1985 (1) TMI 115 - AT - Income Tax

Summary

Issues Involved:
1. Whether the deposit of Rs. 1 lakh made with Grindlays Bank in previous years could be regarded as income accumulated out of the current year's income.
2. Whether the option for accumulation of income was properly exercised within the meaning of section 11(2) or was it vague.
3. Whether the loan of Rs. 50,000 to Shri Ram Centre for Art and Culture can be considered as application of income.

Issue-wise Detailed Analysis:

1. Deposit of Rs. 1 lakh with Grindlays Bank:
The primary issue was whether the deposit of Rs. 1 lakh made with Grindlays Bank in previous years could be treated as part of the accumulation of the current year's income. The department argued that the deposit must be made out of the current year's income, and a deposit from an earlier year's income could not be accounted for as a deposit out of the current year's income. The Commissioner (Appeals) supported this view, stating that the requirement under section 11(2)(b) is that the deposit must be made out of the income of the previous year. However, the Tribunal considered that if the option to accumulate income is exercised properly, the particular circumstance of the deposit should not hinder the assessee from getting the benefit. The Tribunal concluded that the investment made out of surplus income of earlier years could be reckoned as an investment required for the purpose of accumulation.

2. Proper Exercise of Option for Accumulation of Income:
The second issue was whether the option for accumulation of income was properly exercised. The department and the Commissioner (Appeals) contended that the option exercised by the assessee was vague and unspecific. The Tribunal, however, found that the language used in the letter exercising the option was the same as the language used in the statute. The Tribunal noted that the option was clear, unambiguous, and definite, and it referred to Explanation 2 to section 11(1), which provided that the income applied in the subsequent year would be deemed to be applied for the purposes of the trust in the previous year. The Tribunal held that the option exercised by the assessee was valid and should be regarded as proper.

3. Loan of Rs. 50,000 to Shri Ram Centre for Art and Culture:
The third issue was whether the loan of Rs. 50,000 to Shri Ram Centre for Art and Culture could be considered as an application of income. The department and the Commissioner (Appeals) argued that the objects of Shri Ram Centre for Art and Culture were dissimilar to those of the assessee-trust and, therefore, the loan could not be considered as an application of income. The Tribunal examined the objects of both trusts and found them to be similar, both promoting music, dance, and drama. The Tribunal concluded that the provision of libraries and reading rooms by Shri Ram Centre for Art and Culture was in furtherance of the objects of the trust. Therefore, the loan of Rs. 50,000 was held to be an application of income for the purposes of the trust.

Conclusion:
The Tribunal allowed the appeal, holding that the deposit of Rs. 1 lakh with Grindlays Bank could be treated as part of the accumulation of the current year's income, the option for accumulation of income was properly exercised, and the loan of Rs. 50,000 to Shri Ram Centre for Art and Culture was an application of income. The ITO was directed to modify the assessment accordingly.