The Ahmedabad bench of the Income Tax Appellate Tribunal (ITAT) held that Deemed Income under Section 11(3) of the Income Tax Act, 1961 can’t be claimed as an exemption under Section 11(1)(a) and Section 11(2) of the Income Tax Act.
The Assessee, Anand Mercantile Samaj Seva Trust A. M. College of Science is a charitable trust having education as its primary object. The original return of income was filed by the assessee on 15.10.2016 and revised return of income on 16.10.2016 declaring total income of Rs. 1,43,89,080/- and claiming refund of Rs. 23,34,970/-.
During the course of assessment, the Assessing Officer (AO) observed that the assessee had claimed exemption under Section 11(1)(a) and Section 11(2) of the Act on deemed income under Section 11(3) of the Income Tax Act. Accordingly, the Assessing Officer (AO) restricted the claim of the assessee under Section 11(2) of the Act to Rs. 73,89,082/-.
The counsel for the assessee submitted that there is no such prohibition that deemed income under Section 11(3) of the Income Tax Act shall not be eligible for claim of exemption under Section 11(1)(a) and Section 11(2) of the Income Tax Act. The counsel for the assessee relied upon several judicial precedents including the decision of Natwarlal Chowdhury Charity rendered by Calcutta High Court (189 ITR 656) on this issue.
The Counsel for the assessee submitted that in view of absence of any specific restriction under Section 11(1)(a) and 11(2) of Income Tax Act restricting the claim of exemption in respect of deemed income under Section 11(3), the assessee would be eligible to claim the benefit of exemption under Section 11(1)(a) and 11(2) of Income Tax Act, in respect of such deemed income under Section 11(3) of the Income Tax Act.
The Mumbai Income Tax Appellate Tribunal (ITAT) in the case of Trustees, The B. N. Gamadia Parsi Hunnarshala (2002) 77 TTJ 274 has made a specific observation that wherever the intent of the Statute was to give exemption under Section 11(1)(a) and Section 11(2) of the Income Tax Act to any income, the same was specifically included in the Statute.
The Income Tax Appellate Tribunal (ITAT) of Mumbai pointed out that the intention of the legislature as could be seen from the plain language of Section 11 was to allow a charitable trust to accumulate a portion of income derived from property and not other sources.
The two-bench member comprising of Annapurna Gupta (Accountant member) and Siddhartha Nautiyal (Judicial member) directed the Assessing Officer (AO) to re-compute the exemption available to the assessee under Section 11(1)(a) and Section 11(2) of the Act by excluding “deemed income” under Section 11(3) of the Income Tax Act, 1961. And the appeal of the assessee is dismissed.
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