TMI Blog1979 (8) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... lus or deficit of the two schools ran by the assessee and of the charities maintained by the assessee, computed under the appropriate heads would be the total income of the assessee-institution for the years of account as relevant to the assessment years 1965-66 and 1966-67 ? " One Rao Bahadur Calavala Cunnan Chetty died leaving a will dated 19th July, 1920, under which he left legacies and by which he directed that after realising the outstandings due to him and payment of the debts due by him and after meeting the probate and other expenses, as well as the legacies, the residue of his estate was to be constituted into a trust for certain purposes as set out in the will. The purposes included medical relief, education and relief of the poor. After the application of the income by the trustees to the aforesaid charitable purposes, it was directed that the residue, if any, of the income was to be held by the trustees on trust for such charities as the testator may direct by any codicil or which the High Court of judicature at Madras may under the cypres doctrine or otherwise determine. The assessment years under consideration are 1965-66 and 1966-67, the relevant previous year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous mistake. These surpluses had not been taken over to the trust accounts. The ITO considered the assessee's claim for exemption under s. 11 of the I.T. Act. He was of the view that the assessee had accumulated more than 25 per cent. of the income which could have been accumulated in order to be eligible for the exemption. He, therefore, brought to tax the excess, over 25 per cent., of the accumulations. The result was that for the assessment years 1965-66 and 1966-67, With which we are now concerned, the ITO brought to tax Rs. 22,120 and Rs.27,270, respectively. The assessee appealed to the AAC and contended that there was no accumulation of the income, much less any excess over 25 per cent. as contemplated by S.11. The AAC worked out the figures in his own way and came to the conclusion that the taxable income for the assessment year 1965-66 would be Rs. 13,250 as against Rs. 23,911 taken by the ITO. For the assessment year 1966-67, he came to the conclusion that the taxable income should be computed at Rs. 17,744 as against Rs. 27,270 taken by the ITO. He reduced the assessments accordingly. The assessee appealed to the Appellate Tribunal challenging the order of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ligious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated for application to such purposes in India, to the extent to which the income so accumulated is not in excess of twenty-five per cent. of the income from the property or rupees ten thousand, whichever is higher ........" Clause (b) of s. 11 (1) deals with a case where the property is partly held under trust and cl. (c) deals with particular types of charities with which we are not concerned. The Explanation to s. 11 (1) runs as follows: " For the purposes of clauses (a) and (b), in computing twenty-five per cent. of the income from any such property as is referred to in the said clauses for any previous year, the income from such property for the year immediately preceding the previous year may be adopted, if that income is higher than the income for the previous year." Sub-section (2) provides that where the persons in receipt of the income had complied with the restrictions specified in cls. (a) and (b) of sub-s. (1) as respects accumulation or setting apart then such accumulations can be for a period of 10 years subject to a notice in writi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing a legal fiction so that by their non-inclusion in the definition, such categories did not escape taxation. In the absence of any definition of " income " we have to proceed on the basis of it as a concept, as understood in general parlance. Income would ordinarily exclude a receipt by way of capital. More gross receipt cannot also be taxed as income. It may be broadly stated that what is taxed is not also any gross receipt. The receipt must be revenue in nature and is to be taxed after excluding the necessary outgoings. Even in interpreting the several provisions wherever the expression "income " occurs, there has been some divergence in the meaning given and that is because of the context. For instance in Cloth Traders (P.) Ltd. v. Addl. CIT [1979] 118 ITR 243, the Supreme Court had to consider s. 80M, under which, where the gross total income of an assessee being domestic company, includes any income by way of dividends from domestic company, certain deductions are permitted. The meaning of the expression " income by way of dividend " came up for consideration and it was pointed out that the entire amount of the dividend income without deduction of interest paid on borrowin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attributed by some statutory fiction. There can be no distribution or accumulation of what is taxed under some fiction. The Supreme Court in CIT v. Bipinchandra Maganlal Co. Ltd. [1961] 41 ITR 290 (SC) considered the question whether the expression " smallness of profits " has to be understood in the sense of smallness of assessable income. It was pointed out that a company normally distributes dividends out of its business profits and not out of its assessable income and that even though the assessable income of a company may be much, the commercial profits may be so small that compelling distribution of the difference between the balance of the assessable income reduced by the taxes payable and the amount distributed as dividend would require the company to fall back either upon its reserves or upon its capital which in law it could not do. Applying the same reasoning, the expression " income " has to be understood in the popular or general sense and not in the sense in which the income is arrived at for purpose of assessment to tax by the application of some artificial provisions either giving or denying deduction. That income cannot be understood in the sense of what is arriv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Lords held that the income, subject to such deduction as may be available for any assessee in the United Kingdom, would have to be taken into account, and not the net income as shown in the books of the company in Bahamas. In the course of the judgment, Lord Wilberforce observed as regards the general concept of income, without taking into account the scope or object of s. 412 of the Act of the United Kingdom, as follows (p. 640): " It was common ground, before the Special Commissioners, that the taxpayer had 'power to enjoy' the income of Attleborough, but this leaves open the question, which is that now before the House, of what the 'income' of Attleborough consists. Is this the gross income, consisting of the dividends received, or is it 'net' income after deduction of costs and expenses ? At first sight, this might appear a simple enough question to answer. Granted that the taxpayer had power to enjoy the income of Attleborough, and that what he is liable to be charged with is 'any income' of Attleborough, all that might appear to be necessary would be to look at the revenue accounts of Attleborough for the relevant year and to see what, in revenue terms, is the outcome ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e total income is for the purpose of the exemptions under Chap. III. There is one further error in the order of the Tribunal. The Tribunal has proceeded on the basis that the receipts from rents amounting to Rs. 1,31,412 during the year ending with 31st of March, 1965, would have to be considered under the head " Income from house property " and the net income arrived at under that head. In the view that we have explained above, the determination of the income as if the sum of Rs. 1,31,412 relates to house property and would, therefore, have to be considered in the context of the provisions of ss. 22 to 27, would not be correct. Those provisions enact certain technical rules for the purpose of the ascertainment of income for the particular head for purposes of charge and as seen already that cannot be imported into the determination of the income of the property held in trust for the purpose of s. 11 which excludes that income from the computation of total income. The view that we have taken above is also consistent with the circular of the Central Board of Direct Taxes dated 19th June, 1968, reproduced in V. S. Sundaram's Law of Income Tax in India, 11 th Edn., p. 798. The res ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
