Income Transferred from Capital Fund A/c to Income is eligible for deduction U/s. 11

ACIT (Exemptions) Vs State Examination Board (ITAT Ahmedabad)

Income Transferred from Capital Fund A/c to Income is eligible for deduction U/s. 11of Income Tax Act, 1961 and 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

The briefly stated facts are that the assessee in the present case is a trust and engaged in the activity of education. The assessee in the A.Y. 2003-04 accumulated a sum of Rs. 45,00,000/- u/s 11(2) of the Act by way of filing Form 10 for 5 years which is ending on FY 2007-08 corresponding to AY 2008-09. This accumulated sum was to be utilized for the purchase of fixed asset and/or for adjustment in fee structure before 31-03-2008. However, the assessee utilized the same in the F.Y. i.e. 2008-09 corresponding to AY 2009-10 after the expiry date i.e. 31.3.2008 (F.Y. 2007-08).

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 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 for Rs. 45,00,000/-represents the deemed income of the assessee and therefore, such deemed income cannot be eligible u/s 11 of the Act.

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 case on hand there is no allegation of the AO that the fund accumulated has been utilized other than the purpose for which it was accumulated. Therefore, it can be inferred that the fund accumulated has been utilized for the specified purposes. Therefore, there is no question of treating the deemed income of the assessee and therefore, we hold 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.

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