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TMI Blog2015 (9) TMI 1248X X X X Extracts X X X X X X X X Extracts X X X X ..... t for charitable purposes in the following year. On that basis the assessee claimed that it was entitled to have the deduction of the entire amount and for the purpose of taxation the income was 'nil' under Section 11 of the Income Tax Act,1961 (hereinafter referred to as `the Act'). Before we proceed further and discuss as to how the Assessing Officer made the assessment, it would be necessary to take note of the provisions of Section 11 of the Act which are relevant for our purpose. "11. (1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income-- [(a) 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; and, 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 [fifteen] per cent of the income from such property; xxxxx xxxxx xxxxx Explanation.--For the purposes of clauses (a) and (b),-- (1) in computing the [fifte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax net. Then follows sub-section (2) which seeks to lift the restriction or the ceiling imposed on such exempted accumulated income during the previous year and also brings such further accumulated income out of the tax net if the conditions laid down by sub-section (2) of Section 11 are fulfilled meaning thereby the money so accumulated is set apart to be invested in the Government securities etc. as laid down by clause (b) of sub-section (2) of Section 11 apart from the procedure laid down by clause (a) of Section 11 (2) being followed by the assessee-trust. To highlight this point we may take an illustration. If Rs. 1,00,000/- are earned as the total income of he previous year by the trust from property held by it wholly for charitable and religious purposes and if Rs. 20,000/- are actually applied during the previous year by the said trust to such charitable or religious purposes the income of Rs. 20,000/- will get exempted from being considered for the purpose of income tax under first part of Section 11(1). So far as the remaining Rs. 80,000/- are concerned if they could not be actually applied for such religious or charitable purposes during the previous year then as per S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l also get exempted from income tax. That exhausts the operation of Section 11(1) (a). Then follows sub-section (2) which naturally deals with the question of investment of the balance of accumulated income which has still not earned exemption under sub-section (1) (a). So far as that balance of accumulated income is concerned, that also can earn exemption from income tax meaning thereby the ceiling or the limit of exemption of accumulated income from tax as imposed by sub-section (1) (a) of Section 11 would get lifted if additional accumulated income beyond 25% or Rs. 10,000/- whichever is higher, as the case may be, is invested as laid by Section 11 (2) after following the procedure laid down therein. Therefore, sub-section (2) only will have to operate qua the balance of 75% of the total income of the previous year or income beyond Rs. 10,000/- whichever is higher which has not got the benefit of tax exemption under sub-section (1) (a) of Section 11. If learned counsel for the Revenue is right and if 100% of the accumulated income of the previous year is to be invested under sub-section (2) of Section 11 to get exemption from income tax then the ceiling of 25% or Rs. 10,000/- wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s laid down in Section 11(2) are complied with. It is clear, therefore, that if the entire income received by a trust is spent for charitable purposes in India, then it will not be taxable but if there is a saving, i.e. to say an accumulated of 25% or Rs. 10,000/- whichever is higher, it will not be included in the taxable income. Section 11(2) quoted above further liberalizes and enlarges the exemption. A combined reading of both the provisions quoted above would clearly show that Section 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 11(1)(a). On the express language of Sections 11(1) and (2) as they stood on the Statute Book at the relevant time no other view is possible." To put it in nutshell, the exemption/deduction from the income can be taken in three stages which are as under: i) The assessee would be entitled to have the deduction of entire amount which has actually been spent and applied for charitable purposes i.e. in furtherance of the objects of the Trust. ii) The assessee is entitled to set apart 25% of the total income for charitable purposes even if not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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