The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) in the case of ACIT v. State Examination Board, Gandhinagar held that income transferred from the capital fund a/c cannot be treated as ‘ Deemed Income ’ of trust since the fund was utilized for the purpose stated.
The issue before the present Tribunal was that whether the Commissioner of Income Tax (CIT) is justified in allowing the addition being deemed income under the provision of Section 11(3)(c) of the Income Tax Act.
Facts of the present case are that the assessee in the present case is a trust and engaged in the activity of education. The assessee in the A.Y. accumulated a sum of Rs. 45,00,000/- u/s 11(2) of the Act for 5 years which is ending of FY 2007-08. However, the assessee utilized the same in the F.Y. i.e. 2008-09 corresponding to A.Y. 2009-10 after the expiry date. Thus, the Assessee during the year transferred a sum of Rs. 45,00,000/- from capital fund account to the income and expenditure account but claimed deduction for the same under S. 11(3)(c) of the Act. However, the AO was of the view that the amount transferred represents the deemed income of the assessee and such deemed income cannot be eligible u/s 11 of the Act. Also, the AO was of the view that the fund accumulated was to be utilized within 5 years from the A.Y, 2003-04 which the assessee had failed to do.
Further the CIT (A) mentioned that the amount calculated in the A.Y. 2003-04 was to be used for fees adjustment and purchase of fixed assets. Furthermore, the amount utilized after the expiry of 5 years but utilized in the immediate year after the expiry of said period cannot be treated as deemed income. The CIT ruled in favor of the assessee and hence the present appeal by the revenue.
After hearing the contentions of both the parties which were majorly a reiteration of the arguments placed before the lower authorities, the Tribunal bench comprising of Judicial Member Rajpal Yadav and Accountant Member Waseem Ahmed was of the opinion that there is no allegation by the AO pertaining to accumulated fund being utilized other than the purpose for which it was accumulated. Therefore, it can be inferred that the fund accumulated has been utilized for specific purposes and hence no question of treating the deemed income of assessee arises.
Hence, the Tribunal held that the AO had wrongly treated the income transfer from capital fund account to the income and expenditure account as deemed income of the assessee.
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