9911796707
TMI Blog1995 (10) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1961. The assessee is a charitable trust, engaged in charitable activities. There were several distinct lines of activities such as running educational institutions, technical training centres, physical educational institutions, etc. The Income-tax Officer looked into the income and expenditure statement filed by the assessee. The assessee was carrying on its business in running workshops and selling the goods manufactured, etc. Holding the business undertakings run as above, as property held under trust for the purpose of section 11 of the Act, the Income-tax Officer worked out the income of such undertaking in accordance with the Income-tax Act relating to assessment and so doing he applied the provisions of section 11(4) of the Income-tax Act to assess the excess between the income so determined and the income as shown in the accounts of the undertaking. In making the assessment, however, he computed the excess by only adding up the items of disallowances to the book income shown by applying the provisions of the Income-tax Act. Thus, the Income-tax Officer disallowed a sum of Rs. 1,54,667 comprising several items. Applying the provisions of section 11(1) of the Act and holdin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 11(4) of the Act shows that the excess amount between the income so determined and the income as shown in the account books of the undertaking should be deemed to be the income applied for the purposes other than charities. Section 11(4) of the Act, according to learned standing counsel, is an extension of section 11(1), but even though it has to be read on the terms obtaining therein and determined. Read in this manner, it was clear that the difference between the income worked out for income-tax purposes and the income as per the books maintained should be regarded as income not applied for charitable and religious purposes. Income not so applied being not exempted from tax, they have been correctly brought to tax. According to learned standing counsel, it cannot be disputed that business income has to be computed in a particular way and the method laid down in the Income-tax Act can be the only method for working out the income. When once so working out the income, an excess under section 11(4) is computed, that excess ceases to be income applied for charitable purposes and has to be taxed not being exempted under section 11(1) of the Act. Learned standing counsel further su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e application of income for charitable purposes. The provisions of section 11(4) only relate to non-application of certain items of income for charitable or religious purposes and does not by itself or through a fiction create a different type of income. We have heard the rival submissions. The assessee submitted that even in a case where a business is held under trust, the income therefrom is to be computed in accordance with the provisions of the Income-tax Act, 1961, and so much of the income as has been applied for charitable and religious purposes, as the case may be, is to be exempted from tax. The assessee further contended that section 11(4) of the Act only creates a fiction in so far as it provides that the excess of income as determined in accordance with the provisions of the Act over the income as per books shall be deemed to have been applied for purposes other than the charitable or religious purposes and that the same cannot apply in the present case, since the assessee has actually spent on charitable and religious purposes much more than the income derived in the relevant accounting year. According to the Department, the provisions of section 11(4) of the Act a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relating to assessment and where any income so determined is in excess of the income as shown in the accounts of the undertaking, such excess shall be deemed to be applied to purposes other than the charitable or religious purposes and, accordingly, chargeable to tax within the meaning of sub-section (3). Wherever Parliament considered the computation of income should be in accordance with the provisions of the Income-tax Act, 1961, it introduced the concept by using appropriate language. In the absence of any such language in section 11(1) of the Act, the computation as envisaged by the other provisions of the Act cannot be imported into section 11(1). Section 11 contemplates application of the income for charitable purposes. The charity can accumulate 25 per cent. of the income. Taking into account the purpose for which the conditions of section 11(1)(a) are imposed it would be clear that income to be considered will be that which is arrived at in the context of what is available in the hands of the assessee 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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