1995 (2) TMI 7 - HC - Income Tax

Business Expenditure, Charitable Purpose, Charitable Trust, Criminal Proceedings, Retrospective Effect, Taxing Statutes

Summary

Issues Involved
1. Entitlement to exemption under section 11 of the Income-tax Act, 1961.
2. Effect of subsequent grant of registration under section 12A of the Income-tax Act, 1961.
3. Applicability of section 13(1)(c) of the Income-tax Act, 1961.
4. Allowability of legal expenses incurred by the assessee.
5. Allowability of legal expenses for defending criminal charges arising out of personal civil rights.

Issue-wise Detailed Analysis

1. Entitlement to Exemption under Section 11 of the Income-tax Act, 1961
The Tribunal held that the assessee was not entitled to exemption under section 11 of the Act. The Tribunal's decision was based on the fact that the assessee failed to fulfill the requirements of section 12A for the relevant assessment year. The Tribunal also noted that the assessee spent Rs. 1,29,966 directly for the benefit of certain individuals, which disqualified it from exemption under section 11.

2. Effect of Subsequent Grant of Registration under Section 12A of the Income-tax Act, 1961
The Tribunal held that the subsequent grant of registration under section 12A does not have retrospective effect. The Tribunal emphasized that section 12A begins with the phrase "the provisions of sections 11 and 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled." Therefore, the mere fact of subsequent registration does not fulfill the requirement of section 12A for the relevant assessment year.

3. Applicability of Section 13(1)(c) of the Income-tax Act, 1961
The Tribunal found that section 13(1)(c) was applicable to the assessee. The Tribunal noted that the income of the assessee had been used for the benefit of individuals referred to in sub-section (3) of section 13. Specifically, the assessee spent Rs. 1,29,966 on defending individuals against criminal charges, which was deemed to be for their personal benefit and not in line with the aims and objects of the assessee.

4. Allowability of Legal Expenses Incurred by the Assessee
The Tribunal disallowed the legal expenses incurred by the assessee, amounting to Rs. 1,32,016, on the grounds that these expenses were not related to the aims and objects of the assessee. The Tribunal observed that the charges of murder and attempt to commit murder could not be correlated to the charitable purposes of the assessee. The Tribunal also noted that the legal expenses were incurred for defending personal acts and omissions of individuals, which did not qualify as permissible expenditure.

5. Allowability of Legal Expenses for Defending Criminal Charges Arising Out of Personal Civil Rights
The Tribunal disallowed the legal expenses incurred for defending criminal charges arising out of personal civil rights, noting that such expenses were not related to the aims and objects of the assessee. The Tribunal remitted the claim of Rs. 2,050 to the Income-tax Officer for further examination, as it was not separately considered by the tax authorities below.

Conclusion
In conclusion, the Tribunal held that the assessee was not entitled to exemption under section 11 of the Income-tax Act, 1961, and that the subsequent grant of registration under section 12A did not have retrospective effect. The Tribunal also found that section 13(1)(c) was applicable, disallowing the legal expenses incurred by the assessee. The matter of legal expenses for defending criminal charges arising out of personal civil rights was remanded to the Tribunal for further determination. The judgment was delivered with no order as to costs.