NANDLAL TOLANI CHARITABLE TRUST,MUMBAI vs. ITO (E)2(1), MUMBAI

per the books of account of the assessee has not been allowed while

determining income available for application. It is the settled position of

law that once income of a trust / institution is computed under the

provisions of section 11 of the Act, whatever income derived from the

property held under trust is to be taken into account and against which

actual expenditure incurred for the objects of the trust has to be

considered as application of income. Therefore, while arriving at income

u/s 11, the AO needs to allow deduction towards actual repairs and

maintenance expenses incurred for Rs.13,00,635. Therefore, we direct

12 ITA 106/Mum/2016

the AO to allow deduction towards actual repairs and maintenance

expenditure incurred for Rs.13,00,635 before arriving at income available

for accumulation u/s 11(2) / taxable income of the trust / institution.

the appeal is computation of income of a trust in respect of income

derived from capital gain u/s 11(1)(a) of the Income-tax Act, 1961. The

factual matrix of the impugned dispute are that the assessee has sold

certain investments during the year and computed long term capital gain

from sale of such investments. The assessee further claimed that it has re-

invested sale consideration from sale of bonds / debenture for acquiring

mutual funds. Therefore, while computing income of a trust / institution

in respect of capital gain, amount invested for purchase of new capital

asset needs to be allowed as deduction u/s 11(1)(a) of the Act.

record, we find that the issue raised by the assessee in respect of

deduction towards re-purchase of mutual funds purchased out of sale

consideration received from sale of investments u/s 11(1)(a) is either not

discussed by the AO in his assessment order nor emanating from the

records furnished by the assessee before the lower authorities. Although,

the assessee has disclosed profit on sale of investments in the P&L

13 ITA 106/Mum/2016

Account, other facts with regard to the re-investment on sale

consideration for purchase of mutual funds is not clear. Further, the

assessee neither made any claim in the return of income filed for the year

nor sought to include such claim by way of revised return or revised

statement of total income before the AO. When there is no claim with

regard to deduction towards re-investment u/s 11(1)(a) of the Act, before

the AO and also the facts with regard to the issue is not placed at the time

of assessment proceedings, the Ld.CIT(A) had no option but to proceed on

the basis of materials brought out by the AO during assessment

proceedings. Accordingly, we find no infirmity in the finding recorded by

the Ld.CIT(A) in dismissing ground taken by the assessee regarding

deduction towards capital gain income derived from sale of investments

u/s 11(1)(a) of the Act.

assessee’s appeal is accumulation of income u/s 11(2) of the Income-tax

Act, 1961. The assessee has accumulated a sum of Rs.2.10 crores u/s

11(2) of the Act, in respect of income available for application for which

necessary form 10 alongwith other details including copy of resolution has

been filed before the AO. The AO while completing assessment, has

allowed amount of income accumulated u/s 11(2), as per form 10 filed by

14 ITA 106/Mum/2016

the assessee for Rs.2.10 crores. The assessee now claims for accumulation

of income u/s 11(2) of the Act for Rs.2,73,81,840 as against earlier

accumulated income of Rs,.2.10 crores. The assessee has filed necessary

revised form 10 alongwith copy of resolution passed by the Board of

Trustees on 16-08-2018. According to the assessee, the trust has

accumulated an additional amount of Rs.63,81,840 for acquisition of land,

building, and structure for educational activities and the same to be

utilised in the next five financial years commencing from 01-04-2019. In

this regard, the Ld.AR for the assessee relied upon the decision of Hon’ble

Gujarat High Court in the case of CIT vs Mayur Foundation (2005) 274 ITR

562 (Guj).

record and gone through the orders of authorities below. It is an admitted

fact that the assessee has filed form No.10 alongwith return of income

filed for the year and accumulated a sum of Rs.210 lakhs for the objects of

the Trust to be utilised in next five financial years. It is also an admitted

fact that the AO has allowed accumulation of income u/s 11(2) as per the

details filed by the assessee alongwith form 10. Now, the assessee has

revised its claim and filed a revised form 10 alongwith copy of board

resolution vide its from 10 dated 07-09-2018. We find that the assessee

15 ITA 106/Mum/2016

has passed a resolution to accumulate additional income of Rs.63,81,840

for acquisition of land, building, structure for educational activities in

additional to earlier accumulated income of Rs.210 lakhs vide its

resolution dated 20-09-2012. The reason for filing revised form, alongwith

board resolution is to overcome taxable income computed by the AO on

account of disallowance of standard deduction claimed u/s 24(a) of the

Income-tax Act, 1961 in respect of rental income from house property. No

doubt, the assessee can accumulate excess income for subsequent period

to be used for the objects of the trust by filing necessary form 10

alongwith return of income. Such accumulation of income is further

followed by other formalities including investment of accumulated funds

in the forms and modes specified u/s 11(5) of the Act. In this case, initially

the assessee has accumulated a sum of Rs.210 lakhs and such

accumulation has been allowed by the AO. The subsequent accumulation

of the remaining income has been made after a gap of six years, that too,

after exhausting all options open to the assessee to challenge

disallowance of standard deduction made by the AO u/s 24(a) of the

Income-tax Act, 1961. Although, there is no bar under the Act to file a

revised form 10 for accumulation of income to subsequent period u/s

11(2), but such accumulation cannot be stretch to a period of six years,

16 ITA 106/Mum/2016

that too, to overcome taxable income computed by the AO by disallowing

standard deduction claimed u/s 24(a) of the Act. The benefit of

accumulation of income u/s 11(2) has been provided to trusts /

institutions claiming exemption considering the fact that where it is not

possible to utilise the amount of income within the financial year due to

various reasons including non receipt of income for that year, although

income is computed under mercantile principles and for paucity of time,

after fulfilling certain conditions. Therefore, such benefit cannot be used

to overturn taxable income computed by the AO, more particularly, after

availing all possible options to the assessee before the appellate

authorities. While providing the benefit of accumulation, the legislature

would not have intended to give the benefit of accumulation to trust

where the AO has computed taxable income of the trust in accordance

with the provisions of the Act. Therefore, if we analyse the legislative

intend behind enactment of provisions of section 11(2), it is very clear that

the trust / institutions are allowed to accumulate income for specified

purposes which needs to be specified in the resolution passed by the

trust. Unless, the trust specifies the purpose for which the income is

accumulated, then the benefit cannot be allowed. In this case, the

assessee has tried to use the benefit of accumulation after exhausting all

17 ITA 106/Mum/2016

possible options available to it to contest the issue of deduction u/s 24(a).

Further, no doubt, the Hon’ble Gujarat High Court has considered revised

form 10 filed by the assessee accumulating additional income after a gap

of six years, but on perusal of the ratio rendered by the Hon’ble Gujarat

High Court, we find that in that case, there was no dispute with regard to

availability of funds for accumulation u/s 11(2) and investment of such

funds in the investments specified u/s 11(5) of the Income-tax Act,

because, the disputed issue in that case is taxability of corpus donation

received by the asasessee under the provisions of section 11 of the Act. In

this case, the facts with regard to the availability of funds for making

investments are under dispute. The assessee failed to file any details with

regard to the availability of funds for making investments in the modes

specified u/s 11(5) of the Income-tax Act, 1961. Therefore, we are of the

considered view that there is no merit in the argument of the assessee

that it has accumulated income u/s 11(2) of the Act, for the purpose of

object of the trust in compliance with provisions of section 11(5) of the

Income-tax Act, 1961. Therefore, we reject the ground taken by the

assessee.

18 ITA 106/Mum/2016

Order pronounced in the open court on 29-03-2019.

Sd/- sd/- (Sandeep Gosain) (G Manjunatha) JUDICIAL MEMBER ACCOUNTANT MEMBER

Mumbai, Dt : 29th March, 2019 Pk/- Copy to : 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR /True copy/ By order

Asstt. Registrar, ITAT, Mumbai