TMI Blog2007 (10) TMI 442X X X X Extracts X X X X X X X X Extracts X X X X ..... on 11 and taxing the income on commercial principles. (3)The appellant contends that the learned Commissioner erred in coming to the conclusion that there is no obligation on the part of the appellant to apply its income for charitable purposes in perpetuity and hence the appellant is not a charitable institution. (4)The appellant contends that the learned Commissioner erred in coming to the conclusion that there is no legal obligation on the part of the Corporation to apply its income only for charitable purposes. (5)Without prejudice to the above, the appellant further contends that the income obtained is agricultural income and the appellant carried on his agricultural operations. Hence no portion of its income is liable to tax earned out of sale of agricultural produce. (6)It is contended that all the agricultural operations as are required for raising the crops and plantations are carried on by the corporation. The activities of the corporation carried on for raising the produce are set out in the form of enclosure to this ground of appeal and may be treated as part of these grounds. (7)It is contended that the learned Commissioner erred in coming to the conclusion t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in fact the issues involved in this appeal are only of two types. The first issue is in respect of exemption under section 11 of the Act. For this purpose ground Nos. 2 to 4 are raised in the appeals. The second issue is in respect of agricultural income which is covered by grounds 5 to 10. 4. Brief facts of the case are that the assessee is a company incorporated on 16-6-1975 under the Companies Act, 1956. The assessee-company filed return of income declaring nil income. A note appended to the computation of total income stating that the assessee claimed its income to be exempt being agricultural in nature and in another note; it is stated that the assessee-company is recognized as Trust vide CIT, AP-I s order. The Assessing Officer issued a show-cause notice to the assessee stating that why the claim under section 11 as well as claim regarding agricultural nature of its income should not be rejected. The extracts of the notice is reproduced as below : "... it is noticed that your claim for exemption is not tenable for the following reasons : 1.Yours is a company limited by shares, 2.The company is not one registered under section 25 of the Companies Act, 3.The ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court ( CIT, Madras v. Maddi Venkatasubbayya ( 20 ITR 151 ). In the light of the discussion above, it is proposed to bring the income of the company to tax. Further it is also proposed to include interest on APFDC loan of Rs. 1,09,43,076 being interest on company s funds lent to Government s beedi leaves trade, in the computations of Total Income. You are requested to state your objections, if any, to the proposed action so that the same may be taken into consideration before taking a final decision." The Assessing Officer denied the assessee exemption claimed under section 11 and under section 10(1) of the Act. Assessing Officer noticed from a letter dated 23-3-2006 filed by the assessee that APFDC, i.e., the assessee herein is a fully owned Government company and the Government of A.P. has been transferring area to APFDC from time to time and has not fixed any period for such lease and hence no lease agreement has been entered and hence there was no registration of the lease deed. The transfer of area was affected through Government orders only. The Assessing Officer noticed that the submission of the assessee confirmed the fact that the assessee does not have any righ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no legal obligation on the part of the corporation either to hold assets or to apply its income for charitable purposes in perpetuity and irrevocability. The CIT (Appeals) has also observed that whether the shareholder of the company/corporation is Government or a private Individual, it is immaterial to the issue insofar as there is no legal obligation/restriction for the corporation to apply its income only for charitable purposes. In other words, in the absence of any property held under legal obligation, there is no guarantee that the income would be applied for charitable purposes. In the instant case, the income of the corporation is not tied up by any legal obligation or trust but it is at the mercy of the Government policy formulations. The CIT (Appeals) confirmed the order of the Assessing Officer regarding refusal of claim of the assessee that income is exempt under section 10(1) of the Act. 5. The learned AR submitted that there is nothing wrong in a company being limited by shares and still being a charitable company. The learned AR in support of his contention relied upon the decision of the jurisdictional High Court in the case of Girijan Co-op. Corporation Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit is a mere figment of imagination and wild guess work on the part of the Assessing Officer. The learned AR while attacking the basis on which the Assessing Officer rejected the assessee s claim, submitted that there is no legal prohibition for the company to distribute profit. The learned AR submitted that from inception till date, not a single rupee has been paid to any person in the form of profit and not a rupee of dividend was declared at any point of time. The learned AR further submitted that the shareholders are the State Government and the Government of India. There are no private individuals or any third parties. It is also submitted by the learned AR that merely because there is a provision to distribute profits that by itself, does not destroy the character of the institution being a charitable institution. The learned AR in support of his contention relied upon the judgment of the jurisdictional High Court in the case of Girijan Co-op. Corpn. Ltd. ( supra ) wherein under identical circumstances, the AP High Court held that mere enabling clause to distribute profits does not militate against the charitable character of the institution. 5.1 The learned AR whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tate Government and not private individuals. The learned AR submitted that the institution has started to function from the year 1975 and after lapse of 32 years and till date it is functioning and there is no reason to believe that it will be dissolved. Learned AR further submitted that on the contingency of winding up of the company the possibility of the shareholders viz., the State Government sharing surplus is too remote a reason to destroy the charitable nature of the institution. Even if it happens in the year in which it happens, as to whether it remains charitable or not, could be examined and not, in the year under consideration when no such event has taken place. There is no statutory requirement or any law laid down that a charitable institution should exist in perpetuity and cannot be any time bound. Hence reasoning of the Assessing Officer is erroneous. The learned AR submitted that whether an institution is charitable or not has to be viewed from the angle of its primary purpose. It is not appropriate that all the objects set out should be treated as primary objects. An effort should be made to bisect the primary purpose embedded in the objects and the other object ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the State. The corporation was not incorporated to earn profits by the State or Central Government. The profits, if any, obtained are incidental and the remaining objects are enabling provisions to achieve the primary object. The learned AR while referring to another decision of the Apex Court in the case of Indian Chamber of Commerce ( supra ) submitted that this judgment is also distinguishable on facts. A blood bank could be charitable or it could also be commercial. If the sale of blood is taken as an activity for profit, it becomes commercials whereas in the case of Government Hospital if the blood is collected and sold at a marginal cost, the entire colour of the activity and purpose changes. It all depends who is running the entity and what is the primary object. The learned AR submitted that none of the decisions relied upon by the Assessing Officer fits into the facts of the assessee s case. On the contrary, the facts of State Road Transport Corpn. s case ( supra ) and facts of Girijan Co-operative Corpn. Ltd. s case ( supra ) are directly applicable to the facts of the case of the assessee. Hence the Assessing Officer was in error in denying exemption under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts like tractor, trailers, lorries, oil engines, pump sets etc. The learned AR submitted that the value of total agricultural equipment is about Rs. 7.72 crores as on 31-3-2003. Some of the important agricultural operations carried out by the Corporation in raising the plantation pointed out by the learned AR is reproduced as below : Advance operations 1.Clearing the proposed planting areas of the jungle growth; 2.Uprootal of unwanted weed growth and stumps to reduce the root competition. 3.Ploughing the entire area by Tractors; 4.Soil and Moisture Conservation Measures; 5.Ploughing of areas every year till harvesting. Raising Nurseries 1.Raising the Eucalyptus clonal seedlings in Mist Chambers under controlled atmospheric conditions; 2.Raising of bamboo seedlings under macro proliferation methods. 3.Raising of high quality coffee and pepper seedlings in poly pots. 4.Raising of cashew grafts in poly pots. Raising plantations 1.Digging pits for planting; 2.Planting the bag plants after application of Fertilizers for better establishment of the Root system; 3.Replacement of causalities following the planting procedure to maintain good stocking; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce in respect of sale of forest produce. This was contested by the corporation and it contended that the produce raised by it and sold in the market is agricultural produce and that it is not spontaneous growth for being considered as forest produce. A writ petition bearing 28498 of 1997 was filed in the Andhra Pradesh High Court which has since been 272 ITR 445. The Hon ble High Court referred to the decision of the Supreme Court in CIT v. Raja Benoy Kumar Sahas Roy [1957] 32 ITR 466 and held that there is a difference between agricultural produce and forest produce, that the term forest produce denotes produce grown spontaneously and not where the basic agricultural operations are carried out. It set aside the order and directed the authorities to give a finding as to the nature of produce. Subsequent to the passing of this order, the departmental authorities accepted that the produce sold is agricultural produce and that the provisions of section 206C of the Income-tax Act are not attracted and the entire tax collected under section 206C was refunded. The activities carried on by the corporation falls within the test of the meaning of the word agriculture as defined by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AR submitted that the said judgment of the Madras High Court is distinguishable on facts as in that case the assessee purchased standing crop from the person who has raised tobacco on the land. He did not carry on any agricultural operation. He merely purchased standing crop from the person who cultivated the land. The facts of the case under consideration is in contradistinction as in the case under consideration, the lands were transferred by the Government to the Corporation and it is not a mere licence to cut standing crops. The assessee-corporation was allowed to take possession and to carry on operations as transferee of the lands without any restrictions from the State Government and without its interference. Rentals were charged for the lands transferred. Lands were cultivated from year to year by the Corporation for several decades. Corporation carried on all basic agricultural operations from beginning to end. The assessee cultivated the land and in its capacity as cultivator of the land it effected sale of produce raised by it. The assessee-company did not purchase any standing crop. 7.4 From the above factual position it is clear that the assessee-corporation has in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the corporation has no derivative interest. The word derivative interest is not the same as ownership. It only means that there should be some interest to cultivate the land like any cultivator. Therefore, the basis on which the assessment is made treating the income a non-agricultural income does not stand to reason. The Assessing Officer concluded that the GOs transferring the lands by the Government to the corporation are not registered under the Registration Act, 1908 and hence it cannot be treated that the corporation is a transferee or a lessee of the land. He concluded that since the corporation has no legal right or title, the income received on cultivating the land is non-agricultural income. The State Government has clarified that all such transfers are effected by the State Government by the GOs and do not require registration under the Registration Act, 1908. Even for the sake of argument, if it is accepted that such leases by the State Government requires registration, the omission to register does not destroy the substance of transaction. What is the effect of non-registration of document is set out in section 49 of the Registration Act. An unregistered documen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,484,894 -13,984,102 18,500,792 9. The learned DR relied upon the order of the lower authorities and submitted that the object of the assessee-company was not to earn agricultural income. He further submitted that the land is not registered in the name of the assessee-company. The learned DR in support of his contention relied upon the judgment of the Madras High Court in the case of Maddi Venkatasubbayya ( supra ). The learned DR submitted that the object of the assessee is not to carry out agricultural activity, therefore, income cannot be said to be agricultural income. The learned DR in support of his contention relied upon the judgment of the Apex Court in the case of K. Lakshmanan Co. v. CIT [1999] 239 ITR 597 . The alternate submission of the learned DR is that if at all the contention of the learned AR is accepted, then the agricultural income and non-agricultural income is required to be bifurcated. Since the bifurcation submitted by the learned AR is required to be verified, he urged that the matter may be sent back to the file of the Assessing Officer for necessary verification. 10. We have heard the learned representat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at it shall not be included in the total income of the person in receipt of such income; ( d )income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution. Explanation. For the purposes of clauses ( a ) and ( b ), (1)in computing the twenty-five per cent of the income which may be accumulated or set apart, any such voluntary contributions as are referred to in section 12 shall be deemed to be part of the income; (2)if, in the previous year, the income applied to charitable or religious purposes in India falls short of seventy-five per cent of the income derived during that year from property held under trust, or, as the case may be, held under trust in part, by any amount ( i )for the reason that the whole or any part of the income has not been received during that year, or ( ii )for any other reason, then ( a )in the case referred to in sub-clause ( i ), so much of the income applied to such purposes in India during the previous year in which the income is received or during the previous year immediately following as does not exceed the said amount, and ( b )in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( ii )in any other case, so much of the appropriate fraction of the capital gain as is equal to the amount, if any, by which the appropriate fraction of the amount utilised for acquiring the new asset exceeds the appropriate fraction of the cost of the transferred asset. Explanation. In this sub-section, ( i ) appropriate fraction means the fraction which represents the extent to which the income derived from the capital asset transferred was immediately before such transfer applicable to charitable or religious purposes; ( ii ) cost of the transferred asset means the aggregate of the cost of acquisition (as ascertained for the purposes of sections 48 and 49) of the capital asset which is the subject of the transfer and the cost of any improvement thereto within the meaning assigned to that expression in sub-clause ( b ) of clause (1) of section 55; ( iii ) net consideration means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer. (1B) Where any income in respect of which an option is exercised under clause (2) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... invested or deposited in any of the forms or modes specified in sub-section (5), or ( c )is not utilised for the purpose for which it is so accumulated or set apart during the period referred to in clause ( a ) of that sub-section or in the year immediately following the expiry thereof, shall be deemed to be the income of such person of the previous year in which it is so applied or ceases to be so accumulated or set apart or ceases to remain so invested or deposited or, as the case may be, of the previous year immediately following the expiry of the period aforesaid. (3A) Notwithstanding anything contained in sub-section (3), where due to circumstances beyond the control of the person in receipt of the income, any income invested or deposited in accordance with the provisions of clause ( b ) of sub-section (2) cannot be applied for the purpose for which it was accumulated or set apart, the Assessing Officer may, on an application made to him in this behalf, allow such person to apply such income for such other charitable or religious purpose in India as is specified in the application by such person and as is in conformity with the objects of the trust; and thereupon the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934); ( iv )investment in units of the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963); ( v )investment in any security for money created and issued by the Central Government or a State Government; ( vi )investment in debentures issued by, or on behalf of, any company or corporation both the principal whereof and the interest whereon are fully and unconditionally guaranteed by the Central Government or by a State Government; ( vii )investment or deposit in any public sector company: Provided that where an investment or deposit in any public sector company has been made and such public sector company ceases to be a public sector company, (A) such investment made in the shares of such company shall be deemed to be an investment made under this clause for a period of three years from the date on which such public sector company ceases to be a public sector company; (B) such other investment or deposit shall be deemed to be an investment or deposit made under this clause for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 961. It talks of trusts, institutions, and legal obligations, which are the entities entitled to exemption thereunder. The activities of such entities may be purely charitable, purely religious or charitable as well as religious. The trusts or institutions may be charitable trusts/institutions. The clause ( a ) of sub-section (1) of section 11 says that 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, will be exempt from income-tax. Section 11(1)( a ) further provides that where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of twenty-five per cent (15 per cent with effect from 1-4-2003) of the income of such property, exemption will be available to the trust. The following ingredients of this section 11(1)( a ) are particularly noteworthy. ( i )Exemption under section 11(1)( a ) is available only to trust/institution which holds the property (from which income is derived) in trust wholly for charitable or religious purposes. ( ii )The exemptio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... general public utility. To serve as a charitable purpose, it was not necessary that the object should be to benefit the whole of mankind or even all persons living in a particular place. It was sufficient if the intention was to benefit a section of the public as distinguished from specified individuals. The concept of general means pertaining to a whole class. Public means the body of people at large including any class of the public and utility means usefulness. Therefore, the advancement of an object beneficial to public or a section of the public is distinguished from an individual or group of individuals would be a charitable purpose. 10.2 ( b ) The Bombay High Court in the case of Director of Income-tax (Exemptions) v. Bharat Diamond Bourse [2000] 245 ITR 437 held that when a diamond bourse set up at the behest of Government with the object to facilitate export or diamonds by providing customs clearance and other facilities to exporters and importers without any profit motive was having an object of general public utility within the meaning of section 2( 15 ) and was entitled to exemption under section 11 of the Act. 10.2 ( c ) In the case of Girijan Co-op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are projected before the court : According to the revenue, this corporation is merely a federal society composed of societies whose membership is restricted to members of Scheduled Tribes only; its object primarily is to carry on trade in forest and agricultural produce to the best advantage of its members. It is nothing but a co-operative society designed to benefit its members alone. The mere fact that it is set up by the Government is of no consequence. It is a trading concern whose profits are shared by its members. That the members of this society belong to the Scheduled Tribes is again of no consequence. It provides for declaration of dividend, no doubt, subject to a ceiling. This feature clearly shows its object to be earning of profits and thereby helping its members. On the other hand, the case of the assessee is that it is a mistake to treat it on par with any other or the general run of co-operative societies. It is not a case where some persons, may be poor, have come together to form a co-operative society, to carry on an activity to earn profits and thereby help themselves. This is a case where the Government has come forward to constitute a society of Girijans to sav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 1, the Supreme Court held that the primary object and purpose of Surat Art Silk Cloth Mfrs. Association s case ( supra ) a company incorporated under the Companies Act, was a charitable purpose. The objects of the company were ( a ) to promote commerce and trade in art silk yarn, raw silk, cotton yarn, art silk cloth, silk cloth and cotton cloth; ( b ) to carry on all and any of the business of art silk yarn, raw silk, cotton yarn, etc., belonging to and on behalf of its members; ( c ) to obtain import licenses for import of art silk yarn, raw silk, cotton, yarn, and other raw materials as well as accessories required by its members for the manufacture of art silk, silk and cotton fabrics; ( d ) to obtain export licenses and export cloth manufactured by the members; ( e ) to buy and sell and deal in all kinds of cloth and other goods and fabrics belonging to and on behalf of the members; ... ( n ) to do all other lawful things as are incidental or conducive to the attainment of the above objects. It was company registered under section 25 of the Companies Act, 1956. The income and property of the assessee were to be applied solely and exclusively for the promotion of the obj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passengers using the road transport services, welfare of labour employed by the corporation, and the balance, if any, to be made over to the State Government for purposes of road development. The State Government was entitled to interest at the prescribed rate on the capital contributed by it. On a consideration of the above factors, it was held that the activity of the corporation was carried on not with the object of making profit, but for advancement of an object of general public utility. The court held that the test in such cases is : what is the predominant object of the activity - whether it is to carry out a charitable purpose or to earn profit? If the predominant object is to carry out a charitable purpose and not to earn profit, the purpose would not lose its charitable character merely because some profit arises from its activity. 10.2 ( g ) The jurisdictional High Court in the case of CIT v. Andhra Pradesh Police Welfare Society [1984] 148 ITR 287 , where the Andhra Pradesh Police Welfare Society was held to be a society whose primary and dominant object was advancement of an object of general public utility within the meaning of section 2( 15 ) of the Act. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding. But the same was held not to render the association form for the private gain of its members since during the life time of the organization. It was under an obligation to spend its income for charitable purposes. The Bombay High Court approved the principle that the prosperity of the association which would be shared by the trade would not render the purpose any less an object of general public utility. 10.2 ( i ) The Madras High Court observed in Southern India Mill Owners Association s case ( supra ) that the primary and dominant purpose of the assessee-association was only to promote and protect the textile industry and, therefore, for the benefit of the general public and not for the personal benefit of its members and any incidental benefit to its members would not militate against its charitable character. The association was therefore allowed exemption. 10.2 ( j ) Other decisions relevant in this regard are : ( i ) CIT v. Indian Sugar Mills Association [1974] 97 ITR 486 (SC); ( ii ) CIT v. Federation of Indian Chambers of Commerce Industry [1981] 130 ITR 186 (SC); ( iii ) Addl. CIT v. South India Hire Purchase Association [1979] 116 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prosperity of the people at large and such object falls within the purview of the expression object of general public utility. 10.2 ( n ) In CIT v. P. Krishna Warrier [1972] 84 ITR 119 (Ker.) the assessee ran a research establishment in ayurvedic medicines, prepared and sold ayurvedic medicine as well as treated patients, received either no payment or payment according to capacity and the amount received by such treatment of poor persons was negligible compared to the sale of ayurvedic medicines to the tune of lakhs of rupees that the predominant object was the preparation and sale of ayurvedic medicines and therefore, the trust for the Arya Vidya Shala was one with fixed objectives and fell within the category of object of general public utility mixed up with activity for profit and therefore was outside the ambit of the definition of charitable purpose in section 2( 15 ) of the Act. A Full Bench of the Kerala High Court overruled the said decision and held that since the business of the Arya Vaidya Shala itself was held in trust the dominant object of which was for general utility, the trust was charitable. As in (1992) 193 ITR St. 8, the Supreme Court dismissed the sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urpose of carrying on the undertaking or for purposes connected therewith. 30. Transfer of Government shares. So far as concerns any share held by any person as a nominee of the Government or the Government requiring him on transfer such share to the Government or to any other person or persons nominated by the Government or any such person becoming of unsound mind or being adjudicated as insolvent, or dying or on such person, being a company, being wound up voluntarily or by the Court or subject to the supervision of the Court, the following provisions shall take effect namely: ( a )The Government may at any time serve the Company with requisition to enforce the transfer of any such share. ( b )The company shall thereupon forthwith give to the holder of such share or where the holder has become of unsound mind. 34. Offer of new share . Subject to any direction to the contrary that may be given by the resolution sanctioning the increase of share capital, all new shares, shall, before issue, be offered to such persons as at the date of the offer entitled to receive notice from the Company of general meetings, in proportion, as nearly as the circumstances admit, to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company are predominantly commercial in nature. 13. The assessee s case is that the predominant purpose of the assessee is to increase the green cover in the State and to raise plantations and tree growth to feed industries in the State largely with a view to promote industrialization. The Corporation s objectives are thus two fold viz. Increasing the green cover of forest area gradually and providing plantations for the industrial growth. These are objectives in public interest. The expression "object of general public utility" appearing in section 2( 15 ) would include only those objects which promote the welfare of general public and not the individual interest of some persons. 14. On a perusal of the objects of the assessee-corporation, we notice that there are several mixed objects provided in the Memorandum and Articles of Association of the Corporation. Object Nos. 1 5 are to develop land for raising forest plantation in the State of Andhra Pradesh for the purpose of development of industries based on their produce and to promote the development of forest industries and those are clearly objects of public utility. On perusal of 28th Annual Report 2002-03 wherein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estriction for the Corporation to apply its income only for charitable purpose, not much importance need to be given at the assessment stage particularly when the assessee-corporation has been granted registration under section 12A. The important aspect of the matter at the assessment stage is to examine the application of income whether it has been applied for charitable purpose or not. The procedure of examination is provided in section 11 of the Income-tax Act. Exemption is not automatic; satisfaction of conditions is to be examined at the assessment stage. The jurisdictional High Court in the case of CIT v. Hyderabad Secunderabad Food Grains Association Ltd. [1989] 175 ITR 574 (AP) held that once it is accepted that the assessee is a public charitable institution, it becomes necessary to examine whether the conditions specified for exemption of income in sections 11 and 13 are satisfied. The question in that case was whether the assessee was a public charitable institution and therefore its income is exempt under section 11 of the Income-tax Act. The issue came up for consideration for the assessment years 1974-75 to 1976-77. The Assessing Officer rejected the assessee s cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose that the Commissioner had given directions which, in our opinion, he was quite justified in doing so. The Commissioner of Income-ax (Appeals) while disposing of the appeal for the earlier assessment years 1974-75, 1975-76 and 1976-77 was in error in straightaway declaring the exemption under section 11 without examining the fulfilment of the conditions specified in sections 12, 12A and 13. The Commissioner of Income-tax (Appeals), disposing of the present appeal for the assessment year 1977-78, is under no obligation to follow an erroneous order of his predecessor. In the circumstances, we are satisfied that the order of the Commissioner is perfectly justified and the Tribunal was in error in interfering with that order." 15. Section 11, an elaborate provision, provide exemption to the income from property held under trust for charitable or religious purpose and also the income of charitable or religious trust falling in some other categories subject to the conditions specified in section 11 itself and also subject to the provision of sections 12, 12A and 13 of the Income-tax Act, 1951. It talks of Trust, Institution and Corporation which are entitled to exemption thereun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itions specified in sections 11, 12 13 so as to make it eligible for exemption of its income. As discussed above, it is required to be examined by the Assessing Officer regarding application of income considering various projects and activities of the assessee-corporation, whether the income has been applied by the corporation in accordance with section 11 or not. We notice that the Assessing Officer did not consider it necessary to go into all these aspects before rejecting assessee s claim. On reading of section 11 it has been noticed that the Assessing Officer is empowered to allow exemption to the assessee-corporation to the extent to which the income is applied to charitable purposes and whether any such income is accumulated or set apart for application to such purpose in India, to that extent to which the income so accumulated or set apart which is not in excess of the prescribed percentage of income from such property, to that extent the income is to be treated as income applied for charitable purposes. On examination if the Assessing Officer notice that such income has not been applied to charitable purposes, only to that extent the claim of exemption can bedisallowed. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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