Per D. Manmohan, Judicial Member. —This appeal filed by the assessee-trust is directed against the order of the CIT(A)‑XVIII, Bombay.

2. The facts of the case in short are that the assessee is a trust established with the main intention of carrying on charitable activities. In the assessment year 1983-84, the assessee was allowed to accumulate an amount of Rs. 1,98,756 under section 11(2) of the IT Act. In order to avail the benefit under section 11 of the IT Act, assessee has to utilise accumulated amount for the specified purposes within 10 years from the date of accumulation.

3. We are concerned with the assessment year 1993-94. The amount which was allowed to be accumulated in the assessment year 1983-84 was not utilised till the previous year relevant to the assessment year 1993-94. While completing assessment for the assessment year 1993-94 the Assessing Officer observed that the aforementioned unutilised amount is taxable under section 11(3) of the Act as deemed income of the assessee. There is no grievance about the applicability of deeming provision section 11(3) of the Act, in the instant case. However, the assessee claimed that such deemed income should be included as the income earned by the assessee in the relevant previous year and on such total income assessee should be allowed to accumulate under section (2) of the Act in addition to deduction of 25 per cent of the unutilised amount. This claim was not accepted by the Assessing Officer. He, therefore, completed the assessment on a total income of Rs. 1,98,756. It may be noted that he allowed accumulation under section 11(1)(a) of the Act to the extent of Rs. 1,08,740 only which is arrived as under :

4. Aggrieved assessee, challenged the order of Assessing Officer before of the CIT(A). The CIT(A) confirmed the action of the Assessing Officer. The operative portion of his order reads as under:

CIT(A)’s order

"3. I have considered the facts and I find that the income which is derived from property held under the trust is considered under section 11 for the expenses on charitable and other specific purposes. Similarly the 25 per cent deduction is only allowed from such income. The accumulation is also allowed from such income. The accumulation is also allowed for the remaining income which had the above source.

3.1. In the present case the deeming income under section 11(3) of IT Act which is not applied for charitable or religious purposes within the time allowed shall be deemed to be the income of such person of the previous year. It is a deeming income and is a separate source than acquired under section 11 of IT Act. I therefore, agree with the Assessing Officer that the accumulation under section 11(2) or the deduction of 25 per cent cannot be allowed from the deeming income. It has to be assessed separately and the order of the Assessing Officer is upheld."

5. Further aggrieved, assessee is in appeal before us. Learned counsel Shri Irani submitted before us that the amount accumulated under section 11 of the IT Act would be deemed to be the income of the assessee in the year in which the amount was applied to for the purposes other than charitable or religious purposes or which was not utilised within the period for which the accumulation was allowed. He submitted that in the instant case the assessee could not utilise the accumulated amount within the period of 10 years and thus the Assessing Officer treated the accumulated amount as the deemed income of the assessee under section 11(3) of the Act. He contended that a deeming provision has to be carried to its logical conclusion in which event the deemed income should be treated as the income of the assessee of this year in which event the assessee should be allowed to accumulate 25 per cent of the total income in addition to the right to seek permission for further accumulation under section 11(2)(a) of the Act. In this regard, he heavily relied upon the decision of the Calcutta High Court in the case of Commissioner Of Income-Tax v. Natwarlal Chowdhury Charity Trust. [1991] 189 ITR 656 (Cal.). He also relied upon the following decisions in support of his contention i.e., a legal fiction has to be carried to its logical conclusion and it would be proper and necessary to assume all those facts on which alone the fiction can operate :

(i) Caltex Oil Refining (India) v. CIT [1993] 202 ITR 375 (Bom.);

(ii) CIT v. Surat Cotton Spg. and Wvg. Mills (P) Ltd. (Bom.) [1993] 202 ITR 932 (Bom.), at 940; and

(iii) A.S. Glittre D/5 I/S Garonne v. CIT [1997] 225 ITR 739 (SC)

On the strength of the aforesaid judgments, learned counsel submitted that the income as computed by the assessee deserves to be accepted. The mode of assessee’s computation is extracted here for immediate reference :

6. On the other hand, learned, Departmental Representative relied upon the orders of the tax authorities and also Circular No. 29, dated 23rd Aug. 1969, issued by the CBDT wherein the Board expressed the opinion that the assessee would not be entitled to the benefits of accumulation of 25 per cent of income which is brought to tax under section 11(3) of the Act.

7. We have carefully considered the rival submissions and perused the record. We are unable to persuade ourselves to agree with the view taken by the Hon’ble Calcutta High Court (cited supra). A careful perusal of the language employed in section 11 of the Act makes it crystal clear that exemption is available only on the ‘income (within the meaning of section 11 and not on the ‘deemed income’). Consequently, the assessee cannot accumulate deemed income either under section 11(1)(a) or 11(2) of the Act. Section. 11(1)(a) reads as under :

"Sec. 11(1): Subject to the provision of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income :

(a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of twenty-five per cent of the income from such property."

[underlining, italicised in print, is ours]

Sec. 11(1)(d) speaks of income in the form of voluntary contributions.

Explanation (1) to section 11 reads as under :

"For the purposes of clause (a) and (b)

(1) in computing the twenty-five per cent of the income which may be accumulated or set apart, any such voluntary contributions as are referred to in section 12 shall be deemed to be part of the income."

Section 12 in turn says that any voluntary contributions received by a trust shall for the purposes of section 11 be deemed to be income derived from property. Again section 11(2) speaks of the ‘income referred to in clause (a) or clause (b) of sub-section (1) r/w the Explanation to that sub-section’. Thus, section 11(2) also deals with the income derived from property held under trust. Sub-clause of 11(2) permits the assessee to accumulate some amount up to a period not exceeding 10 years. Section 11(3) of the Act deals with the consequences if the amount accumulated is not utilised for the specified purposes.

Section 11(3) is extracted here for immediate reference

"Section 11(3): Any income referred to in sub-section (2) which—

(a) is applied to purposes other than charitable or religious purposes as aforesaid or ceases to be accumulated or set apart for application thereto, or

(b) ceases to remain invested or deposited in any of the forms or modes specified in sub-section (5), or

(c) is not utilised for the purposes for which it is so accumulated or set apart during the period referred to in clause (a) of that sub-section or in the year immediately following the expiry thereof,

shall be deemed to be the income of such person of the previous year in which it is so applied or ceases to be so accumulated or set apart or ceases to remain so invested or deposited or, as the case may be, of the previous year immediately following the expiry of the period aforesaid."

[underline, italicised in print, is ours]

8. It may be noted that wherever the legislature intended to confer any benefit to the assessee under section 11 of the Act, the benefit was restricted to the ‘income derived from property’ as could be seen from section 11(1)(a), (b) and (c ) of the Act. Section 11(1)(d) uses the expression ‘income’ in the form of voluntary contributions. However, specific exemption was granted if such income is received with a specific direction that they shall form part of the corpus of the trust. In other words, voluntary contributions for the purposes of incurring day-to-day expenditure of the trust would not fall under sub-clause (d). Section 12 of the Act governs such voluntary contributions wherein it was stated that such contributions would be deemed to be income derived from property held under trust. Thus, income from voluntary contributions are deemed as income specified under section 11(1)(a), (b) and (c ) of the Act. The intention of the legislature, as could be seen from a reading of section 11 of the Act, is to allow a charitable trust to accumulate a portion of income derived from property and not other incomes. However, by virtue of section 12, voluntary contributions are deemed to be income from property and, therefore, Explanation (1) was added to section 11(1) of the Act which specified that in computing twenty-five per cent of the income which may be accumulated, voluntary contributions should be taken into account as they are deemed to be part of the income. Thus, it can be seen that wherever the legislature intended to include deemed income as part of the income ‘derived from property’ it was spelt out clearly. However, section 11(3) of the Act uses the expression ‘income of such person’ in contradistinction to the words ‘income derived from property’ used in other sub-sections of section 11. Thus, it cannot be said that deemed income under section 11(3) of the Act should be taken as part the income derived from property for the purposes of allowing the benefit of accumulation.

9. The matter may also be looked from another angle. The assessee would be allowed to accumulate income if there is real income. Something which is not in the possession of the assessee cannot be accumulated or utilised at a later date. Under section 11(3) the sum which is applied to the purposes other than the charitable or religious purposes would also be treated as deemed income of the assessee though the accumulated income is not available with the assessee because it was applied for a different purpose. Reversing to section 11(1)(a) and 11(2) of the Act, 25 per cent of the income can be accumulated or set apart for an application to some specified purposes in India which means such amount should be available with the assessee for application. In the case of deemed income where the amount is already spent by an assessee (for the purposes other than charitable purposes) it cannot be said that the assessee accumulates with an intention to apply it for a rightful purpose. Thus, even on the limited count the assessee cannot claim the benefit of accumulation because the accumulation is allowed only if the intention of the assessee is to apply the same for a specific purpose. Thus, assessee cannot claim the benefit of accumulation with respect to the deemed income. In the case of Director Of Income-Tax (Exmp.) v. Girdharilal Shewnarain Tantia Trust [1993] 199 ITR 215 (Cal.), the Hon’ble High Court of Calcutta analysed the meaning of the word ‘income’ used in section 11 of the Act. The Hon.’ble Calcutta High Court observed that the ‘income’ contemplated by the provisions of section 11 is the real income and not income as assessed or assessable. They have also followed the earlier decision of the same High Court in the case of CIT v. Jayshree Charity Trust [1986] 159 ITR 280 (Cal.) wherein the Hon’ble Court observed that what is deemed to be income can neither be spent nor accumulated for charitable purposes and the word ‘application’ or accumulation’ can only be of real income which has actually been received by assessee. Their Lordships further observed that the deeming provisions should not be construed in a way to frustrate the object of section 11, the objects of section 11 being application of income received by it for charitable purposes.

10. The Hon’ble Calcutta High Court has also referred to the decision of Hon’ble Madras High Court in the case of CIT v. Rao Bahadur Calavala Cunnan Chelty Charities [1982] 135 ITR 485 (Mad.) and agreed with the view expressed by the Hon’ble Madras High Court: It may be noted that the Hon’ble Madras High Court observed that in the context of section 11(1)(a) of the Act "income" means the income which is available in the hands of the assessee because accumulation of 25 per cent is possible only from the income available with the assessee and not the deemed income. It could thus be seen that deemed income under section 11(3) of the Act is different from the income contemplated under section 11(1)(a) and 11(2) of the Act and, therefore, the assessee is not entitled to claim the benefit of accumulation out of such deemed income.

11. In the case of CIT v. Natwarlal Chowdhury ( cited supra), the Hon’ble High Court, with due respect, has not analysed this section in the correct perspective. In our humble opinion the different expressions i.e., ‘income derived from property’ and ‘income’, used by the legislation under sections 11 and 12 of the Act missed the attention of their Lordships or the impact of the difference in the expressions were not brought to their Lordships notice. In fact, a different view was expressed by the Hon’ble Calcutta High Court in [1993] 199 ITR 215 (Cal.) (supra) in a later decision. Under these circumstances, and in the light of the decision of the Hon’ble Bombay High Court in the case of CIT v. Thane Elec. Supply Co. [1994] 206 ITR 727 (Bom.) at 738 we hold that the assessee is not entitled to the benefit of accumulation of deemed income which is taxable under section 11(3) of the Act.

12. The assessee relied upon certain decisions in support of its contention that a legal fiction has to be carried to its logical conclusion. We fully agree with this proposition that a legal fiction no doubt has to be carried to its logical conclusion but at the same time it cannot be stretched to an extent that frustrates the object of the particular provision. In the instant case, we have highlighted one possibility where an assessee might have applied the income for the purposes other than charitable purposes and thus there is no money available with the assessee in which event it cannot be said that the assessee can accumulate deemed income for some specified purposes. Such an interpretation would lead to anomalous situation which is not contemplated under section 11(1)(a) and 11(2) of the Act because an assessee is entitled to exemption only on such income which is either applied for charitable purposes or intended to be applied for charitable purposes and not otherwise.

13. The circular issued by the CBDT (supra) is in consonance with the intention of the legislature and also the plain meaning that can be ascribed to section 11 of the Act. Under these circumstances, we do not find any infirmity in the orders of tax authorities. We, therefore, dismiss the appeal filed by the assessee.