TMI Blog2004 (9) TMI 91X X X X Extracts X X X X X X X X Extracts X X X X ..... ismissed - - - - - Dated:- 7-9-2004 - Judge(s) : P. D. DINAKARAN., K. RAVIRAJA PANDIAN. JUDGMENT The judgment of the court was delivered by P.D. DINAKARAN J. - Heard learned counsel appearing for the appellant/Revenue. These appeals are directed against the order dated January 28, 2004 made in I.T.A. No. 1575/ Mds of 1997 and order dated April 16, 2004, made in I.T.A. No. 1925/MDS of 1998 reversing the order of the Assistant Commissioner, Income-tax Department, Central Circle II, Coimbatore, by granting exemption to the respondent/assessee under section 11(1)(a) of the Income-tax Act (hereinafter referred to as "the Act"). The appellant/Revenue raised the following substantial questions of law for our consideration: "(i) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in holding that mere mentioning in the adjusted total income statement that the amount has been set apart for utilizing for charitable purposes in the subsequent year, will amount to exercising option under Explanation (2)(i) or (ii) to section 11(1)(a) and such amount can be taken as amount set apart for application under section 11(1)(a) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total amount shall be deemed to have been spent for charitable purposes during the year. He further noted that the amount accumulated or set apart for future application is less than 25 per cent, of the income. Hence, the Commissioner (Appeals) rejected the applicability of section 11(2) of the Act and the same was confirmed by the Tribunal and gave the benefit of section 11(1)(a) of the Act to the assessee. According to the Tribunal, section 11(2) of the Act stipulates two conditions, namely, (i) that the assessee specifies, by notice in writing, the purpose for which the income may be accumulated or set apart. However, it should b not exceed ten years, and (ii) the money so accumulated or set apart is invested or deposited in the forms or modes specified in sub-section (5). Since the case of the assessee falls under section 11(1) of the Act and not under section 11(2) of the Act, the assessee is entitled for the benefit of section 11(1) of the Act. Assailing the said order of the Tribunal dated January 28, 2004, the Revenue has preferred the above appeals contending that the case of the assessee falls under section 11(2) of the Act but not under section 11(1) of the Act. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in addition to that available under section 11(1)(a) of the Act. The Supreme Court thus interpreting the scope and applicability of section 11(1)(a) and section 11(2) of the Act, held as follows: "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 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 per cent, will get excluded from income-tax assessment. But so far as the remaining 25 per cent, 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, 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 subsection (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 concerne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omplied with then such additional accumulated income beyond 25 per cent, or Rs. 10,000, whichever is higher, can also earn exemption 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, i.e., to say, an accumulation of 25 per cent, o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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