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Issues Involved:
1. Whether the income of the assessee is exempt from tax under section 11 of the Income-tax Act for the assessment year 1970-71. Issue-wise Detailed Analysis: 1. Exemption under Section 11 of the Income-tax Act: The primary issue in this case is whether the income of the assessee trust is exempt from tax under section 11 of the Income-tax Act for the assessment year 1970-71. The assessee is a trust originally constituted for charitable purposes such as repairs to Hindu temples, establishing hostels, educational institutions, and providing relief to the poor. The trust had accumulated its income for ten years starting from April 13, 1961, for charitable purposes and invested the accumulated income in government securities as required by the Act. The Income-tax Officer (ITO) raised concerns about the non-investment of accumulated income in government securities for the assessment year 1970-71, as the trust had invested Rs. 8,00,000 in purchasing a property called "Rama Vilas". The ITO rejected the assessee's claim for exemption, stating that the income was not accumulated in government securities as required. The Appellate Assistant Commissioner (AAC) upheld the ITO's decision, and the matter was taken to the Appellate Tribunal, where there was a difference of opinion between the Accountant Member and the Judicial Member. The Accountant Member believed the assessee was eligible for exemption, while the Judicial Member disagreed. The third member, the Vice President of the Tribunal, agreed with the Accountant Member, leading to the acceptance of the assessee's claim for exemption. 2. Compliance with Section 11(2) Conditions: Section 11(2) of the Income-tax Act specifies two conditions for exemption: - Giving notice in writing to the ITO specifying the purpose and period of accumulation. - Investing the accumulated income in government securities. The assessee had given the required notice but did not invest the accumulated income in government securities. Therefore, the assessee did not comply with the twin conditions of section 11(2) and had to rely on section 11(1)(a). 3. Application of Income for Charitable Purposes: Under section 11(1)(a), the income must be applied for charitable purposes in India. The assessee argued that the purchase of the property "Rama Vilas" was an application of income for charitable purposes. However, the court found that purchasing a property is not an application of income for charitable purposes. The court emphasized that converting one asset into another does not constitute application of income for charitable purposes, and the trust cannot avoid tax liability by merely purchasing properties. 4. Presumption of Utilization of Current Year's Income: The assessee contended that there should be a presumption that the property was purchased out of the current year's income. The court rejected this argument, stating that the facts clearly showed the property was acquired by adjusting an outstanding debt, not by utilizing the current year's income. 5. Burden of Proof: The court highlighted that the burden of proof lies on the assessee to establish the claim for exemption. The assessee cannot rely on presumptions without factual evidence. 6. Investment in Agricultural Land: The assessee's counsel argued that Rs. 1,50,000 was utilized for purchasing agricultural land and should be considered in determining whether the income was utilized for charitable purposes. The court rejected this argument as it was not raised at any earlier stage and was not relevant to the provisions of the statute. Conclusion: The court concluded that the assessee did not comply with the conditions of section 11(2) and did not apply the income for charitable purposes as required under section 11(1)(a). Therefore, the income of the assessee was not exempt from tax for the assessment year 1970-71. The question referred to the court was answered in the negative and against the assessee. The court did not address the issue of accumulation of 25% of the income under section 11(1)(a) as it was not covered by the question referred. There was no order as to costs.
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