1995 (10) TMI 10 - HC - Income Tax

Summary

Issues Involved:
1. Whether the provisions of section 11(4) of the Income-tax Act, 1961, can operate as a charging section.
2. Whether the Appellate Tribunal was correct in deleting the disallowances totaling Rs. 1,54,667 for the assessment year 1972-73.

Detailed Analysis:

Issue 1: Operation of Section 11(4) as a Charging Section

The primary issue was whether section 11(4) of the Income-tax Act, 1961, could be used as a charging section to bring to tax the 'excess' income determined by the Income-tax Officer. The Tribunal had held that section 11(4) could not operate as a separate charging section. The Department argued that section 11(4) is an extension of section 11(1) and should be read in conjunction with it. According to the Department, any excess income determined under section 11(4) should be deemed as income not applied for charitable purposes and, therefore, taxable. The Tribunal, however, had concluded that since the assessee had spent more on charitable purposes than its income, there was no surplus income to be taxed. The High Court directed the Tribunal to verify the sources and application of the surplus income to determine if it was in accordance with section 11(1).

Issue 2: Deletion of Disallowances Totaling Rs. 1,54,667

The second issue revolved around the deletion of disallowances totaling Rs. 1,54,667 by the Appellate Tribunal. The Income-tax Officer had disallowed this amount, claiming it was not applied for charitable purposes as per section 11(4). The Tribunal found that the assessee had applied a sum of Rs. 7,98,081 for charitable purposes, which was more than its book income of Rs. 3,91,020. Therefore, the Tribunal held that the entire income, including the disallowed amount, should be exempt under section 11(1). The Department contended that the Tribunal did not clarify the source of the Rs. 7,98,081 and whether it complied with the provisions of section 11(2). The High Court directed the Tribunal to verify the source and application of this amount before making a final decision.

Conclusion:

The High Court returned the questions unanswered, directing the Tribunal to verify the sources and application of the surplus income of Rs. 7,98,081, including whether it included the surplus of Rs. 3,91,020 and complied with section 11(2). The Tribunal is to dispose of the matter in accordance with the provisions of section 11 after obtaining these clarifications.