Abheraj Baldota Foundation Vs DCIT

Benefit of accumulation not available to income assessed u/s 11(3)

 Assessee’s appeal dismissed: BANGALORE ITAT

Whether benefit of accumulation shall not be available to income assessed u/s 11(3) and unutilized amount should be taxed – YES : ITAT

 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.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. In the instant case, the assessee had proposed to accumulate a sum of Rs.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 31.3.2007. The aggregate amount so accumulated was Rs.91.65 lakhs. Admittedly the assessee did not utilize the amounts so accumulated for the purpose and 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 2008-09. Admittedly the assessee did not offer the amount voluntarily 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. It was noticed that the assessee is exercising the option of accumulation granted u/s 11(2) of the Act every year. 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 allowed to be accumulated u/s 11(2) of the Act. Mumbai Bench of the Tribunal has considered an identical issue in the case of The Trustees, the B.N. Gamadia Parsi Hunnarshala and has taken the view that the benefit of accumulation shall not be available to income assessed u/s 11(3) of the Act;

 the Mumbai Bench of ITAT has drawn a distinction between the expression ‘income derived from property” and ‘income of such person” as used in sec. 11(1) and 11(3) of the Act respectively. It has also brought out that the provisions of sec.11(2) allows accumulation of income derived from property only. Admittedly the income assessed during the year under consideration does not falls under the category of ‘income derived from property”. Under the deeming provisions of sec. 11(3) of the Act, it falls under the category of “income of such person”. Accordingly it was held that the assessee shall not be eligible to accumulate the income assessed as deemed income u/s 11(3) of the Act. Accordingly, the view that the CIT(A) was justified in confirming the action of the assessing officer in assessing entire amount of Rs.91.65 lakhs as income of the assessee without granting any benefit of accumulation. Accordingly appeals of the assessee are dismissed.

ITA Nos.947 & 948/Bang/2017