9911796707
TMI Blog1983 (7) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellate Assistant Commissioner, it was argued that the assessee had donated 1,500 shares of Poddar Automobiles Ltd. valued at Rs. 15,000 to Subhkaran Poddar Charitable Trust and 1,500 shares of Bharat Credit Corporation valued at Rs. 15,000 to Nandalal Poddar Charitable Trust. The Income-tax Officer should have held that an amount of Rs. 30,000 had been donated by way of shares for charitable purposes. The Appellate Assistant Commissioner, following an order of the Tribunal dated December 30, 1972, in I.T. Appeal No. 3822 (Cal) of 1971-72, held that the donation of shares valued at Rs. 30,000 should have been taken by the Income-tax Officer as application of income for charitable purposes. The Department appealed to the Tribunal. The Tribunal, following its abovementioned decision, held that the gift of shares by the charitable trust to another (trust) would amount to application of its income for charitable purposes. The Tribunal dismissed the appeal. The Commissioner applied for referring certain questions of law arising out of its order to the High Court under section 256(1) of the Act. The Tribunal dismissed that application. Thereupon, on further application under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that the shares that were gifted for charitable purpose were purchased out of its accumulated income of the earlier years. What section 11(1)(a) requires is application of income derived from charitable trust. It has to be seen whether an amount equal to at least 75 per cent. of the income of the assessee was applied for charitable purpose. Expenditure may be from the accumulated income of the years. When an amount equal to 75 per cent. of the income of the year had been spent by the assessee for charitable purpose, the assessee was entitled to claim exemption under section 11(1)(a). We are unable to uphold this contention for a number of reasons. It is well settled that an assessee incurs liability to pay tax on income as soon as the income accrues or is received by the assessee depending upon the system of accounting followed by the assessee. Generally, the application of income is quite immaterial for the purpose of deciding chargeability of the income to tax. Section I I is an exception to this principle and specifically provides that the income derived from property held under trust wholly for charitable or religious purposes will not be included in the total income of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o claim exemption under section 11, it is incumbent upon the assessee to actually apply the income of the year for the purpose of charity. Only 25 per cent. of the income or Rs. 10,000, whichever is higher, can be set apart for application for charitable purposes in future. The section does not permit accumulation of a larger amount of income than what has been strictly prescribed. If the assessee's contention is to be accepted, it will have to be held that the assessee will be able to retain its entire income of a year on the ground that it had made a gift of a like amount from its past savings for the purpose of charity. This, in effect, will give the assessee an exemption from the requirements of section 11(1)(a). The language of the section is clearly against such construction. The section requires application of income received by the assessee in a particular year for charitable purpose. The income that would other wise be includible in the total income of the assessee will not be included provided the assessee has applied that income for the purpose of charity . The relief is limited only to the extent to which the income has been actually applied for charity or set apart for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e property held under charitable trust of the current year were kept by the assessee in a composite fund. Expenditure was made by the assessee out of this fund. One of the questions raised in that case was whether it could be said that the expenditure was out of the income of the property held under trust. It was held that there was no dispute that in the composite fund, the income of the current year was included. There was no dispute that the expenditure was incurred out of the composite fund. Exemption was claimed in respect of that expenditure under section 12 of the Act. The point at controversy was whether the assessee would be entitled to the exemption under section 12 if it could be shown that the assessee's income from property held under trust was larger than the amount of donations made by the assessee for the purposes of charity out of the composite fund. It was held on these facts by a Division Bench of this court that it could not be inferred that the donations were made not out of the income derived from property held under charitable trust but from some other income. The controversy before us in the instant case is entirely different. The gift that has been made fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ritable purpose should also be regarded as application of income for charitable purpose. We are entirely unable to uphold this contention. When the income of a charitable trust is set apart or accumulated, it can only be with the object of application of the amount for charitable purposes. The relief granted by section 11(1)(a) is limited only to cases where accumulation has been made of only 25 per cent. of the income of a particular year. The mere fact that the assessee had applied its accumulated income of the earlier years for the purpose of charity will not absolve the assessee of its duty to apply its income for the purpose of charity in the current year nor will it enlarge the limit of the amount which is permitted to be accumulated by section 11 (1)(a). An assessee may borrow money and spend it for charitable object. The circular merely recognises that in such a case, application of income for repayment of a loan taken for charitable purpose will amount to application of income for charitable purpose. The circular, however, does not permit an assessee to accumulate more than 25 per cent. of its income or Rs. 10,000, whichever is higher (for the purpose of charity). The wo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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