2004 (4) TMI 25 - HC - Income Tax

Charitable trust - whether the amount being kept in suspense account would qualify for the purpose of exemption under section 12 of the Income-tax Act 1961 or not? The amount cannot be separated and kept in suspense account but the amount received by the trust is required to be spent for a particular object or it is required to be set apart for the said object. Over and above this the amount set apart for the object of the trust is required to be communicated to the Assessing Officer in Form No. 10. The assessee having not done so the provisions of section 12 cannot be attracted in respect of subscription received from members held that the subscription is to be treated as income and exempted under section 11 - question whether the assessee s income is exempted under section 4(3)(i) of the Income-tax Act or not was answered in the affirmative.

Issues Involved:
1. Applicability of Section 12 to donations credited to the suspense account.
2. Deletion of additions on account of capital expenditure.
3. Deletion of additions on account of credits in the names of individuals.
4. Deletion of additions on account of membership subscription.
5. Treatment of interest income earned on fixed deposit receipts.
6. Treatment of agricultural income.
7. Exemption of donations under Section 11.
8. Treatment of subscription income under Section 11.

Detailed Analysis:

1. Applicability of Section 12 to Donations Credited to the Suspense Account:
In I.T.R. No. 158 of 1985, the issue revolved around whether donations credited to the suspense account qualify for exemption under Section 12 of the Income-tax Act, 1961. The court held that the amount received by the trust must be spent for a specific object or set apart for that object and communicated to the Assessing Officer in Form No. 10. Since the assessee did not follow this procedure, the provisions of Section 12 could not be applied. The question was answered against the assessee and in favor of the Revenue.

2. Deletion of Additions on Account of Capital Expenditure:
The court addressed the issue of whether the amount spent on acquiring/constructing capital assets was rightly deleted by the Tribunal. Referring to the apex court decision in S.Rm.M.Ct.M. Tiruppani Trust v. CIT [1998] 230 ITR 636, the court held that the question should be answered against the Revenue and in favor of the assessee, as the amount spent was towards the object of the trust.

3. Deletion of Additions on Account of Credits in the Names of Individuals:
The Tribunal had deleted the additions made by the Income-tax Officer on account of credits in the names of individuals. The court did not provide a detailed analysis on this issue, but it can be inferred that the Tribunal's decision was upheld.

4. Deletion of Additions on Account of Membership Subscription:
The court examined whether the income received by way of subscription from members was assessable to tax under the Income-tax Act, 1961, or exempted under Section 11. The court distinguished between voluntary contributions and subscriptions, stating that subscriptions are not voluntary contributions as they are made under compulsion for membership benefits. However, referring to the Bombay High Court's judgment in Cotton Textiles Export Promotion Council [1968] 67 ITR 539, the court concluded that subscriptions are to be considered as income derived from property held under trust and hence exempt under Section 11.

5. Treatment of Interest Income Earned on Fixed Deposit Receipts:
The court held that interest income earned on fixed deposit receipts is income from property held under trust. Since the amount was invested in a bank, which is a prescribed mode under Section 11(5), the interest derived from such investment is not taxable. The question was answered in favor of the assessee and against the Revenue.

6. Treatment of Agricultural Income:
The court referred to Section 10(1) of the Act, which specifies that agricultural income shall not be included in computing the total income of a previous year. Therefore, the question was answered in favor of the assessee and against the Revenue, stating that agricultural income is not required to be considered for the purpose of Section 11 of the Act.

7. Exemption of Donations Under Section 11:
In I.T.R. No. 454 of 1992, the court addressed whether the receipt of donations amounting to Rs. 4,84,506 is exempt under Section 11. The Revenue conceded that this question should be answered in favor of the assessee based on the facts. The court agreed, holding that the donations are exempt under Section 11.

8. Treatment of Subscription Income Under Section 11:
The court extensively discussed whether subscription income is assessable to tax or exempt under Section 11. Referring to various judgments, including Trustees of Shri Kot Hindu Stree Mandal v. CIT [1994] 209 ITR 396 and CIT v. Madhya Pradesh Ana) Tilhan Vyapari Mahasangh [1988] 171 ITR 677, the court concluded that subscriptions are not voluntary contributions but are income derived from property held under trust. Following the judgment in Cotton Textiles Export Promotion Council [1968] 67 ITR 539, the court held that subscriptions are to be treated as income and exempt under Section 11. The question was answered in favor of the assessee and against the Revenue.

Conclusion:
The court disposed of the references accordingly, addressing each issue comprehensively and providing detailed reasoning for its conclusions. The judgment clarified the treatment of various types of income and expenditures under the Income-tax Act, 1961, particularly focusing on the applicability of Sections 11 and 12.

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