1981 (6) TMI 3 - HC - Income Tax

Summary

Issues Involved:

1. Eligibility for tax exemption u/s 11(1)(a) and 11(2) of the I.T. Act.
2. Interpretation of the provisions of ss. 11(1)(a) and 11(2) concerning charitable trusts.
3. Applicability of Board's Circulars on the interpretation of the statutory provisions.

Summary:

Issue 1: Eligibility for tax exemption u/s 11(1)(a) and 11(2) of the I.T. Act

The assessee, a charitable trust, claimed exemption from tax for the assessment years 1968-69 to 1970-71, arguing that it had invested more than 75% of its income in Government securities as per the procedure prescribed u/r 17 of the I.T. Rules. The ITO rejected this claim, assessing 75% of the total income for 1968-69 and the entire income for the subsequent two years. The Tribunal, however, accepted the trust's contention that it was eligible for exemption u/s 11(2) for the invested income and u/s 11(1)(a) for the remaining income, relying on the Jammu and Kashmir High Court's decision in CIT v. Shri Krishen Chand Charitable Trust [1975] 98 ITR 387.

Issue 2: Interpretation of the provisions of ss. 11(1)(a) and 11(2) concerning charitable trusts

Section 11(1)(a) exempts income applied to charitable purposes in India or accumulated up to 25% of the income or Rs. 10,000, whichever is higher. Section 11(2) allows further exemption if the trust informs the ITO of the specific purpose and period of accumulation and invests the income in Government securities. The court held that these provisions are complementary and not mutually exclusive, allowing concurrent exemptions under both sections. The court rejected the Department's argument that s. 11(2) overrides s. 11(1)(a), stating that the restrictions in s. 11(1)(a) do not apply to the part of the income covered by s. 11(2).

Issue 3: Applicability of Board's Circulars on the interpretation of the statutory provisions

The court noted conflicting Board's Circulars on the interpretation of ss. 11(1)(a) and 11(2). An earlier circular required compliance with s. 11(2) for the entire accumulation, while a later circular aligned with the judicial consensus that both exemptions could be availed concurrently. The court emphasized that statutory interpretation should prevail over administrative circulars, affirming the Tribunal's decision based on judicial precedents.

Conclusion:

The court held that the Tribunal was correct in granting the assessee exemption for its entire income based on a combined application of ss. 11(1)(a) and 11(2) for the assessment years 1968-69 to 1970-71. The question of law was answered in the affirmative and against the Department, with costs awarded to the assessee.