9911796707
TMI Blog1995 (10) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... L. N. Rao Charitable Trust, Mangalore, is a charitable trust. For the assessment year 1969-70, the respondent (hereinafter referred to as " the assessee ") submitted its return to the First Income-tax Officer, Mangalore Circle. In the said return, the assessee claimed that a sum of Rs. 85,262 which was the surplus income of the previous year was exempt from tax under section 11(1)(a) and sub-section (2) of the said section. On the assessing authority holding that the assessee is not a genuine trust and, therefore, not entitled to claim the benefit of section 11, the assessee preferred an appeal before the Appellate Assistant Commissioner, which was dismissed. In the second appeal preferred by the assessee before the Income-tax Appellate Tribunal, it was held that the assessee was a charitable trust and, therefore, was entitled to claim exemption from tax under section 11 of the Income-tax Act, 1961 (hereinafter referred to as " the Act "). In I. T. R. C. No. 31 of 1973 (see [1976] 102 ITR 474), which was a reference made at the instance of the Department, the High Court by its judgment dated August 4, 1975, answered the question referred in favour of the assessee and against the D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and it is not sufficient if 75 per cent. of the surplus income alone has been invested by the assessee. Learned counsel for the assessee urged that the assessee had complied with the requirements of section 11 ; according to learned counsel, the assessee was entitled to exemption from tax in respect of 25 per cent. of the accumulated income or Rs. 10,000, whichever is higher, plus that portion of the accumulated income in respect of which the conditions prescribed under clauses (a) and (b) of section 11(2) had been satisfied. According to the assessee, since it had deposited 75 per cent. of the accumulated income in the securities mentioned in section 11(2)(b), the entire surplus income which had accumulated was not taxable. The learned single judge rejected the contention of the Revenue and upheld the contention of the assessee in part only. The learned judge held that the assessee was entitled to exemption from tax only in respect of 75 per cent. of the surplus income which was accumulated for future use. The Revenue carried the matter in writ appeal which came to be decided by the impugned judgment. The Division Bench, on an interpretation of section 11(1)(a) and sub-section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Learned counsel for the respondent-assessee, on the other hand, submitted that the view taken by the Division Bench of the High Court on the interpretation of section 11(1)(a) and section 11(2) of the Income-tax Act, 1961, as applicable at the relevant time is the only correct and plausible view and that the Division Bench of the High Court was justified in agreeing with the view on similar lines which appealed to the Jammu and Kashmir High Court in CIT v. Shri Krishen Chand Charitable Trust [1975] 98 ITR 387. He also submitted that a similar view has been taken by the High Courts of Kerala, Madhya Pradesh, Madras, Bombay and Rajasthan in the following decisions : 1. CIT v. Shree Padmanabhaswami Temple Trust [1979] 120 ITR 42 (Ker) ; 2. CIT v. H. H. Marthanda Varma Elayaraja of Travancore Trust [1981] 129 ITR 191 (Ker) ; 3. Mohanlal Hargovinddas Public Charitable Trust v. CIT [1980] 122 ITR 130 (MP) ; 4. CIT v. C. M. Kothari Charitable Trust [1984] 149 ITR 573 (Mad) ; 5. CIT v. Trustees of Bhat Family Research Foundation [1990] 185 ITR 532 (Bom) ; and 6. CIT v. Anjuman Moinia Fakharia [1994] 208 ITR 568 (Raj). Consideration of the rival contentions : Before we proceed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st 25 per cent. of such income or Rs. 10,000, whichever is higher, will be permitted to be accumulated for charitable or religious purpose and it will also get exempted from the tax net. Then follows sub-section (2) which seeks to lift the restriction or the ceiling imposed on such exempted accumulated income during the previous year and also brings such further accumulated income out of the tax net if the conditions laid down by sub-section (2) of section 11 are fulfilled meaning thereby the money so accumulated is set apart to be invested in the Government securities, etc., as laid down by clause (b) of sub-section (2) of section 11 apart from the procedure laid down by clause (a) of section 11(2) being followed by the assessee-trust. To highlight this point we may take an illustration. If Rs. 1,00,000 are earned as the total income of the previous year by the trust from property held by it wholly for charitable and religious purposes and if Rs. 20,000 are actually applied during the previous year by the said trust to such charitable or religious purposes the income of Rs. 20,000 will get exempted from being considered for the purpose of income-tax under the first part of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the previous year 25 per cent. of such total property income or Rs. 10,000, whichever is higher, can be permitted to be accumulated by the trust, earmarked for such charitable or religious purposes. Such 25 per cent. of the income or Rs. 10,000, whichever is higher, will also get exempted from income-tax. That exhausts the operation of section 11(1)(a). Then follows sub-section (2) which naturally deals with the question of investment of the balance of accumulated income which has still not earned exemption under subsection (1)(a). So far as that balance of the accumulated income is concerned, that also can earn exemption from income-tax meaning thereby the ceiling or the limit of exemption of accumulated income from income-tax as imposed by sub-section (1)(a) of section 11 would get lifted if additional accumulated income beyond 25 per cent. or Rs. 10,000, whichever is higher, as the case may be, is invested as laid down by section 11(2) after following the procedure laid down therein. Therefore, sub-section (2) only will have to operate qua the balance of 75 per cent. of the total income of the previous year or income beyond Rs. 10,000, whichever is higher, which has not got the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aritable trusts without any restriction upon the accumulated income. There was a change in this respect under the present Act of 1961. Under the present Act, any income accumulated in excess of 25 per cent. or Rs. 10,000, whichever is higher, is taxable under section 11(1)(a) of the Act, unless the special conditions regarding accumulation as laid down in section 11(2) are complied with. It is clear, therefore, that if the entire income received by a trust is spent for charitable purposes in India, then it will not be taxable, but if there is a saving, that is to say, an accumulation of 25 per cent. or Rs. 10,000, whichever is higher, it will not be included in the taxable income. Section 11(2) quoted above further liberalizes and enlarges the exemption. A combined reading of both the provisions quoted above would clearly show that section 11(2), while enlarging the scope of exemption, removes the restriction imposed by section 11(1)(a), but it does not take away the exemption allowed by section 11(1)(a). On the express language of sections 11(1) and 11(2) as they stood on the statute book at the relevant time, no other view is possible. In the light of the aforesaid discussion an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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