TMI Blog1995 (10) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... , Mysore, and the First Income-tax Officer, Mangalore Circle, Mangalore, against the order of the learned single judge Venkataramiah J., as he then was, in Writ Petition No. 597 of 1973 (see [1975] 101 ITR 838) came to be dismissed by the Appellate Bench of the High Court. In order to highlight the grievance of the Revenue in this appeal, a few relevant introductory facts are required to be noted. Background facts : The respondent, A. L. N. Rao Charitable Trust, Mangalore, is a charitable trust. For the assessment year 1969-70, the respondent (hereinafter referred to as " the assessee ") submitted its return to the First Income-tax Officer, Mangalore Circle. In the said return, the assessee claimed that a sum of Rs. 85,262 which was the surplus income of the previous year was exempt from tax under section 11(1)(a) and sub-section (2) of the said section. On the assessing authority holding that the assessee is not a genuine trust and, therefore, not entitled to claim the benefit of section 11, the assessee preferred an appeal before the Appellate Assistant Commissioner, which was dismissed. In the second appeal preferred by the assessee before the Income-tax Appellate Tribunal, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recting the Commissioner to dispose of the proceedings initiated under section 263 in the light of his order as to the interpretation of section 11(1)(a) and section 11(2) of the Act. Before the learned single judge, the contention of the Department was that in order to claim exemption under section 11, the assessee should have invested the entire surplus income in one or the other of the securities mentioned in section 11(2)(b) of the Act, and it is not sufficient if 75 per cent. of the surplus income alone has been invested by the assessee. Learned counsel for the assessee urged that the assessee had complied with the requirements of section 11 ; according to learned counsel, the assessee was entitled to exemption from tax in respect of 25 per cent. of the accumulated income or Rs. 10,000, whichever is higher, plus that portion of the accumulated income in respect of which the conditions prescribed under clauses (a) and (b) of section 11(2) had been satisfied. According to the assessee, since it had deposited 75 per cent. of the accumulated income in the securities mentioned in section 11(2)(b), the entire surplus income which had accumulated was not taxable. The learned sing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1975, clearly showed a different legislative intention and was not merely of a clarificatory nature as assumed by the Division Bench of the High Court. Learned counsel for the Revenue, however, fairly submitted that his submissions are based on the express language of section 11(1)(a) read with section 11(2) of the Act as applicable at the relevant time and he is not supported by any decision rendered by any of the High Courts on this point. Learned counsel for the respondent-assessee, on the other hand, submitted that the view taken by the Division Bench of the High Court on the interpretation of section 11(1)(a) and section 11(2) of the Income-tax Act, 1961, as applicable at the relevant time is the only correct and plausible view and that the Division Bench of the High Court was justified in agreeing with the view on similar lines which appealed to the Jammu and Kashmir High Court in CIT v. Shri Krishen Chand Charitable Trust [1975] 98 ITR 387. He also submitted that a similar view has been taken by the High Courts of Kerala, Madhya Pradesh, Madras, Bombay and Rajasthan in the following decisions : 1. CIT v. Shree Padmanabhaswami Temple Trust [1979] 120 ITR 42 (Ker) ; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent case, we need not dilate on them. A mere look at section 11(1)(a) as it stood at the relevant time clearly shows that out of the total income accruing to a trust in the previous year from property held by it wholly for charitable or religious purposes, to the extent the income is applied for such religious or charitable purposes, 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 per cent. of such income or Rs. 10,000, whichever is higher, will be permitted to be accumulated for charitable or religious purpose and it 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll not earn such exemption. It is difficult to appreciate this contention. The reason is obvious. Section 11, sub-section (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 the 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 per cent. of such total property income or Rs. 10,000, whichever is higher, can be permitted to be accumulated by the trust, earmarked for such charitable or religious purposes. Such 25 per cent. of the income or Rs. 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 of the balance of accumulated income which has still not earned exemption under subsection (1)(a). So far as that balance of the 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 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emption from income-tax on compliance with 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 per cent. or Rs. 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 purposes in India, then it will not be taxable, but if there is a saving, that is to say, an accumulation of 25 per cent. or Rs. 10,000, whichever is higher, it will not be included in the taxable income. Section 11(2) quoted above further libe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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