TMI Blog1982 (8) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... peal by the assessee, the AAC held that leaving out the amounts spent on construction of buildings and 25% permitted statutory accumulation, there was a balance of Rs. 37,448 to be spent on charity, that the sum of Rs. 1,21,540 paid towards income-tax as not being available for application during the assessment year, the trust must be regarded as having applied more than 75% of its income to charitable purposes. In this view, the AAC annulled the order of the ITO computing the taxable income of the assessee at Rs. 69,152. The Revenue took the matter in appeal to the Income-tax Appellate Tribunal contending that the investment in the Electricity Bond and payment of income-tax could not be regarded as application of the trust's income for charitable purposes and that if the said expenditure had been debited to the profit and loss account, they would have been disallowed in working out the taxable income. On the other hand, for the assessee it was contended before the Tribunal that non-payment of tax would have threatened its very existence, that if amounts were not invested in electricity bonds, the assessee's business would have been jeopardised and that, therefore, these items o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1957. The trust owned and carried on business under the name and style of " National Paper Caps Factory " at Sivaganga. For the assessment year 1964-65, a sum of Rs. 69,152 was returned as income but the entire amount was claimed as exempt under s. 11 on the ground that more than 75% of the income has been disbursed for charitable purposes during that year. In the letter accompanying the return the assessee has stated : " As against the income of Rs. 69,152, the following expenses were incurred by the trust during the year and no funds were available for expenses under charity. Rs. Land purchased 8,859 Income-tax 1,21,540 Madras State Electricity Bond Loan 15,000 ------------------ 1,45,399 ------------------ As stated in the grounds of appeal before the Appellate Assistant Commissioner in 1963-64 appeal, we hold that the sum spent should be considered as application of income for charitable purposes. Hence, the claim that the income of the trust should be exempted." The ITO found that out of the total income of Rs. 69,152, only a sum of Rs. 58 had been applied for charitable purposes as against the statutory 75% required for granting exemption, tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... along with the other expenditure came to Rs. 1,45,000. On the above findings, he held that though the investment in bonds and payment of income-tax cannot constitute charity, the assessee cannot claim the income of the year as having been spent on charity. In determining the total income of the assessee, the income-tax paid should not have been added, but should have been debited to the profit and loss account and that in any event since the assessee has spent the amounts on charitable purposes without accumulating the same, in the subsequent years, he should be taken to have fulfilled the requirements of s. 11(1)(a) as he has not spent any amount on non-charitable purposes, and, therefore, would be entitled for exemption. He did not, however, give any finding as to the amounts invested in electricity bonds as he was of the view that the facts necessary for ascertaining whether the investment was within or beyond the control of the assessee are not available. The Judicial Member found that the sum of Rs. 1,21,540 was paid as tax for the assessment year 1961-62 and by way of advance tax for the year 1963-64 and that the assessee's claim for exemption for the abovementioned asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t year's income has to be considered as application for charitable purposes. This is because payment is made to preserve the corpus, the existence of which is absolutely necessary for the trust. Therefore, as the entire income during the assessment year has been applied for payment of tax, it should be treated as having been applied for charitable purposes and the assessee's claim should be taken to be well-founded, as has been held by the Tribunal. We also hold that in any event there was no income in the relevant year for being spent on charities. In CIT v. Gangadhar Banerjee [1965] 57 ITR 176 (SC), it was held that for the purpose of ascertaining the net commercial profits, the tax assessed shall have to be deducted and the relevant observations of the Supreme Court are as follows (p. 183): " Another incidental question is whether for the purpose of ascertaining the net commercial profits the tax estimated or the tax actually assessed shall be deducted. In a case where an Income-tax Officer takes action under section 23A of the Act before the tax for the relevant period is assessed, only the estimated tax can be deducted; but, there is no reason why, when the tax had already ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t whether the assessee has complied with the rule of accumulation, that the income from the properties held under trust will have to be arrived at in the normal commercial manner without reference to the provisions which are attracted by s. 14, and 25 per cent. thereof will have to be ascertained, and that if the assessee has accumulated more than 25 per cent., the consequences contemplated in s. 11 will have to follow. In that case, the court expressed the view that having regard to the language in S.11 (1) the computation of the total income under s. 14 cannot be imported into, s. 11(1), to find out what the income derived from the property held under trust is, for the purpose of the exemption under Chapter III. Circular No. 5 dated 19th June, 1968, of the Central Board of Direct Taxes also throws light on this question. The relevant portion of the Circular is extracted below: " 2. Section 11(1) provides that subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year.. ' The reference in sub-section (1)(a) is invariably to 'income' and not to 'total income'. The expression 'total income' has been specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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