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Supreme Court Of India
Decided On : (February 4, 1998)
M. TIRUPPANI TRUST
Versus
COMMISSIONER OF INCOME TAX
INCOME TAX - Section 11 - Charitable Trust - Exemption - Accumulated income - Investment in Government securities - Conditions - Interpretation.
Fact of the Case:
The assessee, a Charitable Trust, had accumulated income for charitable purposes and invested it in a building for a hospital. The assessee claimed exemption from income tax under Section 11 of the Income Tax Act, 1961.
Finding of the Court:
The Court held that the assessee was entitled to exemption under Section 11(1)(a) for the income applied to charitable purposes and the accumulated income up to 25% of the total income. The Court further held that the assessee was not required to invest the accumulated income in Government securities as per Section 11(2) since it was not claiming any benefit under that provision.
Issues: Whether the assessee was entitled to exemption under Section 11 of the Income Tax Act, 1961 for the income applied to charitable purposes and the accumulated income.
Ratio Decidendi: The Court interpreted Section 11(1)(a) and Section 11(2) of the Income Tax Act, 1961 and held that Section 11(2) does not restrict the operation of Section 11(1). The accumulated income which is exempt under Section 11(1)(a) need not be invested in Government securities. It is only in respect of any additional accumulated income beyond 25% that, if the assessee wants exemption of this additional accumulated income also, the assessee is required to invest the additional accumulated income in the manner laid down in Section 11(2) after following the procedure laid down therein.
Final Decision: The Court allowed the appeal and held that the assessee was entitled to exemption under Section 11 of the Income Tax Act, 1961 for the income applied to charitable purposes and the accumulated income up to 25% of the total income.
( 1 ) THIS appeal pertains to assessment year 1970-71. The following question was referred to the High Court of Judicature at Madras by the Income-tax Appellate Tribunal under Section 256 (1) of the Income-tax Act, 1961:"whether, on the facts and in the circumstances of the case, the income of the assessee is exempt from tax under Section 11 of the Income-tax Act for the assessment year 1970-71?"
( 2 ) THE assessee is a Charitable Trust for carrying out Thiruppani or repairs to old Hindu temples, building new ones, giving aid to or establishing hostels, educational and industrial institutions etc. It is not in dispute that the objects of the Trust are charitable. On 1/03/1963, the trustee resolved that the income of the Trust should be accumulated for a period of ten years commencing from 13/04/1961 for the various charitable purposes which are set out in the Resolution. The assessee accordingly filed Form 10 with the Income-tax Officer as required under Section 11 (2) of the Income-tax Act, 1961. The income was accordingly being accumulated every year and invested in Government securities.
( 3 ) FOR the year ending 12/04/1970 which is the accounting year relevant to assessment year 1970-71, the amount of Rs. 7,82,792. 44 which was shown in the earlier balance sheet (as on 1-4-1969) as advance to S. RM. M. CT. M. Firm, Rangoon on the "assets" side was substituted by "building for Rs. 8 lakhs" on the Assets side. It was the case of the assessee that during the assessment year 1970-71, the advance to the said firm at Rangoon was in effect realised and invested in a building for the purpose of starting a hospital. The Trust had also earned during that assessment year other income amounting to Rs. 1,64,210. 03.
( 4 ) THE assessee claimed exemption for the total income of Rs. 8 lakhs plus Rs. 1,64,210. 03 under Section 11 (1) of the Income-tax Act, 1961. The Income-tax Appellate Tribunal by a majority of 2 : 1 held that the sum of Rs. 8 lakhs was to be treated as income of the assessee for the purposes of Section 11. The Tribunal gave the benefit of Section 11 (1) to the assessee for the assessment year 1970-71 in respect of the entire income consisting of Rs. 8 lakhs plus Rs. 1,64,210. 03. On a Reference to the High Court, the High Court has held that the sum of Rs. 8 lakhs was an asset acquired in realisation of an outstanding due and hence, sum of Rs. 8 lakhs cannot be included in the income of the assessee for the purposes of Section 11 (1 ). Since the balance income of Rs. 1,64,210. 03 was not invested by the assessee in accordance with the declaration filed by the assessee under Section 11 (2), the assessee could not claim exemption from tax in respect of Rs. 1,64,210. 03.
( 5 ) THE material part of Section 11 at the relevant time, was as follows:"11. Income from property held for charitable or religious purposes: (1) subject to the provisions of Sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income - (A) 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; 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; (B ). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (C ). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2) Where the persons in receipt of the income have complied with the following conditions, the restriction specified in Clause (a) or Clause (b) of sub-section (1), as respects accumulation or setting apart shall not apply for the period during which the said conditions remain complied with- (A) such persons have, by notice in writing given to the Income-tax Officer in the prescribed manner, specified
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