Income accumulated us 11(2) not deemed income when transferred from capital fund account to the income and expenditure account for utilisation within time allowed u/s 11(3)(c)-ITAT
The instant appeal was preferred by the Revenue against the order passed by the Commissioner of Income Tax (Appeals) in deleting the addition of deemed income made by the Assessing Officer (AO) under provision of section 11(3)(c) of the Income Tax Act, 1961 (the Act) holding that the accumulated income was utilized in accordance with the provisions of the Act
ABCAUS Case Law Citation
ABCAUS 2353 (2018) 06 ITAT
The respondent assessee was a trust engaged in educational activity. The assessee for an Assessment Year accumulated income u/s 11(2) of the Act by way of filing Form 10 for 5 years. This accumulated sum was to be utilized for the purchase of fixed asset and/or for adjustment in fee structure.
However, the assessee utilized the same in the financial year corresponding to AY after the expiry of five years. The Assessee transferred the accumulated amount from its capital fund account to the income and expenditure account and claimed deduction for the same under section 11(3)(c) of the Act.
However, the AO was of the view that the amount transferred from capital fund to income and expenditure account represented the deemed income of the assessee and therefore, such deemed income cannot be eligible u/s 11 of the Act.
Besides, the AO was also of the view that the fund accumulated was to be utilized within 5 years and the assessee had failed to utilize the same within the specified time period. In view of the fact that the assessee had utilized the accumulated fund in the subsequent financial year, (which was under consideration). Thus, according to the AO the assessee had failed to comply the provision of Section 11(2) of the Act.
On issue of show cause by the assessee, the assessee submitted that the provision of Section 11(3)(c) of the Act requires to utilize the accumulated fund within the specified period or in the year immediately following the expiry thereof. In the instance case, the fund was accumulated for 5 years, and was utilized for the specified purposes immediately in the next financial year as permitted under clause (c) of Section 11(3) of the Act.
However, the AO disregarded the contention of the assessee on account of two reasons, firstly, transfer of amount from capital fund to the income and expenditure account which according to him represented the deemed income of the assessee and therefore, was not eligible for deduction u/s 11 of the Act.
Secondly, the fund accumulated set apart was not utilized within the specified time i.e. 5 years. Accordingly, the AO treated the amount as deemed income and added to the total income of the assessee.
The CIT(A) after considering the submission of the assessee deleted the addition made by the AO.
The Tribunal observed that the provisions of Section 11(2) of the Act clearly authorize the assessee to accumulate the fund for the specific purpose for the specified period. In the instant case, there was no allegation of the AO that the fund accumulated had been utilized other than the purpose for which it was accumulated. Therefore, it could be inferred that the fund accumulated had been utilized for the specified purposes. Therefore, there was no question of treating the deemed income of the assessee
The ITAT held that the AO erred in treating the income transfer from capital fund account to the income and expenditure account as deemed income of the assessee.
Similarly, it was noted that assessee was to utilize the fund within the period of 5 years, which had expired and the assessee having failed to do so, utilized the same for specified purpose in the immediate succeeding financial year.
It was noted that the provisions of Section 11(3)(c) of the Act clearly permits to utilize the funds either within the specified period or in the next year immediately following the expiry of the period of accumulation.
Therefore, the ITAT held that there was no doubt that the assessee was entitled for claiming the deduction u/s 11 of the Act.
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