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TMI Blog1981 (1) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... assed, they are debited to the income and expenditure account and credited to the outstanding payment account which contains the amounts due to the various donees as per the resolutions passed by the board. The amounts debited to the income and expenditure account but which are not actually disbursed, are shown as liabilities in the balance-sheet. At the time when the payment is made, the outstanding payment account is debited. Under s. 11(1)(a) of the I.T. Act (hereinafter called " the Act"), the income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India, shall not be included in the total income of the previous year of the person in receipt of the income. Where any such income is accumulated for application to such purposes in India, to the extent to which the income so accumulated is not in excess of twenty-five per cent. of the income from the property or rupees ten thousand, whichever is higher, shall also not be included in the total income of the person in receipt of the income. For the assessment year 1969-70, it was claimed by the assessee that sums to the tune of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who held that the word " applied " , should be understood in a practical sense and should not be equated with the word " spent ". As against the orders of the AAC, the revenue preferred appeals, I.T.A. Nos. 383 and 384/1974-75, to the Income-tax Appellate Tribunal. All the three appeals were heard together and disposed of by a common order. The question for consideration by the Tribunal common to all the appeals was whether the expression " applied " in s. 11(1)(a) of the Act should be understood as contended by the assessee or as contended by the revenue. They came to the conclusion that in all cases where resolutions were passed during the accounting year earmarking the amounts for the particular donees, the amount should be said to have been applied within the meaning of s. 11(1)(a) even though the amounts were actually paid a little later. In the case of one item, viz., Rs. 1,00,000, allocated to Jamia Nizamia, however, the Tribunal found that the institution failed to fulfil the conditions attached to the donation and the amount was sanctioned to another institution and hence this amount should be held not to have been applied in the accounting year relevant to the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as there was nothing else to be done except the actual payment. The Tribunal was right in holding that the actual payment is irrelevant for purposes of finding out whether there has been an application of the funds. In this connection, we may refer to the observations in CIT v. Radhaswami Satsang Sabha [1954] 25 ITR 472 (All). Dealing with the word " applied " in the Indian I.T. Act, 1922, the learned judges observed as follows (p. 522): " The word 'applied' in this clause means actually spent and it was pointed out that while in cl. (i) of sub-s. (3) of s. 4 of the Act, the words used are 'income applied or finally set apart', the words 'finally set apart' have not been repeated in cl. (ia) of that sub-section. We do not think that the word 'applied' necessarily means 'spent'. Even if it has been earmarked and allocated for the purposes of the institution, it might, to our minds, be deemed to have been applied for the purpose. " In H. E. H. Nizam's Religious Endowment Trust v. CIT [1966] 59 ITR 582 (SC), under a trust deed executed by the Nizam of Hyderabad, the trust fund was to be accumulated during his lifetime and after his death, the trustees were to hold the fund upon trus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hnic from out of the profits of the aforesaid year." Another resolution was passed on September 1, 1965, in the following terms (p. 615) : "Resolved that the net profit for the year ending 31st March, 1965, amounting to Rs. 3,04,994.72 be added to the surplus of Rs. 528.46 carried forward from the previous year and the total surplus of Rs. 3,05,523.18 be and is hereby disposed of as follows: Rs. Development rebate reserve 521.00 Transfer to donation fund 3,00,000.00 To carry forward 5,002.18 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me and expenditure account and crediting to the outstanding payment account, whereas in the Madras case, there was no entry at all before the end of the accounting year. In the Madras case, the amount was shown as loans or advances, whereas in the present case, even in the balance-sheet, it was shown as a liability to the donee. We, therefore, think that the decision in Nachimuthu Industrial Association v. CIT [1980] 123 ITR 611 (Mad) is of no assistance to the revenue. Reference was made by the counsel for the I.T. Dept. and for the assessee to certain decisions rendered under the Gift-tax Act. The counsel for the assessee drew our attention to Srinath Das v. LT. Appellate Tribunal [1977] 109 ITR 315 (All), Smt. B. Muniyamma v. CGT [1979] 117 ITR 47 (Kar) and K. P. Brothers v. CIT [1961] 42 ITR 650 (Raj) and other decisions to the same effect. In Srinath Das v. LT. Appellate Tribunal [1977] 109 ITR 315 (All), it was held that in order to sustain a gift, it is not necessary that there should be a physical delivery of the amount gifted by the donor to the donee, and that a transfer can be effected by making a debit entry in the account of the donor and making a corresponding credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts which arose in regard to the assessment year 1969-70 was whether the capital gains should be included for. the purpose of finding out the income under s. 11(1)(a) of the Act, be it in the commercial sense or in the income-tax sense. The Tribunal felt that in the view it took as regards the scope of s. 11(1)(a), the contention regarding capital gains need not be gone into. As has been noted earlier, the Tribunal held that the assessee was entitled to the exclusion of Rs. 3,21,469 as having been applied for charitable purposes. If that amount coupled with the exclusion of Rs. 4,77,946 being the refund of tax deducted at source and the inclusion of only Rs. 3,33,091 as capital gain is considered, the provisions of s. 11(1)(a) would not be violated for the assessment year 1969-70. Though the Tribunal held that the requirements of s. 11(1)(a) had been fully complied with, in the operative portion it was mentioned that the appeal by the assessee was allowed in part. The assessee, therefore, filed an application Miscellaneous Petition No. 87 [Hyd.] 1974-75, stating that on the findings of the Tribunal in the appeal, the appeal should have been allowed in its entirety and not merely in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ws and it is also admitted that question No. 1 need not be answered. The Commissioner filed an application before the Tribunal to refer the three questions of law, viz.: "(1) Whether, on the facts and in the circumstances of the case, the order of the Appellate Tribunal passed on June 9, 1975, in the Miscellaneous Petition No. 87 [Hyd.] 1974-75 is devoid of jurisdiction and violative of the principles of natural justice ? (2) Whether the Appellate Tribunal's order dated June 9, 1975, amounts to review of its earlier order dated January 3, 1975 ? (3) Whether, on the facts and in the circumstances of the case, the excess or shortfall in the income applied to charitable purposes over the permitted sum for purposes of section 11(1) is correctly arrived at in annexure IV to the order dated June 9, 1975 ? " The Tribunal declined to refer the questions to this court. I.T.C. No. 80 of 1979 has been filed by the Commissioner with a prayer to this court to direct the Tribunal to refer the same questions. As stated above, the order in M.P. No. 87 [Hyd.] 1974-75 was passed by the Tribunal as the issue regarding the inclusion of capital gains was left open at the time of passing the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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