2015 (4) TMI 305 - HC - Income Tax

Exemption u/s. 10(33) - whether income forms a part of the income from property held under trust and therefore can only be claimed to be exempt u/s. 11, if applied for charity and not u/s. 10 - ITAT allowed the claim - Whether Tribunal was justified in holding that the entire foundation of section 11 is based on the premise that the income is otherwise chargeable to tax, which is not supported by the provisions of the Act ? - Held that - The language of the two sections is plain and clear. The provisions, namely, sections 10 and 11 fall under a Chapter which is titled Incomes Which Do Not Form Part of Total Expenditure (Chapter III). Section 10 deals with incomes not included in total income whereas section 11 deals with income from property held for charitable or religious purposes. We have not found anything in the language of the two provisions nor was Mr. Malhotra able to point out as to how when certain income is not to be included in computing total income of a previous year of any person, then, that which is excluded from section 10 could be included in the total income of the previous year of the person / assessee. That may be a person who receives or derives income from property held under trust wholly for charitable or religious purposes. Thus, the income which is not to be included in computation of the total income is a matter dealt with by section 10 and by section 11 the case of an assessee who has received income derived from property held under trust only for charitable or religious purposes to the extent to which such income is applied to such property in India and that any such income is accumulated or set apart for application for such purposes in India to the extent of which the income so accumulated or set apart in computing 15% of the income of such property, is dealt with. Therefore, it is a particular assessee and who is in receipt of such income as is falling under clause (a) of sub-section (1) of section 11 who would be claiming the exemption or benefit. That is a income derived by a person from property. It is that which is dealt with and if the property is held in trust for the specified purpose, the income derived therefrom is exempt and to the extent indicated in section 11(1)(a) of the Income Tax Act, 1961. There is nothing in the language of sections 10 or 11 which says that what is provided by section 10 or dealt with is not to be taken into consideration or omitted from the purview of section 11. If we accept the argument of Mr. Malhotra and the Revenue, the same would amount to reading into the provisions something which is expressly not there. In such circumstances, the Tribunal was right in its conclusion that the income which in this case the assessee trust has not included by virtue of section 10, then, that cannot be considered under section 11. When the income from property held for charitable or religious purpose is not a matter covered or dealt with by section 10 that the Tribunal s view cannot be termed as perverse or vitiated by any error or law apparent on the face of the record. The clear language of these provisions enables us to uphold the order of the Tribunal. It is, accordingly, upheld. The Revenue s appeal does not raise any substantial question of law. - Decided against revenue.

Summary

Issues:
1. Interpretation of provisions under sections 10 and 11 of the Income Tax Act, 1961.
2. Exemption u/s. 10(33) and 10(38) for income from property held under trust.
3. Relief to the assessee in respect of accumulated funds not utilized for specified purposes.

Analysis:

Issue 1: Interpretation of provisions under sections 10 and 11 of the Income Tax Act, 1961:
The appeal raised substantial questions of law regarding the interpretation of sections 10 and 11 of the Income Tax Act, 1961. The Assessing Officer contended that the exclusion under section 10 does not apply to income derived from property held under trust for charitable or religious purposes. However, the senior counsel for the assessee argued that the provisions of section 10 must be considered before applying the provisions of section 11. The High Court upheld the Tribunal's decision, stating that the language of sections 10 and 11 is clear. Section 10 deals with incomes not included in total income, while section 11 deals with income from property held for charitable or religious purposes. The Court emphasized that if the property is held in trust for the specified purpose, the income derived therefrom is exempt as per section 11(1)(a) of the Act. Therefore, the Tribunal's conclusion that income excluded under section 10 cannot be considered under section 11 was upheld.

Issue 2: Exemption u/s. 10(33) and 10(38) for income from property held under trust:
The Assessing Officer disallowed the exemption claimed under sections 10(33) and 10(38) for dividend income and long-term capital gains, respectively, received by the trust. The Officer argued that such income, being part of the trust's income, should be exempt under section 11 if applied for charity and not under sections 10(33) and 10(38). The Court agreed with the Assessing Officer's interpretation, stating that the provisions of sections 11, 12, and 13 govern the exemption claimed by charitable institutions, and the trust cannot choose to avail exemptions under sections 10 or 11 at its discretion.

Issue 3: Relief to the assessee in respect of accumulated funds not utilized for specified purposes:
The Tribunal directed the Assessing Officer to verify whether accumulated funds of Rs. 30,00,000 were utilized for the specified purpose within the stipulated period. The assessee claimed that the amount was utilized for setting up a Digital Research and Training Centre but was later donated to another trust. The Court noted that the Tribunal's interference with the Commissioner's direction was unwarranted as all factual materials were already on record. The Court found no substantial question of law in this matter and upheld the Tribunal's decision.

In conclusion, the High Court dismissed the Revenue's appeal, stating that no substantial questions of law were raised in the case. The Court upheld the Tribunal's decision on all issues, emphasizing the clear language of the Income Tax Act provisions and the correct interpretation of sections 10 and 11.