TMI Blog1981 (1) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... d, they are debited to the income and expenditure account and credited to the outstanding payment account which contains the amounts due to the various donees as per the resolutions passed by the board. The amounts debited to the income and expenditure account but which are not actually disbursed, are shown as liabilities in the balance-sheet. At the time when the payment is made, the outstanding payment account is debited. Under s. 11(1)(a) of the I.T. Act (hereinafter called " the Act"), the income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India, shall not be included in the total income of the previous year of the person in receipt of the income. 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, shall also not be included in the total income of the person in receipt of the income. For the assessment year 1969-70, it was claimed by the assessee that sums to the tune of Rs. 25 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who held that the word " applied " , should be understood in a practical sense and should not be equated with the word " spent ". As against the orders of the AAC, the revenue preferred appeals, I.T.A. Nos. 383 and 384/1974-75, to the Income-tax Appellate Tribunal. All the three appeals were heard together and disposed of by a common order. The question for consideration by the Tribunal common to all the appeals was whether the expression " applied " in s. 11(1)(a) of the Act should be understood as contended by the assessee or as contended by the revenue. They came to the conclusion that in all cases where resolutions were passed during the accounting year earmarking the amounts for the particular donees, the amount should be said to have been applied within the meaning of s. 11(1)(a) even though the amounts were actually paid a little later. In the case of one item, viz., Rs. 1,00,000, allocated to Jamia Nizamia, however, the Tribunal found that the institution failed to fulfil the conditions attached to the donation and the amount was sanctioned to another institution and hence this amount should be held not to have been applied in the accounting year relevant to the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se as there was nothing else to be done except the actual payment. The Tribunal was right in holding that the actual payment is irrelevant for purposes of finding out whether there has been an application of the funds. In this connection, we may refer to the observations in CIT v. Radhaswami Satsang Sabha [1954] 25 ITR 472 (All). Dealing with the word " applied " in the Indian I.T. Act, 1922, the learned judges observed as follows (p. 522): " The word 'applied' in this clause means actually spent and it was pointed out that while in cl. (i) of sub-s. (3) of s. 4 of the Act, the words used are 'income applied or finally set apart', the words 'finally set apart' have not been repeated in cl. (ia) of that sub-section. We do not think that the word 'applied' necessarily means 'spent'. Even if it has been earmarked and allocated for the purposes of the institution, it might, to our minds, be deemed to have been applied for the purpose. " In H. E. H. Nizam's Religious Endowment Trust v. CIT [1966] 59 ITR 582 (SC), under a trust deed executed by the Nizam of Hyderabad, the trust fund was to be accumulated during his lifetime and after his death, the trustees were to hold the fund upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olytechnic from out of the profits of the aforesaid year." Another resolution was passed on September 1, 1965, in the following terms (p. 615) : "Resolved that the net profit for the year ending 31st March, 1965, amounting to Rs. 3,04,994.72 be added to the surplus of Rs. 528.46 carried forward from the previous year and the total surplus of Rs. 3,05,523.18 be and is hereby disposed of as follows: Rs. Development rebate reserve 521.00 Transfer to donation fund 3,00,000.00 To carry forward 5,002.18 ----------- 3,05,523.18 ----------- It was held by the Madras High Court that the resolution of February 16, 1965, was conditional on the profits being earned for the year ending March 31, 1965, and if there were no profits, the resolution could not have been given effect to. It was, therefore, merely a pious expression of opinion that if and when there were profits a sum of Rs. 2,50,000 should be given to the polytechnic. The learned judges observed that there are four requisites f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 315 (All), it was held that in order to sustain a gift, it is not necessary that there should be a physical delivery of the amount gifted by the donor to the donee, and that a transfer can be effected by making a debit entry in the account of the donor and making a corresponding credit entry in the account of the donee in the books of the firm in which both had accounts and that so long as the entries made in the respective accounts put the gifted amount beyond the control of the donor and resulted in the ownership of the donee being replaced, there is no reason why a valid gift cannot be effected through such book entries. In Smt B. Muniyamma v. CIT [1979] 117 ITR 47 (Kar), the assessee was partner in her individual capacity in a firm along with her husband representing the joint family of which he was the karta. The amount standing to the assessee's credit in the firm was transferred to the account of the husband. It was held that the amount was placed beyond the control of the assessee, and there was a gift in favour of her husband. In K. P. Brothers v. CIT [1961] 42 ITR 650 (Raj), the donor and the donees had accounts in a banking firm. On instructions from the donor an amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was mentioned that the appeal by the assessee was allowed in part. The assessee, therefore, filed an application Miscellaneous Petition No. 87 [Hyd.] 1974-75, stating that on the findings of the Tribunal in the appeal, the appeal should have been allowed in its entirety and not merely in part. While hearing this petition, the Tribunal found that there would be a shortfall of Rs. 94,772 for the assessment year 1969-70, and hence the question regarding the includibility of capital gains fell to be decided. It, therefore, considered the contention of the assessee that no capital gains should be taken into account while making the computation for purposes of s. 11(1)(a) which had been left open by the Tribunal in its order in the appeal. The counsel for the assessee referred in this connection to the circular of the Board dated May 16, 1963, which stated that where a religious or charitable trust transfers a capital asset solely with a view to acquire another capital asset for the use and benefit of the trust and utilised the capital gains arising from the transaction for acquiring the new capital asset, the amount of capital gains should be regarded as having been applied for the rel ..... X X X X Extracts X X X X X X X X Extracts X X X X
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