Interpretation of Section 11(1)(a) of the Income-Tax Act, 1961 regarding the exclusion of income derived from property held under trust for charitable purposes.

( 1 ) THE Income-Tax Appellate Tribunal, Bangalore Bench, has stated a cage and referred the following question of law said to arise out of its order under 8. 256 (1) of the Income-Tax Act, 1961 (hereinafter called the Act ). "whether it has been rightly held that the sum of Rs. 25,000 contributed on 1-10-1963 towards the establishment of a College of Engineering does not qualify for exemption conferred by S. 11 (1) (a)?"

( 2 ) IN our opinion, the question has not been properly framed and it should be re-cast thus: -"whether on the facts and circumstances of the case the sum of rs. 25,000 contributed by the assessee on 1-10-1963 towards the establishment of a College of Engineering shall be included in the total income of the previous year of the assessee? "

( 3 ) THE asaessee is a charitable trust assessed in the status of an ' Association of persons'. The assessment year in question is 1965-66 for which the corresponding accounting year is the year ended 30th Sep. 1964. The assessee was assessed on the total income of Rs. 34,473 comprising of property income of Rs. 10,993, business income of Rs. 20,136 and other sources like dividends amounting to Rs. 3,344. On 1-10-1963, the very first day of the commencement of the accounting year, the assessee made a donation of a sum of Rs. 25,000 to the College of Engineering, Tumkur.

( 4 ) IN the assessment of the assessee for the year ended 30th September, 1964, it claimed that the aforesaid sum of Rs. 25,000 shall not be included in its total income of the previous year by virtue of S. 11 (1) (a) of the act. The Income Tax Officer rejected that contention holding that the said sum had been paid out of the Trust funds and not from the profits of the year of accounting in question and therefore the same shall be included in the total income. The appeals preferred by the assesses to the appellate Assistant Commissioner in the first instance and later to the income-Tax Appellate Tribunal, were both unsuccessful. The sole ground on which the Tribunal as well as the authorities below disallowed the claim of the assessee was that the said sum of Rs. 25,000 donated to the engineering College came from the Trust funds of the assessee and not from its income of the relevant accounting year. It was stated that the donation was made on the very first day of the commencement of the accounting year on which date there were no profits available from which the funds could have been donated. The question is whether the view taken by the Tribunal is right. There is no direct authority of any High court in India or of the Supreme Court bearing on the question and therefore we are left to decide this question on first principles. It is common; ground that the assessee holds property under trust and that it derives income from such property held under trust wholly for charitable purposes.

( 5 ) S. 11 (1) (a) of the Act which is the material provision reads thus:"11. Income from property held for charitable or religious purposes.- (1) Subject to the provisions of Ss. 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 ). . . . . . . . . . . . . . . . "

( 6 ) IT is seen from a perusal of the above provision, that what it provides is not for exemption of any income in the computation of the total income of the assessee for the previous year but it provides that the income enumerated in clause (a), (b) etc. , shall not be included in the total income of the previo