TMI Blog1984 (3) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... ll and a technological institute of textiles. The trust filed a return showing a total income of Rs. 14,24,379 under the head " Other sources ". It claimed a refund of Rs. 3,75,755 under s. 237 of the I.T. Act. The ITO held that the trust is a public charitable trust which has been granted exemption under s. 11 of the I.T. Act. He observed that the trust has certified that the entire expenditure incurred by it was for charitable purposes in relation to the objects of the trust and no expenditure was incurred outside India. The accumulation of income at the end of the year was below the maximum permissible limit of 25%. The certificate was accepted after verification. The ITO computed the net profit of the textile mill run by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but sub-sections (1) and (3) of s.11 of the Income-tax Act, 1961, and hence the case should be sent back to the Income-tax Officer ? (2) Whether, on the facts and in the circumstances of the case, the provisions of sub-section (4) of s. 11 of the Income-tax Act, 1961, are applicable and whether the excess of the income from the business undertaking as determined by the Income-tax Officer in accordance with the provisions of the Act over the income shown in the account of the business undertaking can be assessed to tax ? " Let us consider the scheme of s. 11 of the I.T. Act (as it stood prior to its amendment in 1970). It is headed " Income from property held for charitable or religious purposes ". Sub-s. (4) of s. 11 provides that fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any such undertaking shall not be included in the total income of the persons in receipt thereof, the Income-tax Officer shall have power to determine the income of such undertaking in accordance with the provisions of this Act relating to assessment; and where any income so determined is in excess of the income as shown in the accounts of the undertaking, such excess shall be deemed to be applied to purposes other than charitable or religious purposes. " Sub-s. (4) is neither a charging section nor a machinery provision entitling the ITO to assess the income for the purpose of levying tax. It comes into operation where a claim is made that the income of the business undertaking of a trust shall not be included in the total income of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave intended such a situation. It appears to us that sub-s. (4) was intended for a different contingency. It was meant to cover a different situation. It was not intended to apply to application of income. Under sub-s. (4), the ITO can determine the income and compare it with the income appearing in the accounts. The income spoken of in subs. (4) appears to us to be the gross income and not the net income of the business undertaking. The net income is computed after granting the admissible deductions. The deductions admissible from income of a business undertaking are not always the same as application of income wholly for charitable or religious purposes. They may or may not be admissible deduction from business income under the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nacted. This is in accord with the recent trend in juristic thought not only in Western countries but also in India, that interpretation of a statute being an exercise in the ascertainment of meaning, everything which is logically relevant should be admissible. " Smt. Tarakeswari Sinha participating in the debate on September 1, 1961, stated in relation to sub-s. (4) of s.11: "Suppose a factory has got a capacity for an annual income of Rs. 15 lakhs but for avoiding a particular portion of the tax, sometimes the trustees or the donors have manipulated the accounts. They say that the income of the factory is only Rs. 10 lakhs and not Rs. 15 lakhs, thus avoiding tax payment on Rs. 5 lakhs which goes to their own pocket. For plugging thi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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