TMI Blog2015 (9) TMI 1248X X X X Extracts X X X X X X X X Extracts X X X X ..... r. Jaideep Gupta, Sr. Adv., Mr. Zahaib Hussain, Adv., Ms. Sadhana Sandhu, Adv., Ms. Anil Katiyar, Adv., Mr. B. V. Balaram Das, Adv. For the Respondent : Mr. V. Prabhakar, Adv., Mrs. Revathy Raghavan,Adv., Ms. Jyoti Prashar, Adv. JUDGMENT A.K. SIKRI, J The respondent-assessee is a Public Charitable Trust. It filed its return for the Assessment Year 1994-95 declaring 'nil' taxable income. In the summary of total income filed by the assessee it had mentioned gross income for the year in the sum of ₹ 99,41,221/- which represented interest receipts, rental income, bus collections, miscellaneous receipts and surplus in GRS hotel. It was further stated that out of this income the assessee had applied and spent a sum of ₹ 47,27,533/- for the objects of the Trust. In the return it was also stated that it was setting apart a sum of ₹ 32 Lacs to be spent 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'). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which shall in no case exceed ten years; [(b) the money so accumulated or set apart is invested or deposited in the forms or modes specified in sub-section (5)]:] This provision has come up for interpretation in Additional Commissioner of Income Tax vs. A.L.N. Rao [1995 (6) SCC 625] and the legal position contained therein was explained in the following manner: A mere look at Section 11(1) (a) as it stood at the relevant time clearly shows that out of total income accruing to a trust in the previous year from property held by i wholly for charitable or religious purpose, to the extent the income is applied for such religious or charitable purpose, the same will get out of the tax net but so far as the income which is not so applied during the previous year is concerned at least 25% of such income or ₹ 10,000/- whichever is higher, will be permitted to be accumulated for charitable or religious purpose and will also get exempted from the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed income in Government securities etc., namely, 100% of the accumulated income and not only 75% thereof. And if that is not done then only the invested accumulated income to the extent of 75% will get excluded from income tax assessment. But so far the remaining 25% of the accumulated income is concerned it will not earn such exemption. It is difficult to appreciate this contention. The reason is obvious. Section 11, subsection (1) (a) operates on its own. By its operation two types of income earned by the trust during the previous year from its properties are given exemption from income tax, (i) that part of the income of previous year which is actually spent for charitable or religious purposes in that year; and (ii) out of the unspent accumulated income of the previous year 25% of such total property income or ₹ 10,000/- whichever is higher can be permitted to be accumulated by the Trust, remarked for such charitable or religious purposes. Such 25% of the income or ₹ 10,000/- whichever is higher will 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered for the purpose of income tax exemption, sub-section (2) of Section 11 can be pressed into service and if it is complied with then such additional accumulated income beyond 25% or ₹ 10,000/-, whichever is higher, can also earn exemption from income tax in compliance which the conditions laid down by sub-section (2) of Section 11. It is true that sub-section (2) of Section 11 has not clearly mentioned the extent of the accumulated income which is to be invested. But on a conjoint reading of the aforesaid two provisions of Sections 11(1) and 11(2) this is the only result which can follow. It is also to be kept in view that under the earlier Income Tax Act of 1922 exemption was available to charitable trusts without any restriction upon the accumulated income. There was a change in this respect under the present Act of 1961. Under the present Act, any income accumulated in excess of 25% or ₹ 10,000/- whichever is higher, is taxable under Section 11(1) (a) of the Act, unless the special conditions regarding accumulation as 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 purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore the Commissioner of Income Tax (Appeals). The submission was that since it has set apart ₹ 32 Lacs in terms of Section 11A Explanation-II, by exercising this option in the return itself that should be treated as valid option. The CIT (Appeals) accepted this contention, which view has been upheld by the Income Tax Appellate Tribunal as well as the High Court. Insofar as this aspect, viz, exercising the option in the return filed by the assessee is concerned, we are of the opinion that the High Court and the Authorities below are right in their approach. The law does not mention any specific mode of exercising the option. The said option has to be exercised before filing of the return. According to us, if the option is exercised when the return is filed, that would be treated as in conformity and comply with the provisions contained in Section 11 of the Act. However, we find that thereafter CIT (Appeals) went wrong. As per the provisions of Section 11(1)(a) of the Act the amount which is actually applied for and spent towards the objects of the Trust is to be allowed. Actual expenditure which was made for ₹ 47,27,533/- was allowed by the Assessing Officer also ..... X X X X Extracts X X X X X X X X Extracts X X X X
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