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TMI Blog2015 (11) TMI 1857X X X X Extracts X X X X X X X X Extracts X X X X ..... d under trust. 02. Facts apropos are that assessee running convents, hospitals and rehabilitation center for mentally challenged, had filed return for the impugned assessment year declaring nil income after claiming exemption u/ss.11 & 12 of the Act. AO while allowing such exemption was of the opinion that accumulation u/s.11(1)(a) of the Act, had to be worked out only on the gross receipts and not on the net receipts. The net surplus after meeting the expenditure and application for the objects of the assessee trust came to Rs. 1,95,63,110/-. Gross receipts of the assessee came to Rs. 4,07,69,705/-. Assessee had claimed benefit of accumulation u/s.11(1)(a) of the Act, on the gross receipts of Rs. 4,07,69,705/- whereas the AO had restricte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5]. In paras 10 & 11 of the judgement of Hon'ble Apex Court in the case of A. L. N. Rao Charitable Trust (supra), it was held as under : "10. A mere look at s. 11(1)(a), as it stood at the relevant time, clearly shows that out of total income accruing to a trust in the previous year from property held by it wholly for charitable or religious purpose, to the extent the income is applied for such religious or charitable purpose, the same will get out of the tax net but so far as the income which is not so applied during the previous year is concerned at least 25% 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 follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come-tax as per s. 11(1)(a) second part. Then follows sub-s. (2) which states that the ceiling or the limit or the restriction of accumulation of income to the extent of 25% of the income or Rs. 10,000, whichever is higher for earning IT exemption as engrafted under s. 11(1)(a) will get lifted if the money so accumulated is invested as laid down by s. 11(2)(b) meaning thereby out of the total accumulated income of Rs. 80,000 accruing during the previous year and which could not be spent for charitable or religious purposes by the trust balance of Rs. 55,000 if invested as laid down by sub-s. (2) of s. 11 will also get excluded from the tax net. But for such investment and if s. 11(1) alone had applied Rs. 55,000 being the balance of accumul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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-s. (1)(a) of s. 11 would get lifted if additional accumulated income beyond 25% or Rs. 10,000, whichever is higher, as the case may be, is invested as laid down by s. 11(2) after following the procedure laid down therein. Therefore, sub-s. (2) only will have to operate qua the balance of 75% of the total income of the previous year or income beyond Rs. 10,000 whichever is higher which has not got the benefit of tax exemption under sub-s. (1)(a) of s. 11. If learned counsel for the Revenue is right and if 100% of the accumulated income of the previous year is to be invested unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is complied then such additional accumulated income beyond 25% or Rs. 10,000, whichever is higher, can also earn exemption from income-tax on compliance with the conditions laid down by sub-s. (2) of s. 11. It is true that sub-s. (2) of s. 11 has not clearly mentioned the extent of the accumulated income which is to be invested. But on a conjoint reading of the aforesaid two provisions of ss. 11(1) and 11(2) this is the only result which can follow. It is also to be kept in view that under the earlier IT Act of 1922 exemption was available to charitable trust 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% or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Rs. 80,000 for the previous year, a further sum of Rs. 25,000 will get exempted from payment of income-tax as per second part of s. 11(1)(a). Thus out of the total income derived from property as aforesaid during the previous year, that is, Rs. 1,00,000, Rs. 45,000 in all will get excluded from the tax net on a combined operation of first and second part of s. 11(1)(a). (iii) The aforesaid ceiling of Rs. 25,000 of accumulated income from property of previous year, will get lifted under s. 11(2) to the extent the balance of such accumulated income is invested as laid down by s. 11(2). To take an illustration if, say, an additional amount of Rs. 20,000 out of the balance accumulated income of Rs. 55,000 is invested as per s. 11(2) the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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