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Issues involved: Interpretation of u/s 11(4) of the Income Tax Act, 1961 regarding the applicability to expenditure not allowable as deduction from income of a charitable trust.
Summary: The High Court of Calcutta considered the question of law regarding the applicability of u/s 11(4) of the Income Tax Act, 1961 to an expenditure not allowable as a deduction from the income of a charitable trust. The case involved a public charitable trust running a textile mill and a technological institute of textiles, which claimed a refund under s. 237 of the Act. The Income Tax Officer (ITO) disallowed a sum spent on charity and donations as a deduction for the business undertaking, holding it taxable under u/s 11(4). The Appellate Assistant Commissioner (AAC) upheld the trust's submission that u/s 11(4) was not applicable to the expenditure. The matter was then taken to the Appellate Tribunal, where the judicial member and the third member agreed that u/s 11(4) was not applicable, and the case fell under u/s 11(3) instead. The Tribunal referred questions of law to the High Court for opinion. The Court analyzed the provisions of u/s 11 of the Income Tax Act, noting that u/s 11(4) deals with determining income of a business undertaking held under trust and does not supersede other provisions like u/s 11(3). It was clarified that u/s 11(4) was intended to prevent tax evasion through manipulation of accounts, not to govern the application or expenditure of income by the business undertaking. The Court held that the expenditure for charity and donations did not attract u/s 11(4) but should be dealt with under u/s 11(3). The first question was answered in favor of the assessee, and the second question in the negative, both against the Department. The case was remanded to the ITO for a fresh order. Justice Suhas Chandra Sen agreed with the judgment.
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