Benefit of Sec. 11 Exemption can’t be extended to ‘Deemed Income’ referred to in Sec. 11(3): ITAT

Case Details: Prabhas Patan Jain v. Income tax Officer - [2023] 149 taxmann.com 277 (Rajkot-Trib.)

Judiciary and Counsel Details

• • Waseem Ahmed, Accountant Member & Siddhartha Nautiyal, Judicial Member
  • G.R. Sanghavi, A.R. for the Appellant.
  • B.D. Gupta, Sr. DR for the Respondent.

Facts of the Case

Assessee was a public charitable trust and filed its original return of income declaring “Nil” taxable income. During the assessment, the Assessing Officer (AO) contended that the assessee already claimed deduction of the deemed income in the assessment year in which such amount was computed under section 11(2). The amount accumulated had to be spent within a period prescribed the Act. Therefore, bringing the deemed income under the fold of income eligible for deduction under section 11(1)(a) of the Act would be tantamount to double deduction.

On appeal, the CIT(A) upheld the additions made by AO. Aggrieved-assessee preferred an appeal to the Rajkot Tribunal.

ITAT Held

The Tribunal relied upon Circular No. 29, dated 23-8-1969. It was held that the intention of the Income-tax Act is quite clear that when the unapplied amount is deemed to be the income of the assessee under section 11(3), then the benefit of section 11(1)(a) would be lost.

Further, the purpose of the introduction of the same was 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.

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 11(1)(a). If exemptions under section 11(1)(a) and 11(2) are allowed in respect of the deemed income under section 11(3), then it will result in unintended benefits to the assessee.

Further, exemption under section 11 is available only on income and not on deemed income; therefore, an assessee cannot claim benefit or accumulation concerning deemed income. This view is also supported by Form No. 3A. Clause No. 10 of Part I of Form No. 3A prescribes the deemed income under section 11(3) to be added to the income arrived at after claiming exemption under section 11(1)(a) and 11(2). The form does not allow the assessee to claim an exemption under sections 11(1)(a) and 11(2) in respect of deemed income under section 11(3).

Therefore, it was held that the assessee-trust is not eligible to claim an exemption under section 11(1)(a) and section 11(2) in respect of deemed income under section 11(3).

List of Cases Reviewed

• • Trustees, The B.N. Gamadia Parsi Hunnarshala [2002] 77 TTJ 274 (Mum.) (para 8.5) followed.
  • CIT v. Natwarlal Chowdhury Charity Trust [1990] 52 Taxman 330/[1991] 189 ITR 656 (Cal.) (para 8.5) distinguished.

List of Cases Referred to

• • Gujarat State Lion Conservation Society v. CIT (Exemption) [2022] 141 taxmann.com 269/196 ITD 172 (Rajkot – Trib.) (para 6)
  • CIT v. Natwarlal Chowdhury Charity Trust [1990] 52 Taxman 330/[1991] 189 ITR 656 (Cal.) (para 6)
  • Trustees, The B.N. Gamadia Parsi Hunnarshala [2002] 77 TTJ 274 (Mum.) (para 8.5).