TMI Blog1985 (1) TMI 115X X X X Extracts X X X X X X X X Extracts X X X X ..... Bansal, Smt. Sucheta Kripalani and Shri K.K. Birla. The preamble of the trust deed provided the circumstances under which this trust came to be created as an adjunct of the Indian National Theatre and how a plot of land was allotted to it by the Land and Development Officer, New Delhi, and how it was desired to utilise that land and other assets for the furtherance of the objects of the trust enumerated above. There are several other clauses in the trust deed, with which we are not directly concerned for our present purpose. This trust applied to the Commissioner for registration and we are told that registration as required under section 12A of the Act was granted by the Commissioner vide Registration No. DLI/C/T-422. 3. For the year under appeal, as in the past, this trust was recognised as a charitable institution under section 11 and there was no dispute over that aspect except insofar as the present assessment year is concerned. Although the income of the trust was being exempted from tax but for this year the exemption is sought to be denied primarily for three reasons. One was that though the trust applied for accumulation of income, it did not accumulate the income in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch option was exercised to accumulate. If so worked out, there would not be any income for tax. Whether this is as per law in short the controversy. What we have got now to decide in this appeal is, therefore, (a) whether the amount of Rs. 1 lakh deposited with Grindlays Bank in yester years could be regarded as income accumulated out of the current income, i.e., can it be regarded as accumulation out of current year's income, and (b) whether, the option has been properly exercised within the meaning of section 11(2) or whether it was vague and whether the loan of Rs. 50,000 to Shri Ram Centre for Art and Culture is application of income or not. Same calculations have been given to us by the assessee's learned counsel, Shri G.C. Sharma, on page 1 of the paper book and we have arrived at the same figure in the above manner but basically there are three questions that fall for our decision in this appeal. 4. We have already mentioned the views of the ITO on these questions although there was nothing specific in his order about the vagueness of the exercise of the option. The order of the ITO shows that he was concentrating more upon the investment in the Government securities and w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re of any conscious application of mind by the assessee-trust to accumulate any specific sum for any specific purpose nor does it give any justification for the shortfall in the expenditure during the accounting year. Because of this, which he saw as lacuna, he described the option as vague and indefinite and in no way creating a binding force. He, therefore, held that the requirements of Explanation 2 to sub-section (1) of section 11 were not satisfied. 6. Arguing for the assessee, Shri G.C. Sharma, the learned senior advocate submitted that none of the reasons shown by the department for rejecting the claim of the assessee are either valid or relevant. Commenting upon about the deposit made with the Grindlays Bank of Rs. 1 lakh, he submitted that the letter of the law, according to the department, would have been satisfied if the assessee had withdrawn that money and again deposited. The department does not have any quarrel if this procedure is adopted and it would have readily agreed that the said deposit was made out of the current year's income. The same result is achieved by treating this deposit by earmarking it as deposit made out of the year's income, the legal requireme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he shortfall in application of income, would be deemed to be so applied, which, if carefully read, would only mean that all the income which does not exceed the shortfall in the application of income would be deemed to have been applied for the purpose of the trust. The option was couched in the language used in section 11(1) and it made a pointed reference to Explanation 2 to section 11(1) and there could be nothing wrong with it and even if it is read as vague, indefinite, since reference to Explanation 2 to sub-section (1) of section 11 was made, all the provisions of that Explanation must be read into this option which would then mean that the accumulation sought for is in order. The department is, therefore, not justified in not giving proper meaning to the words used in the letter exercising the option. Lastly, Shri Sharma submitted that since the remaining income is deemed to have been accumulated in respect of which a request was made to the ITO by the exercise of this option, if the deposit of Rs. 1 lakh made with the Grindlays Bank was not regarded as accumulation of income out of current year's income, then that amount should be added to the income accumulated and the wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... option, he submitted that the wording used was very confused and is capable of more than one meaning and any document giving rise to more than one meaning cannot but be said to be vague and it is implicit in it and when the Commissioner (Appeals) says that the option exercised was vague for want of clarity, he was not wrong at all as he was emphasising the obvious. He, therefore, justified that conclusion of the Commissioner (Appeals). 8. In our considered opinion, we will not say for the present that there is no merit in the department's argument insofar as the treatment to be accorded to the deposit made with the Grindlays Bank is considered but if it is considered a lacuna, that is more than made up by the exercise of the option by the assessee to accumulate income. That particular circumstance should not, therefore, come in the way of the assessee in getting the benefit provided the option exercised is read as definite, clear and not giving rise to any ambiguity. We, therefore, think that it would be better to approach the problem posed before us from the point of view of option and then try to resolve the other points raised from that standpoint. Now we will have to notice s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion analyses the possible reasons as to why the assessee could not spend the income in the previous year of its accrual ; maybe the assessee did not receive a part of it during the previous year, there having been no cash realisation or may be for some other reason. In case where the assessee could not comply because of non-receipt of income, the Explanation provides that 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 sum would be regarded as application of income. This concession is available to the assessee only if he exercised the option given to him by the Explanation before the expiry of the time allowed under sub-section (1) or sub-section (2) of section 139 of the Act whether fixed originally or on extension for furnishing the return of income. The natural consequence of such option is that the said amount will be treated as having been applied for the specified purpose in the year of receipt and will not be again available to the assessee in respect of the assessment year relevant to the previous year in which it was actually applie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erative land mortgaged bank or a co-operative land development bank ; or (iii) deposited in an account with a financial corporation which is engaged in providing long-term finance for industrial development in India and which is approved by the Central Government for the purposes of clause (viii) of sub-section (1) of section 36. 3. Copies of the annual accounts of the trust along with details of investments (including deposits) and utilisation, if any, of the money so accumulated or set apart will be furnished to you before the expiry of six months commencing from the end of each relevant previous year or before the 30th day of June immediately following such previous year, whichever is later. 4. It is requested that in view of our complying with the conditions laid down in section 11(2) of the Income-tax Act, 1961, the benefit of that section may be given in the assessments of the trust in respect of the income accumulated or set apart as mentioned above. Sd/- Vinay Bharat Ram Signature Vinay Bharat Ram Date : 26-6-1980 Designation : Trustee Address : 25, Sardar Patal Road New Delhi." Now the question is whether the sum of Rs. 3,78,397 has been invested in the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of income so much of the income applied to such purposes in India during the next previous year, which does not exceed the said amount would be deemed to be the application of the income. The precise language used in the letter written to the ITO is the language used in the statute of the Act. If the language used in the Act is indefinite and imprecise, then it can be said that the language in the letter exercising the option is also imprecise and vague. We cannot attribute indefiniteness or impreciseness to the Legislature. Therefore, the Commissioner (Appeals), in our opinion, fell into error in reading into this letter vagueness and indefiniteness. All this means that the next year's income would be utilised to meet the shortfall of this year. Since this Explanation provided that once the option is exercised the amount so applied in the next year would be deemed to be the income applied to such purposes, i.e., charitable or religious purposes during the previous year in which the income was derived, it means that the ITO has first of all to compute the shortfall and whatever shortfall that is computed would have to be made good in the next year. According to the assessee, the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d earlier. is Rs. 81,509 plus Rs. 1 lakh, i.e., Rs. 1,81,509. The option exercised by the assessee should, therefore, be regarded to have been with reference to this sum of Rs. 1,81,509 even though it was said in the letter that it was only with regard to Rs. 81,509. The figure of Rs. 81,509 was mentioned in the letter because the trustees felt bona fide that the fixed deposit with the Grindlays Bank of Rs. 1 lakh could be regarded as investment made for the purpose of accumulation out of the present year's income. It was with that genuine reason that they excluded that sum. If not, then that is to be regarded as amount accumulated in respect of which the option is exercised. The point to be noted here is that there was no dispute between the assessee and the department and that there was no option exercised nor the requirements of law in regard to exercise of option were satisfied except that the wordings of the option were vague and imprecise for which reason the option was ignored. Since we found that the language used in the letter was the same as the language used in the Act, we cannot say that there is any impreciseness in the option. The purpose of the option is very clear t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be given notice in the prescribed manner, (ii) the purposes for which the income is being accumulated and the money so accumulated should be invested in the manner provided in the Act. What is that income that is to be invested or deposited ? Is it the income of the year or the surplus of the income of the earlier years ? As we have already quoted above, the money to be invested or deposited is the money so accumulated. Then we must see what is the money that could be accumulated and what are those circumstances under which the money could be so accumulated under the provisions of section 11. If there are more than one kind of income, that should be accumulated, then all the moneys so accumulated by all those methods should be available for investment irrespective of the fact whether that money related to the income of the year under appeal or it came out of the income of the earlier years. For the purpose of accumulation, therefore, we have got to go again to section 11(1)(a) and the Explanation. Section 11(1)(a), as we have noticed earlier, grants exemption not only to the income applied for charitable or religious purposes but also to income accumulated or set apart for applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could be received in the next year. Now take the case of an assessee who exercised the option to accumulate the income. How will that assessee invest that money which was not received though he exercised the option. He can invest the money as required by section 11(2)(b) only when the money was received. So in the example we have given above, if out of Rs. 1 lakh only Rs. 40,000 was not received and if that Rs. 40,000 was received subsequently, the requirement of investment to satisfy the requirement of accumulation can be made only in the year in which that money was received. Otherwise the requirement of accumulation of income by compelling the assessee to invest it in a prescribed manner will become well-nigh impossible. The Legislature cannot be expected to require an assessee to do the impossible. Impossibility of a performance in strictly applying the provisions of section 11(2) insofar as they relate to investment in the manner prescribed under the Act should, therefore, suggest that the requirement of investment can be deemed to have been satisfied if the investment was made in the year in which the income was received, which means that the money required to be deposited n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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