1983 (11) TMI 141 - AT - Income Tax

Charitable Purpose, Expenditure Incurred, Income From Business, Income From Property, Religious Trust

Summary

Issues Involved:
1. Tax liability of the assessee trust for the assessment year 1976-77.
2. Inclusion of deferred dividends in the total income.
3. Applicability of Section 11 of the Income-tax Act, 1961.
4. Deductibility of certain expenses for the purposes of the trust.

Detailed Analysis:

1. Tax Liability of the Assessee Trust for the Assessment Year 1976-77:
The assessee, a trust created wholly for religious or charitable purposes, filed a return for the assessment year 1976-77, showing a total income of Rs. 51,920. The Income-tax Officer (ITO) assessed the income at Rs. 51,921, including gross dividends from Associated Cement Companies Ltd. (ACC). The assessee contended that there was no tax liability as the actual receipts were Rs. 38,362, and the amount spent for the purposes of the trust was Rs. 35,140.

2. Inclusion of Deferred Dividends in the Total Income:
The ITO included the gross dividends of Rs. 25,564 from ACC in the total income, despite part of the dividends being deferred and payable after the accounting period. The Tribunal noted that normally, deferred dividends would not be assessed in the year they were declared, as per Supreme Court judgments in J. Dalmia v. CIT and Ramesh R. Saraiya v. CIT. However, due to the Companies (Temporary Restrictions on Dividends) Amendment Act, the entire dividends were assessable in the year of declaration, as Section 4 of the Act deemed the whole dividend as includible, regardless of deferral.

3. Applicability of Section 11 of the Income-tax Act, 1961:
The primary issue was whether the assessee trust could claim exemption under Section 11. The Tribunal referred to the Andhra Pradesh High Court's decision in CIT v. Trustee of H. E. H. The Nizam's Supplemental Religious Endowment Trust, which clarified that income for the purposes of Section 11 should be based on the trust's accounts, except for income from business undertakings. The Tribunal concluded that since the trust's income was not from a business undertaking, the gross receipts of Rs. 38,361 from the trust's accounts should be considered.

4. Deductibility of Certain Expenses for the Purposes of the Trust:
The Tribunal examined the expenses of Rs. 35,140, which included scholarships (Rs. 21,600), disputed income-tax payments (Rs. 13,300), and other minor expenses. The Andhra Pradesh High Court had held that income-tax payments, though not directly for charitable purposes, were incidental to carrying out charitable purposes. Therefore, the tax payment of Rs. 13,300 was considered an application of income for charitable purposes. The total application of income was Rs. 35,140 out of Rs. 38,361, which did not fall short of the required 75% application for exemption under Section 11.

Conclusion:
The Tribunal concluded that the assessee trust was not liable to tax for the assessment year 1976-77. The appeal was allowed, and the entire income of the trust was deemed non-liable to tax, as the application of income for charitable purposes met the statutory requirements.