1981 (6) TMI 23 - HC - Income Tax

Summary

Issues:
Interpretation of Section 11 and Section 13(1)(b) of the Income-tax Act, 1961 regarding exemption for charitable trusts established before or after the commencement of the Act.

Analysis:
The judgment by the High Court of Madhya Pradesh involved a reference under Section 256(1) of the Income-tax Act, 1961, seeking the court's opinion on whether the assessee, a Panchayat registered under Section 12 of the Act, was entitled to exemption under Section 11 for its entire income. The assessee claimed to be a trust solely for charitable and religious purposes for the assessment years 1974-75, 1975-76, and 1976-77. The Income Tax Officer (ITO) initially denied the exemption under Section 13(1)(b) of the Act, stating that the Panchayat was created for the benefit of a specific community. However, the Appellate Assistant Commissioner (AAC) partially accepted the assessee's contention, recognizing the dual purpose of the trust - maintenance of an old temple and upliftment of the community. The AAC directed the ITO to grant exemption under Section 11 for income utilized for religious purposes.

The department did not challenge the AAC's order, but the assessee appealed to the Appellate Tribunal, questioning whether the trust was established before or after the Act of 1961 and the applicability of Section 13(1)(b) to deprive it of benefits under Section 11. The Tribunal, based on public documents, found that the trust existed before the Act and managed the temple's affairs. Consequently, the Tribunal held that the assessee was entitled to exemption under Section 11 for its entire income, as Section 13(1)(b) applied only to trusts established after the Act.

The High Court affirmed the Tribunal's decision, stating that Section 13(1)(b) does not affect trusts established before the Act. As the Tribunal found the trust predated the Act, the assessee was rightfully granted exemption under Section 11 for its entire income. The court answered the reference question in the affirmative, confirming the assessee's entitlement to the exemption.