9911796707
TMI Blog1990 (6) TMI 126X X X X Extracts X X X X X X X X Extracts X X X X ..... td. in 1975. Those investments were never treated as application of funds of the trust for charitable purposes, but were always treated as pure investments of its funds. Under section 13(1)(d) time was granted up to 30th November, 1983 to keep the funds of the trust in approved securities specified under section 11(5) of the Income-tax Act, 1961. In order to continue to get the benefits of section 11 the assessee trust had to sell the equity shares as well as debentures it held in Travancore Rayons Ltd. in order to convert them into approved securities within the meaning of section 11(5). The assesssee converted the investments in unapproved securities into approved securities in the accounting year relevant to the assessment year 1983-84. It was contended that since the disposal of the shares was necessitated in the interest of preservation of income and capital, the loss on the sale must be regarded as having been incurred in the administration of the funds and therefore must be treated as an outgoing for computing the surplus available for application to charitable purposes. 3. In the accounting year in question the assessee-trust received interest income of Rs. 2,66,445. From ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after disallowing the loss resulted on the sale of capital investments, treating it as long-term capital loss and compute the other income, considering the application thereon and recompute the income accordingly after giving the assessee a reasonable opportunity of being heard. In the body of the order he held that the long term capital loss sustained by the assessee trust cannot be adjusted against interest income. He also held that loss cannot be held as an expenditure or application of income. As against the impugned order dated 8-3-1988 passed by the Commissioner the present appeal is filed by the assessee. 5. I have heard Shri R. Santhanakrishnan, the learned counsel for the assessee and Shri S.C. Goyal, the learned departmental representative. On behalf of the assessee a paper compilation was filed. Shri Santhanakrishnan argued that a reading of section 11(1) of the Income-tax Act would make one realise that there are two important terms used therein, viz., ' total income ' and ' income '. He argued that total income is defined under section 2(45) of the Income-tax Act, whereas income was defined under section 2(24) of the Income-tax Act. In arriving at the income which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee subject to an adjustment of any expenses extraneous to the trust. The application of income for charitable purposes will have to be excluded and it is only the balance that would require an examination for finding out whether the assessee has complied with the rule of accumulation. Accordingly, the income from the properties held under trust will have to be arrived at in the normal commercial manner without reference to the provisions which are attracted by s. 14 and 25 per cent thereof will have to be ascertained and if the assessee has accumulated more than 25 per cent, the consequences contemplated in s. 11 will have to follow. " To the same effect is the other Madras High Court decision in Estate of V.L. Ethiraj's case. At page 17 the Madras High Court held as follows : "As far as the present case is concerned, the language of s. 11(1)(a) makes it clear that the income derived from the property held under trust wholly for charitable and religious purposes, to the extent to which such income is applied to such purposes in India, is excluded. When once the income from the property as such is excluded, there is no question of computing the income from the property by applying t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and so according to this working of the assessee an amount of Rs. 1,009 represents the excess application for charitable purposes. 6. The learned departmental representative on the other hand contended that interest income of Rs. 2,66,445 can be considered only under the head ' other sources '. Assuming for a while that the ' capital gain ' also includes ' capital loss ' the question would still remain whether the ' capital loss ' can be adjusted from out of ' interest income '. Under section 74 of the Income-tax Act capital loss can be adjusted only from out of income under the head capital gains and it cannot be adjusted from out of income under any other head. So it goes without saying that the longterm capital loss sustained by the assessee cannot be adjusted towards the interest income earned by the assessee during the accounting year in question. He further contended that according to the Madras High Court decision cited on behalf of the assessee, we cannot incorporate either the definition of ' total income ' under section 2(45) or the definition of income under section 2(24) of the Income-tax Act while considering the word ' income ' under section 11(1) of the Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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