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Issues involved:
1. Whether construction of building amounts to application of income u/s 11 of the Income-tax Act? 2. Whether the assessee has income to be assessed? Issue 1: Construction of building as application of income u/s 11 of the Income-tax Act The case involved a religious trust exempt under section 11 of the Income-tax Act for the assessment year 1974-75. The dispute centered around whether the amount spent on constructing additions to the buildings owned by the trust constituted an application of income for religious or charitable purposes. The Appellate Tribunal held that the trust had indeed applied the sum for such purposes, which was contested by the Revenue. The Tribunal interpreted the word "applied" in section 11(1) to have a wider scope than "expenditure," emphasizing that the construction aimed to generate income for religious use, thus meeting the requirements of the Act. Issue 2: Assessment of the assessee's income The Revenue argued that expenditure on augmentation cannot be considered an application of income for religious or charitable purposes, citing a Supreme Court case. However, the court differentiated the present case from the cited precedent, which involved a different trust structure and purpose allocation. It was clarified that the trust in question here had appropriately applied the income for charitable purposes through the construction project. The court ruled in favor of the assessee, emphasizing that the specific calculation and quantification of income for assessment would be determined by the Income-tax Officer. In conclusion, the High Court of Kerala upheld the decision of the Appellate Tribunal, affirming that the construction expenditure by the religious trust constituted an application of income for religious and charitable purposes under section 11(1) of the Income-tax Act. The court directed the Income-tax Appellate Tribunal to receive a copy of the judgment for further action.
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