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TMI Blog1990 (2) TMI 136X X X X Extracts X X X X X X X X Extracts X X X X ..... gs we understand that there were only two members in the board of trustees, viz., (i) Shri M. Ct. Muthiah and (ii) Shri M. Ct. Pethachi. Shri M. Ct. Muthiah, who occupied the chair on that day and for those proceedings appears to have explained to the Board of Trustees the following matters and the approval of the proposals was obtained in that meeting. The matters discussed and the resolutions passed in that meeting are the following :---- " He further explained that it is proposed to accumulate the income of the Trust for the accounting year ended 13th April 1972 and subsequent nine years and to utilise the income for the charitable purposes. After a discussion it was unanimously resolved as follows :---- 1. That the income of the Trust for the accounting year ended 13th April 1972 and subsequent nine years to accumulate and the accumulated income be spent for the charitable purposes set out hereunder :---- (a) To award scholarships, stipends to students to enable them to prosecute their studies in India or in foreign countries to award prizes to students for proficiency in any subject or language. (b) to give substantial donation to any relief fund by way of charity. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant to the assessment year 1982-83 the assessee-trust gave a donation of Rs. 17.5 lakhs on 10-4-1982 towards the corpus of the trust of M.Ct.M. Chidambaram Chettyar Foundation. The assessee is hereinafter called the donor, whereas M.Ct.M. Chidambaram Chettyar Foundation is hereinafter referred to as the donee. The donee came into existence under the trust deed dated 28-12-1971. The authors of the donee trust are three trusts mentioned below. (i) S. Rm.M.Ct.M. Thirupani Trust, (ii) Sir M. Ct. Muthiah Chettiar Family Trust (assessee-donor), and (iii) Sir M.Ct.Trust. The trustees of the above three trusts are only two and they are Shri M.Ct. Muthiah and Shri M.Ct. Pethachi. The Board of Trustees of the donee trust are Shri F.B. Pithavadian, Shri C. Ramakrishna and Shri T.M. Srinivasan. The authors of the donee trust transferred a sum of Rs. 15,000 to the Board of Trustees and the objects of the trust as appearing from the trust deed regarding the donee trust are the following :----- " (a) To construct a hospital in the premises belonging to the Thirupani Trust and known as ' Rama Vilas ', situated in Luz Church Road, Mylapore, Madras, and maintaining and managing the said hosp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finding that the application of donor's income is quite in order, fully verified the details of the transactions. It was further submitted that since there was no loss of revenue, there is no scope for any action under section 263. It was further contended that this Tribunal in its Special Bench decision relating to this very assessee, reported in 1 SOT 54, held that even transfer of funds to another charitable trust will amount to application of income for purposes of the trust. The facts of the case for the assessment year 1982-83 are quite identical with the facts of the case decided by the Special Bench of the Tribunal and since there is no violation of the provisions of the trust deed or the conditions for accumulation of income, it is not a fit case for revision. 5. The Commissioner of Income-tax did not agree with the contentions put forward on behalf of the donor trust. Firstly he held that though the Special Bench decision in M.Ct. Muthiah Chettiyar Family Trust v. Third ITO [1982] 1 SOT 53 (Mad.) appears to be on similar facts, on a detailed examination it would appear that the facts on which the Special Bench decided are quite different from the facts of the present c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be spent for a particular charitable object. The donor trust can make a contribution to another trust if the donee trust is going to spend it for the same object on the basis of which the donor trust obtained the exemption. But if the donee trust is going to receive it as corpus and when there is no complusion on the part of the donee trust to spend any part of the donation to the specified charitable object though the donee may spend it for some other charitable object the condition requisite of section 11 is not satisfied and in such a case it cannot be said that the donor trust has applied the funds for the specified charitable object mentioned in Form No. 10 on the basis of which permission to accumulate the income was granted. The learned Commissioner of Income-tax further held that a corpus donation only increases the capital of the donee trust and the gifted amount cannot be utilised directly for the charitable object of the donee trust. Only the income which may arise out of the corpus can be utilised for the objectives of the donee trust. In this case the sum of Rs. 17.5 lakhs cannot be and is not meant to be used for the objectives of the donee trust as it had been recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome of a trust under section 11(3)(c) is that portion of the income which was allowed to be accumulated for the purpose mentioned in Form No. 10, but which was not subsequently utilised for those purposes. Section 11(2) contemplates Form No. 10. It takes in only 75% of the income which can be accumulated under the provisions of section 11(2). It does not take in the remaining 25% accumulation premissible under section 11(1)(a). Therefore the learned counsel argued that in any event such of the accumulations which do not exceed 25% of the total income derived by the donor trust in each of the years over which the accumulation was permitted during the assessment years 1972-73 to 1981-82 cannot under any circumstances be considered as the deemed income of the donor trust under section 11(3) of the Income-tax Act. The gross income for each of the years, 25% of the said income and the net income required to be utilised under section 11(2) for the assessment years 1972-73 to 1981-82 are furnished in a tabular form as follows :--- Assessment Gross 25% of Net amount required year income income to be utilised Rs. Rs. Rs. 1972-73 1,05,932 -- 1,06,932 1973-74 1,52,853 -- 1,52,853 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Income-tax Act and the impugned order, which is based upon the abovesaid wrong notion, is completely vitiated and therefore it should he set aside and the appeal should be allowed. 7. On the other hand, the learned departmental representative contended that notice of accumulation expected to be given by an assessee trust seeking permission for accumulation has a certain sanctity. The purpose for which the accumulation is to be made should necessarily be disclosed in Form No. 10 filed in the assessment proceedings for each year during which the accumulation is sought for and premission obtained. Permission also should be obtained whether the accumulation is intended to be donated as income or as corpus. If for instance the permission is obtained for accumulation to donate the accumulated amount as income only then no assessee trust would be entitled to change the mode of gift. No assessee trust can be permitted to change the intended gift towards income of another trust into a gift towards corpus. The only other way known to law by which the mode of utilisation can be changed is by seeking a fresh permission from the Income-tax Officer under section 11(3A). Under section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed amounts by itself but would donate the amounts to another trust, that too towards the corpus and not as income in its hands. Therefore, according to the learned departmental representative the accumulated amounts were deemed to have been not utilised for the purposes for which they were accumulated or they were set apart during all the ten years for which they were accumulated and therefore since 1982-83 was the immediately succeeding assessment year for the ten years for which accumulations were allowed, the total of the accumulations should be held as deemed income of the assessee and in this respect the Commissioner correctly appreciated the legal position. The learned departmental representative further argued that if all the accumulated moneys were given not towards corpus but given as gift simpliciter then the donee trust is obliged to spend at least 75% of the total of the accumulations in the assessment year 1982-83. Since the authors of the donee trust would very well know that the donee trust is not in a position to do so they paved a safe way for the donee trust by making it accept the donation towards the corpus of the trust. It is further argued by the learned depar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to which the income so accumulated or set apart is not in excess of twenty-five per cent of the income from such property ". Therefore it can be seen from the above provision that such of the income derived from the property held under trust is not wholly applied or partially applied it can be accumulated to be subsequently applied for such purposes to an extent not exceeding 25%. This accumulation is quite different from the accumulation contemplated under section 11(2), because section 11(2) concerns itself only with 75% of the income but not with the 25% which is already available for accumulation to an assessee trust. When accumulation is sought for out of 75% of the income then only Form No. 10 is to be filed before the Income-tax Officer and in such a case only the maximum period for which accumulation can be allowed is prescribed as ten years. Under section 11(3) if the accumulated income is held to be not utilised for the purposes for which it is so accumulated, the accumulated income should be deemed to be the income of the person who might have defaulted to spend the accumulated income for either charitable or religious purposes. The deeming provision under section 11 (3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earning exemption under section 11, 75% of the income actually derived by the trust from its properties should actually be spent from out of the said income but not from out of its accumulated income over the years. However, we are neither here nor there and this ratio is utterly inapplicable for our purposes. We are concerned with the right interpretation of section 11(2) and 11(3) and we are not concerned here with section 11(1)(a) on the main point at issue. Therefore, we hold that the Calcutta High Court decision relied upon by the Revenue is inapplicable to the facts of the case. 11. Now let us take up the Gujarat High Court decision in Sarladevi Sarabhai Trust's case. In that case the facts briefly stated are as follows. The assessment year concerned was 1975-76. In the original assessment the Income-tax Officer granted exemption to the assessee trust under section 11 of the Income-tax Act. The Commissioner exercising his power under section 263 felt that the income of the trust was utilised directly or indirectly for the benefit of prohibited categories of persons mentioned in section 13(2)(h) read with section 13(3). Ultimately he held that the income was not actually ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation by the donee trust for its charitable purpose. Utilisation does not mean that the entire amount has to be spent forthwith and that it cannot be kept as corpus and its recurring income utilised for charitable purposes. In any case, so far as the donor trust is concerned, once it makes payment of the donated amount to the donee trust which is a religious and charitable trust which has to utilise the donation for its own purposes, it would be a proper application of the income for charitable and religious purposes." 12. As can be seen from the above decision of the Gujarat High Court, keeping the corpus in the hands of another charitable trust, with similar objects, would itself amount to utilisation, and utilisation does not mean spending forthwith and when once the donor trust makes payment of the donated amount to the donee trust, which is also a charitable or religious trust and which has to utilise the donation for its own purposes, it would be a proper application of income for charitable and religious purposes. No doubt the Gujarat High Court did not consider the sanctity of Form No. 10 and the consequences of violating its terms while spending the accumulated amount. B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd debiting itself with the same, that the Income-tax Officer had accepted the same as amounting to a proper application of the amount from the year 1962-63 and therefore there was no jurisdiction to the Income-tax Officer to insist on an actual application of the surplus income only for the assessment year in question. The fourth question which was referred for the opinion of the Madras High Court under section 256(1) of the Income-tax Act, 1961 pertaining to this topic is as follows : " Whether on the facts and circumstances of the case, the mere crediting of 75% of the assessee's income to the accounts of Adityanar College of Arts and Science in the assessee's books will amount to application within the meaning of section 11 of the Income-tax Act, 1961 ?" While answering this question the Madras High Court appears to have followed the decision in IRC v. Helen Slater Charitable Trust Ltd. [1980] 1 All ER 785. At page 775 of the reported decision the Madras High Court discussing the applicability of Helen Slater Charitable Trust's case to the present case before them observed as follows : " The court construed the phrase ' applied for charitable purposes ' as including transfer of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that the whole of the amount of Rs. 17.5 lakhs gifted by the assessee trust to M.Ct. M. Chidambaram Chettyar Foundation amounts to proper application of the trust funds and amounts to proper utilisation of the trust funds. When there is such a proper utilisation of trust funds it cannot be said that the amount is not utilised for the purpose for which it is accumulated, especially when one of the objects for which the accumulation is sought for and granted is to give substantial donations to any relief fund by way of charity. It is not the case of the Revenue that the gift is made not to any relief fund or that the donee is not a charitable institution with similar objects as that of the donor trust. Therefore we have to hold that the accumulated income of the donor trust was properly utilised for the purpose for which it is so accumulated and there was no contravention of the provisions of section 11(3)(c). Unless there is that contravention it is difficult to include either Rs. 17.5 lakhs or any part of it as the deemed income of the donor trust for the assessment year 1982-83. We, therefore, hold that the impugned order of the Commissioner of Income-tax under section 263 is n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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