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TMI Blog1975 (9) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... as "the assessee" submitted its return to the First Income-tax Officer, Mangalore Circle. In the said return, the assessee claimed that a sum of Rs. 85,262, which was the surplus income of the previous year, was exempt from tax under section 11(1)(a) and sub-section (2) of the said section. On the assessing authority holding that the assessee is not a genuine trust and, therefore, not entitled to claim the benefit of section 11, the assessee preferred an appeal before the Appellate Assistant Commissioner, which was dismissed. In the second appeal preferred by the assessee before the Income-tax Appellate Tribunal, it was held that the assessee was a charitable trust and, therefore, was entitled to claim exemption from tax under section 11 of the Act. In I.T.R.C. No. 31 of 1973 (Addl. Commissioner of Income-tax v. A.L.N. Rao Charitable Trust) which was a reference made at the instance of the department, this court by its judgment dated August 4, 1975, answered the question referred in favour of the assessee and against the department. Therefore, that the assessee is a charitable trust entitled to claim the benefits of section 11 is no longer in dispute. The assessing authority to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he requirements of section 11 ; according to the learned counsel, the assessee is entitled to exemption from tax in respect of 25% of the accumulated income plus that portion of the accumulated income in respect of which the conditions prescribed under clauses(a) and (b) of section 11(2) have been satisfied. According to the assessee, since it has deposited 75% of the accumulated income in the securities mentioned in section 11(2)(b), the entire surplus income which has accumulated was not taxable. The learned single judge rejected the contention of the revenue and upheld the contention of the assessee in part only. The learned judge held that the assessee is entitled to exemption from tax only in respect of 75% of the surplus income which was accumulated for future use. The learned single judge explained the scope of section 11(1)(a) and sub-section (2) of the said section thus : " A reading of the provisions of section 11(1)(a) extracted above shows that ordinarily any amount spent by the charitable trust from out of its income during the previous year on charitable purposes would be exempt from taxation and in so far as the income that is allowed to be accumulated for appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not, however, entitled to claim exemption in respect of 25% under section 11(1)(a) and also claim exemption in respect of the surplus amount invested under section 11(2). In the facts and circumstances of this case, because admittedly the assessee has invested 75% of the surplus income as provided under clause (b) of section 11(2) and has also given the required notice under section 11(2)(a) he is entitled to claim exemption from payment of income-tax only in respect of 75% of the surplus income." Aggrieved by the said order, the department has preferred the above appeal. Before us, Sri S. R. Rajasekhara Murthy, learned counsel for the appellants, urged the same contention that was urged before Venkataramiah J. He argued that the interpretation of section 11 by the learned judge is erroneous and that we should hold that the assessee is not entitled to exemption in respect of the entire surplus income accumulated, as it has not invested the entire amount in the securities specified in section 11(2)(b) of the Act. Sri Sarangan, learned counsel for the respondent-assessee, submitted that on a true and correct interpretation of section 11, we should hold that the assessee, if it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 11(2) while enlarging the scope of exemption removes the restriction imposed by section 11(1)(a) but it does not take away the exemption allowed by section 1l(1)(a). In my opinion, where a statute, particularly a taxing statute, confers a concession by one particular provision in the statute and then further liberalizes and enlarges that concession by another provision in that statute, then the concession granted by the earlier provision cannot be deemed to be taken away. Section 11(2) of course lays down the conditions, the compliance of which is necessary to avail of the exemption but they are merely for the purpose of availing of the further exemption and not for depriving or taking away the exemption granted under section 11(1)(a)." The judgment of the Jammu and Kashmir High Court in Shri Krishen Chand Charitable Trust case was delivered on June 17, 1974. The learned counsel for the department did not bring to our notice any decision taking a contrary view. We asked Sri Rajasekhara Murthy whether the department has preferred any appeal to the Supreme Court aganist the said judgment. The learned counsel submitted that he has no information of any appeal to the Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come. Under the Act, 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 is wholly exempt ; where the whole or part of the income is accumulated for application for such purposes in India, then, if the income accumulated is 25% of the income from the property or Rs. 10,000, whichever is higher, is also exempt ; income accumulated in excess of 25% of the total income of the trust or Rs. 10,000, whichever is higher, is taxable under section 11(1)(a) unless the conditions regarding the accumulation set out in section 11(2) are complied with. If accumulation in excess of 25% of the trust income is made for a purpose of the trust, to secure exemption for the excess amount a written notice should be given to the Income-tax Officer in the manner prescribed by rule 17 of the Income-tax Rules, 1962, and the accumulated income should be invested in Government or other approved securities ; but in no case is the income allowed to be accumulated for more than 10 years. According to the learned authors of the Law and Practice of Income-tax by Kanga and Palkhivala, 6th edition, vol. I, p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the words which promotes in the fullest manner the policy of the legislature in the enactment of the law, and to avoid a construction which would alter or defeat that policy, where the construction in harmony with the policy is reasonably consistent with the language used." (Vide 50 American Jurisprudence, pages 279 and 280, paragraph 298). At stated earlier, the 1922 Act had wholly exempted the income derived from property held in trust and there was no restriction upon the accumulation of the income. The 1961 Act with which we are concerned for the first time imposed restrictions upon the accumulation of income. While imposing restrictions upon accumulation, section 11(1)(a) provided for exemption of income not exceeding 25% of the total income of the trust or Rs. 10,000, whichever is higher. The restriction, however, relates to 75% of the total income of the properties ; but that restriction in respect of the income in excess of 25% of the trust income is lifted if the assessee complies with the conditions laid down in clauses (a) and (b) of sub-section (2) of section 11. One condition is that the assessee should give a written notice to the assessing authority in the man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exercised in writing before the expiry of the time allowed under sub-section (1) or sub-section (2) of section 139, whether fixed originally or on extension for furnishing the return of income) be deemed to be income applied to such purposes during the previous year in which the income was derived ; and the income so deemed to have been applied shall not be taken into account in calculating the amount of income applied to such purposes, in the case referred to in sub-clause (i), during the previous year in which the income is received or during the previous year immediately following, as the case may be, and, in the case referred to in sub-clause (ii), during the previous year immediately following the previous year in which the income was derived ...... (2) Where seventy-five per cent. of the income referred to in clause (a) or clause (b) of sub-section (1) read with the Explanation to that sub-section is not applied, or is not deemed to have been applied, to charitable or religious purposes in India during the previous year but is accumulated or set apart, either in whole or in part, for application to such purposes in India, such income so accumulated or set apart shall not b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g notice in writing as prescribed by rule 17 is complied with, and further that 75% of the income so accumulated or set apart is invested in Government securities or other approved securities. Sub-section (2) as amended removes all doubt and the intention of the Parliament is made clear that the exemptions under sub-sections (1) and (2) of section 11 are independent and not alternative. The assessee may or may not be able to obtain the exemption by satisfying the conditions laid down in sub-section (2), but if he does not satisfy the conditions laid down in sub-section (2), he is not deprived of the exemption conferred under sub-section (1) of section 11. The law imposes restrictions only in regard to 75% of the income of the trust property, where the income is allowed to accumulate for future application for the purposes of the trust in India. In the report of the Select Committee on the Taxation Laws (Amendment) Bill, 1975, it is stated that the proposed amendment of section 11 by the Bill is of a clarificatory nature. Since section 11 as it stood before the amendment was capable of conflicting views, Parliament stepped in and clarified the provision for exemption in unambiguous ..... X X X X Extracts X X X X X X X X Extracts X X X X
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