9911796707
TMI Blog1985 (10) TMI 279X X X X Extracts X X X X X X X X Extracts X X X X ..... lternative contention is not raised in the question referred for our opinion, we need not state it. However, on the substantive ground the Tribunal held that the payment of income-tax was a charge on income on outgoing which ought to be taken into consideration before determining the net income for the purpose of application or setting apart, as the case may be, under section 11(1)(a). In the view of the Tribunal, the deduction of income-tax is a necessary outgoing which has to be considered before the net income capable of application for the purposes of the trust could be ascertained. The Tribunal, therefore, upheld the assessee's contention and allowed the deduction. 2. On the above facts, so far as the assessment year 1971-72 is concerned, two questions have been referred for this Court's opinion. They read as under : 1.Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that income-tax liability for an amount of ₹ 76,972 should be allowed as deduction under section 11(1)(a) of the Income-tax Act, 1961 ? and 2.Whether the finding of the Tribunal that in order to give meaning to the expression 'i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les and not on notional basis for the purpose of application under section 11(1)(a). Applying the general commercial principles it held that the assessee had not received any income which could be applied or set apart for the purposes of the trust. The Tribunal, accordingly, dismissed the revenue's appeal. 4. On the facts, so far as the assessment year 1972-73 is concerned, the following questions have been referred to us for opinion : 1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the assessee was justified in changing its method of accounting from 'mercantile' to 'cash system' as the companies where the assessee had deposited the monies and had not paid any interest during the past years including the previous year relevant to the assessment year in question on account of financial difficulties ? 2. Whether, on the facts and in the circumstances of the case, the Tri- bunal was justified in law in holding that the assessee could not be said to have received any income in commercial sense of the term during the previous year relevant to the assessment year in question and, hence, it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from such property. The word 'applied' was construed by the Supreme Court in H.E.H. Nizam's Religious Endowment Trust v. CIT (1966) 59 ITR, 582 and the Supreme Court stated that it envisaged actual application of the income for the purposes of the trust. Similarly, the word 'accumulated' meant the income so set apart during the year for future spending on such purpose. There can be no actual application or setting apart or accumulation of income derived from trust property unless it is actually available for application or accumulation in the hands of the trustees. Where an assessee is following the mercantile system of accounting income on accrual basis may be reflected in the account books, but such notional income is incapable of actual application or accumulation under section 11(1)(a) and if the assessee-trust is called upon to pay income-tax for want of such application or accumulation, it would result in rendering the benevolent provision found in clause (a) of section 11(1) nugatory. Therefore, on plain reading of section 11(1)(a) the view taken by the Tribunal commence to us. 6. In CIT v. Trustees of H.E.H. the Nizam's Supplemental Religious Endo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oses of the trust, the trustees would be incapable of actually applying or accumulating the income for taking benefit of section 11(1)(a). There fore, even in the case of an assessee following the mercantile system of accounting, there can be no doubt that for the purposes of actual application or accumulation or setting apart of income from trust property for the purposes of the trust, the trustees must have on hand income which could be so utilised and what is outgoing towards payment of income-tax must be deducted for working out such surplus income. If a notional income calculated on the basis of accrual under the mercantile system of accounting is conceived as income for the purposes under section 11(1)(a), it must be conceded that such notional income can never be actually applied or accumulated or set apart for the purposes of the trust and the assessee-trust would while being liable to pay income-tax on accrual basis not be able to derive the benefit conferred by the said provision. We are, therefore, of the view that the Tribunal was right in coming to the conclusion that the income derived from trust property must be determined on commercial principles and in doing so all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to their Lordships, the assessee was entitled to change his method of accounting unilaterally. In Snow White Food Products Co. Ltd. v. CIT (1983) 141 ITR 861, the Calcutta High Court reiterated that an assessee is entitled to change his regular method of accounting by another regular method and such a change can be effected even in respect of a part of the assessee's income. According to their Lordships, a recognised method of accounting followed regularly would necessarily result in a proper computation of assessee's real income. Even if one regular method of accounting is substituted by another regular method, the same result will follow. It is only in a case where the assessee changes his regular method of accounting and does not follow the change regularly thereafter that it may be possible to say that by introducing he proposes to exclude certain items in the computation of his total income. In such a case the bona fides of the assessee may be doubted. Unless there is material on record to hold that the assessee's action is not bona fide the change in the method of accounting must be accepted. 9. In view of the above discussion, we are of the opinion that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
