLE HIGH COURT, WITH DUE RESPECT, H AS NOT ITA NO.947 & 948/BANG/2017 PAGE 13 OF 17 ANALYSED THIS SECTION IN THE CORRECT PERSPECTIVE. I N OUR HUMBLE OPINION THE DIFFERENT EXPRESSIONS I.E., 'INC OME DERIVED FROM PROPERTY' AND 'INCOME', USED BY THE LEGISLATION UNDER SECTIONS 11 AND 12 OF THE ACT MIS SED THE ATTENTION OF THEIR LORDSHIPS OR THE IMPACT OF T HE DIFFERENCE IN THE EXPRESSIONS WERE NOT BROUGHT TO T HEIR LORDSHIPS NOTICE. IN FACT, A DIFFERENT VIEW WAS EXP RESSED BY THE HON'BLE CALCUTTA HIGH COURT IN [1993] 199 IT R 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. THA NE ELEC. SUPPLY CO. [1994] 206 ITR 727 (BOM.) AT 738 W E HOLD THAT THE ASSESSEE IS NOT ENTITLED TO THE BENEF IT OF ACCUMULATION OF DEEMED INCOME WHICH IS TAXABLE UNDE R 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 W ITH THIS PROPOSITION THAT A LEGAL FICTION NO DOUBT HAS TO BE CARRIED TO ITS LOGICAL CONCLUSION BUT AT THE SAME TIME IT C ANNOT BE STRETCHED TO AN EXTENT THAT FRUSTRATES THE OBJECT O F THE PARTICULAR PROVISION. IN THE INSTANT CASE, WE HAVE HIGHLIGHTED ONE POSSIBILITY WHERE AN ASSESSEE MIGHT HAVE APPLIED THE INCOME FOR THE PURPOSES OTHER THAN CHAR ITABLE PURPOSES AND THUS THERE IS NO MONEY AVAILABLE WITH THE ASSESSEE IN WHICH EVENT IT CANNOT BE RAID THAT THE ASSESSEE CAN ACCUMULATE DEEMED INCOME FOR SOME SPECIFIED PURPOSES. SUCH AN INTERPRETATION WOULD LE AD TO ANOMALOUS SITUATION WHICH IS NOT CONTEMPLATED UNDER SECTION 11(1 )(A) AND 11(2) OF THE ACT BECAUSE AN ASSESSEE IS ENTITLED TO EXEMPTION ONLY ON SUCH INCO ME WHICH IS EITHER APPLIED FOR CHARITABLE PURPOSES OR INTENDED TO BE APPLIED FOR CHARITABLE PURPOSES AND NOT OTHERWISE. 13. THE CIRCULAR ISSUED BY THE CBDT (SUPRA) IS IN CONSONANCE WITH THE INTENTION OF THE LEGISLATURE AN D ALSO THE PLAIN MEANING THAT CAN BE ASCRIBED TO SECTION 1 1 OF THE ACT. UNDER THESE CIRCUMSTANCES, WE DO NOT FIND ANY INFIRMITY IN THE ORDERS OF TAX AUTHORITIES. WE, THE REFORE, DISMISS THE APPEAL FILED BY THE ASSESSEE. ITA NO.947 & 948/BANG/2017 PAGE 14 OF 17 15. WE NOTICE THAT THE MUMBAI BENCH OF ITAT HAS DRA WN A DISTINCTION BETWEEN THE EXPRESSION INCOME DERIVED FROM PROPERTY AND INCOME OF SUCH PERSON AS USED IN SEC. 11(1) A ND 11(3) OF THE ACT RESPECTIVELY. IT HAS ALSO BROUGHT OUT THAT THE PROVISIONS OF SEC.11(2) ALLOWS ACCUMULATION OF INCOME DERIVED FRO M PROPERTY ONLY. ADMITTEDLY THE INCOME ASSESSED DURING THE YEAR UNDE R CONSIDERATION DOES NOT FALLS UNDER THE CATEGORY OF INCOME DERIVED FROM PROPERTY. UNDER THE DEEMING PROVISIONS OF SE C. 11(3) OF THE ACT, IT FALLS UNDER THE CATEGORY OF INCOME OF SUCH PERSON. 16. THE LD A.R PLACED HER RELIANCE ON THE DECISI ON RENDERED BY HONBLE CALCUTTA HIGH COURT IN THE CASE OF NATWARLA L CHOUWDHURY CHARITABLE TRUST (SUPRA). IT CAN BE NOTICED THAT T HE MUMBAI BENCH OF TRIBUNAL HAS CONSIDERED THE ABOVE SAID DECISION RENDERED BY HONBLE 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 DIFFERENC E BETWEEN THE EXPRESSIONS INCOME DERIVED FROM PROPERTY HELD UNDE R THE TRUST AND INCOME WERE NOT BROUGHT TO THE NOTICE OF LORD SHIPS. SINCE THE MUMBAI BENCH OF TRIBUNAL HAS RENDERED ITS DECIS ION BY CRITICALLY ANALYZING THE PROVISIONS OF SEC. 11(1) T O 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 DECIS ION 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 C ONSIDERED THE POSSIBILITY OF NON-AVAILABILITY OF FUNDS, IF TH E ACCUMULATED ITA NO.947 & 948/BANG/2017 PAGE 15 OF 17 INCOME IS USED FOR OTHER PURPOSES. EVEN, IN THE AB SENCE 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 OBSERVATIO NS MADE BY MUMBAI BENCH OF ITAT WOULD APPLY ONLY TO INCOME ASS ESSED U/S 11(3)(A) OF THE ACT. IN THE INSTANT CASE, INCOME I S ASSESSED U/S 11(3)(C) OF THE ACT, SINCE THE ASSESSEE DID NOT APP LY THE ACCUMULATED INCOME WITHIN THE PERIOD OF ACCUMULATIO N. ACCORDINGLY SHE SUBMITTED THAT THE ASSESSEE IS IN P OSSESSION OF ACCUMULATED INCOME AND HENCE THE SAME SHOULD BE ALL OWED TO BE ACCUMULATED. HOWEVER WE NOTICED THAT THE MUMBAI BE NCH OF TRIBUNAL HAS EXPRESSED THE VIEW AS AN ALTERNATIVE V IEW. IN THE FIRST INSTANCE, IT HAS HELD THAT THE BENEFIT OF ACCUMULAT ION SHALL BE AVAILABLE ONLY TO THE INCOME DERIVED FROM THE PROP ERTY AND NOT TO DEEMED INCOME. SINCE THE INCOME ASSESSED U/S 11( 3) OF THE ACT CANNOT BE CONSIDERED TO BE AN INCOME DERIVED FROM T HE 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 RENDE RS OTIOSE, SINCE THE ASSESSEE WOULD BE FILING APPLICATION FOR ACCUMU LATION U/S 11(2) OF THE ACT AFTER EVERY EXPIRY OF THE PERIOD OF ACCU MULATION WITHOUT APPLYING IT FOR STATED OBJECTIVES. THIS WOULD RESU LT IN NON-TAXING OF INCOME PERPETUALLY AND IT WOULD DEFY THE INTENTION OF THE LEGISLATURE IN INTRODUCING SEC. 11(3) OF THE ACT. ITA NO.947 & 948/BANG/2017 PAGE 16 OF 17 18. ACCORDINGLY WE ARE OF THE VIEW THAT THE ASSE SSEE SHALL NOT BE ELIGIBLE TO ACCUMULATE THE INCOME ASSESSED AS DEEME D INCOME U/S 11(3) OF THE ACT. ACCORDINGLY, WE ARE OF THE VIEW THAT THE LD CIT(A) WAS JUSTIFIED IN CONFIRMING THE ACTION OF THE ASSES SING OFFICER IN ASSESSING ENTIRE AMOUNT OF RS.91.65 LAKHS AS INCOME OF THE ASSESSEE WITHOUT GRANTING ANY BENEFIT OF ACCUMULATI ON. ACCORDINGLY WE CONFIRM THE ORDER PASSED BY LD CIT(A) IN BOTH TH E APPEALS. 19. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH JULY, 2019. SD/ - (BEENA PILLAI) JUDICIAL MEMBER SD/ - (B.R BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED, 26 TH JULY, 2019. / VMS / COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.