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TMI Blog1991 (6) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... nces of the case and on interpretation of the relevant provisions of the Act, the Tribunal held that: "The lower authorities were not justified in taking into account the entire long-term capital gain of Rs. 2,91,644. We further hold that the said sum of Rs. 2,91,644 is eligible to deduction of Rs. 1,19,658 (Rs. 5,000 plus Rs. 1,14,658) under section 80T of the Act ; in the circumstances, therefore, we direct the Income-tax Officer to recompute the assessee's taxable income accordingly. " Section 80T provides that where the gross total income of an assessee not being a company includes any income chargeable under the head " Capital gains " relating to capital assets other than short-term capital assets, a straight deduction to the extent of the prescribed percentage of such gains from the total income itself shall be allowed. The first Rs. 5,000 of the long-term capital gains is not liable to any tax and has to be excluded from the amount of long-term capital gains and, on the balance, the relief is allowable at the prescribed percentage. The question is whether a charitable or religious trust to which section 11 applies would be entitled to get the benefit of deduction in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sensible meaning to them. The words ought to be construed ut res magis valeat quam pereat. The entire object of section 11 is to grant immunity to the income of a charitable trust from income-tax. The immunity, however, is confined 'to the extent to which such income is applied to such purposes in India'. The exemption will be denied if the income is not actually applied for charitable purpose. Only 25 per cent. of the income or Rs. 10,000, whichever is lower, can be accumulated for application to charitable purpose. If a portion of the income of a charitable trust is not applied for charitable purposes or is accumulated beyond the permitted limit, that portion will not qualify for the immunity from taxation which has been granted by section I 1. In other words, the income that has not been applied for charitable purpose or accumulated beyond the prescribed limit for charitable purpose will not enjoy the immunity from taxation. This exclusion from the immunity that has been granted by section 11 must be confined to the real income of the trust. The amount of income which is taken away by deduction at source under section 194 is not available to the trust for application to charita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, to what is provided in sub-section (4) of section 11. We are in respectful agreement with the view expressed by the Madras High Court. This judgment is also in consonance with the view taken by the Andhra Pradesh High Court in the case of CIT v. Trustee of H. E. H. The Nizam's Supplemental Religious Endowment Trust [1981] 127 ITR 378." There, the Division Bench also considered a circular of the Central Board of Direct Taxes dated June 19, 1968 (see [1969] Indian Tax Laws, Appx. II, p. 1xxxv). It was stated in the said circular, inter alia, as follows (at page 285 of 159 ITR) : " 2. Section 11(1) provides that subject to the provisions of sections 60 to 63 'the following income shall not be included in the total income of the previous year . . .' The reference in sub-section (1)(a) is invariably to 'income' and not to 'total income'. The expression 'total income' has been specifically defined in section 2(45) of the Act as 'the total amount of income . . . computed in the manner laid down in this Act.' It would, accordingly, be incorrect to assign to the word 'income', used in section 11(1)(a), the same meaning as has been specifically assigned IC to the expression 'total i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is applied for charitable purpose, the question of payment of any tax would not arise. If a trust desires to accumulate income in excess of the limits laid down in section 11(1), the conditions specified in section 11(2) of the Act have to be fulfilled in respect of the entire accumulation and not merely in respect of the accumulation in excess of 25 per cent. of the income. Further, if the trust does not comply with the conditions laid down in section 11(2), the amount which becomes liable to assessment under section 11(3) is the entire income accumulated and not merely the income accumulated in excess of the limits specified in section 11(1) of the Income-tax Act, 1961. In other words, such an assessee loses the benefit of the accumulation permitted under section 11(1). The question of chargeability of a part of income to tax which is not exempt arises only when the accumulation is more than the permissible limit. While making assessment of that part of the income which is in excess of the specified percentage, such taxable income of a trust cannot be classified under different heads. It is only when any income is assessed tinder a particular head, that the question of allowing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sider the provision for appreciating the contentions raised on behalf of the parties. Under section 11 of the Income-tax Act, income derived from property held under trust for charitable or religious purposes is exempt from income-tax to the extent such income is actually applied to such purposes during the previous year itself or within the three months next following. As " income " includes " capital gains ", a charitable or religious trust would forfeit exemption from income-tax in respect of its income by way of capital gains unless such income is also applied to the purposes of the trust during the stipulated period. By sub-section (lA), it has been provided that, in a case where a capital asset being property held under trust for charitable or religious purposes is transferred and the whole or any part of the net consideration for the transfer ( i.e., full value of consideration as reduced by the expenditure incurred wholly and exclusively in connection with the transfer) is utilised for acquiring another capital asset to be held as part of the corpus of the trust, the capital gain arising from the transfer will be regarded as having been applied to charitable or religious pu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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