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Issues involved: Interpretation of provisions of section 11(1)(a) and section 11(2) of the Income-tax Act, 1961 regarding exemption for charitable trusts investing in Government securities.
Summary: The High Court of Kerala addressed seven reference cases from the Income-tax Appellate Tribunal regarding the interpretation of provisions under section 11(1)(a) and section 11(2) of the Income-tax Act, 1961. The cases involved charitable trusts claiming exemption under section 11 of the Act for income accumulated for charitable purposes. The main question was whether the trusts needed to invest the entirety of the accumulated income in approved Government securities to avail of the exemption, or if investing only the portion exceeding 25% of the total income derived from the property held under trust was sufficient. The court analyzed the relevant sections of the Act, highlighting that section 11(1)(a) provides for exemption of income accumulated for charitable purposes not exceeding 25% of the income from the property or Rs. 10,000, whichever is higher. Section 11(2) lays down conditions for relaxation of this restriction, requiring the accumulated money to be invested in approved securities. The court emphasized that the legislative intent was to allow trusts to accumulate a portion of their income for charitable purposes and invest the excess amount in approved securities to avail of tax exemption. The court rejected the argument that the entirety of the accumulated income must be invested in Government securities for exemption, as it would defeat the purpose of the provision. Referring to previous decisions, the court upheld that trusts should be entitled to exemption for the amount exceeding the limit specified in section 11(1)(a) if invested in approved securities. The court ruled in favor of the assessee trusts in all cases, emphasizing the importance of allowing trusts to utilize accumulated income for charitable and religious purposes without undue tax burden. In conclusion, the court answered the question in favor of the assessee trusts, highlighting the importance of interpreting tax provisions in a manner that aligns with the underlying purpose of promoting charitable activities.
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