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A.L.N. Rao Charitable Trust Vs. Additional Commissioner of Income-tax, Mysore and anr. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKarnataka High Court
Decided On
Case NumberWrit Petition No. 597 of 1973
Judge
Reported in[1975]101ITR838(KAR); [1975]101ITR838(Karn); 1974(2)KarLJ463
ActsIncome Tax Act, 1961 - Sections 11, 11(1), 11(2), 60, 61, 62, 63, 75 and 263
AppellantA.L.N. Rao Charitable Trust
RespondentAdditional Commissioner of Income-tax, Mysore and anr.
Appellant AdvocateG. Sarangan, Adv.
Respondent AdvocateS.R. Rajasekhara Murthy, Adv.
Excerpt:
..... inadequacy of appealed against- applicability of section 163a held, the claimants whose annual income is not more that rs. 40,000/ can only make the claim under section 163-a of the act. the claim has to be considered and disposed off keeping in view the formula provided in the ii schedule of the act, i.e., on structured formula, having regard to the age of the victim and his income. the award made under the said provision shall be in full and final settlement of the claim. the note appended to column 1 from the total amount of compensation, 1/3rd thereof, has to be reduced in consideration of the expenses, which the victim would have incurred, towards maintaining himself had he been alive. further, section 163-a read with schedule ii of the act, itself having provided the percentage..........in respect of which notice had been given earlier under clause (a) of section 11(2), the entire surplus income was exempt from payment of income-tax. the commissioner of income-tax (hereinafter referred to as 'the commissioner'), on looking into the order passed by the income-tax officer on january 21,1972, was if the view that the order was prejudicial in exercise of his powers under section 263 of the act calling upon the petitioner to show cause as to why the order dated january 21, 1972, passed by the income-tax officer should not be revised. aggrieved by the said notice, the petitioner has field this writ petit petition. 3. it is necessary for the purpose of this case to refer to the notice issued by the commissioner. it reads as follows; 'l. rev. no. 136/72-cit office of the.....
Judgment:

Venkataramiah, J.

1. The petitioner is a charitable trust. It was an assessee under the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), during the assessment year 1969-70. The Income-tax Officer was of the view that the assessee was not a genuine trust and hence was not entitled to the exemption s under provisions of the section 11 of the Act. Against the order of assessment passed by the Income tax Officer, the petition filed an appeal before the Income-tax Appellate Assistant Commissioner. pallet Assistant Commissioner dismissed the appeal. But in the appeal preferred by the ceases before the Income-tax Appellate Tribunal, it was held that the assessee was charitable trust and that, therefore, it was entitled to the exemptions under section 11 of the Act. I am informed that are fairness against the order of the tribunal is pending before is court.

2. After the Tribunal rendered its judgment in the appeal, the Income-tax Officer who was directed to post an order of assessment in the light of the decision of the Tribunal, passed on order on January 21, 1972, holding that because 75% of the income in excess of the in income actually applied for charitable purposes had been invested as required by clause (b) of section 11(2) of the Act in respect of which notice had been given earlier under clause (a) of section 11(2), the entire surplus income was exempt from payment of income-tax. The commissioner of Income-tax (hereinafter referred to as 'the Commissioner'), on looking into the order passed by the Income-tax Officer on January 21,1972, was if the view that the order was prejudicial in exercise of his powers under section 263 of the Act calling upon the petitioner to show cause as to why the order dated January 21, 1972, passed by the Income-tax Officer should not be revised. Aggrieved by the said notice, the petitioner has field this writ petit petition.

3. It is necessary for the purpose of this case to refer to the notice issued by the Commissioner. It reads as follows;

'L. Rev. No. 136/72-CIT

Office of the Commissioner of Income-tax, Mysore, Bangalore, Dated : 18/1/1972 To,

To, A. L. N. Rao Charitable Trust, Mangalore.

Gentlemen,

Sub :- Revision under section 263 of the Income-tax Act, 1961-A. L. N. Rao Charitable Trust, Mangalore-Assessment year 1969-70-No time under section 263-Issue of-Regarding.

On a perusal of the income-tax assessment records in your case, for the assessment year 1969-70, it is seen that the order of the Income-tax Officer dated January 21, 1972, giving effect to the order of Income-tax Appellate Tribunal. Bangalore, I.T.A. No. 775 (Bang.) of 1970-71, dated October 5, 1971, is erroneous inasmuch as it is prejudicial to the interests of the revenue within the meaning of that expression occurring in section 263 of the Income-tax Act, 1961, for the following reasons : The Tribunal, by its order in I.T.A. No. 775 (Bang.) of 1970-71 dated, October 5, 1971, held that the assessee was a charitable trust and while giving effect to the said Tribunal's order, the Income-tax Officer should have applied his mind whether the assessee has not complied with provisions of section 11(2). If he had applied his mind to the provision s of section 11(2), he would have seen that the assessee has not invested the entire surplus income of Rs. 85,262 and, therefore, the assessee was not entitled to exemption under section 11.

2. I, therefore, propose to pass an order section 263, as the circumstances of the case warrant, to direct the First Income-tax Officer Mangalore, to bring to tax the entire surplus income of Rs. 85,262 and not exempt any portion of it under section 11.

3. You may file your objections, if any, to the proposed action on or before February 5, 1973. An opportunity of personal hearing will also be given to you on the said date at 11 a.m. at my office at the central Revenue Building, Queen's road, Bangalore-1. When you can adduce evidence in support of your case.

Yours faithfully,

(Sd./-)

B.V. Mundkur,

Addl. Commissioner of Income-tax,

Mysore, Bangalore'.

4. From the notice issued by the commissioner, it is clear that the sole grounds on which action has been taken under section 263 is that the petitioner had invested only 75% of the surplus income and not the entire surplus income in Government or approved securities as required by clause (b) of section 11(2). The question for consideration in this petition, therefore, is whether it is necessary that an assessee should invest the entire surplus income in the manner provided in section 11(2)(b) in order to earn the exemption in respect of any part of the surplus income.

5. In order to appreciate the question of law which arises for consideration in this case, it is necessary to refer to section 11(1)(a) and 11(2) of the Act, as they stood during the relevant period. Those provisions read as follows :

'11. (1) Subject to the provisions of section 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, which ever so higher;...

(2) Whether 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 the purpose for which the income is being accumulated or set apart and the period for which the income is to be accumulated or set apart, which shall in no case exceed ten years;

(b) the money so accumulated or set apart is invested in any Government security as defined in clause (2) of section 2 of the Public Debt Act, 1944 (XVIII of 1944), or in any other security which may be approved by the Central Government in this behalf.'

6. A reading of the provisions of section 11(1)(a) extracted above shows that ordinarily any amount spent by the charitable trust from out of it's income during the previous year on charitable purposes would be exempt from taxation and in so far as the income that is allowed to be accumulated for application to charitable purposes in India is concerned, to the extent to which the income so accumulated is not annexes of 25% of the income from the property or Rs. 10,000, whichever is higher, would be exempt from taxation. To illustrate, let me assume that the income of a charitable trust is Rs. 1,00,000 during any year and a sum of Rs, 40,000 is spent on charitable purposes and there meaning Rs. 60,000 is allowed to be accumulated for application to charitable purposes in India. Under section 11(1)(a) a sum of Rs. 40,000 spent on the charitable purpose and a sum of Rs. 25,000 (which is 25% of the total income) out of the balance of Rs. 60,000 which is allowed to be accumulated would be exempt from taxation. The remaining Rs. 35,000 would be subject to taxation. Sub-section (2) provides that in the event of the trust complying with the requirements of clauses (a) and (b) thereto, it would be entitled to claim exemption in respect of any amount that is allowed to be accumulated for application charitable purposes in India even though it may be excess of 25% of the income or Rs. 10,000, whichever is higher. I am of the view that the words 'restriction specified in clause (a)....... of sub-section (1) as respects accumulation... shall not apply for the period during which the said conditions remain complied with' mean that as respects the amount allowed to be accumulated in respect of which clauses (a) and (b) of sub-section (2) have been complied with, the assessee would be entitled to exemption even though it may be in excess of the 25% of the total income or Rs. 10,000, whichever is higher. If Parliament intended that the entire surplus income had to be invested to earn the exemption in sub-section (2) it would have said so. the very fact that there is no reference to the extent of the income that has to be invested in sub-section (2) suggests that the intention of Parliament was that any amount which is allowed to be accumulated even though it may be in excess of 25% or Rs. 10,000 whichever is higher, in respect of which clauses (a) and (b) of sub-section (2) of section 11 are complied with, shall be exempted from the payment of income-tax.

7. In this case there is no dispute that the assessee issued a notice as required by clause (a) of section 11(2) in the prescribed manner and that 75% of the surplus income has been invested as required by clause (b) of section 11(2). But the dispute centers round the construction to be placed on the provisions of section 11. Whereas the contention of the revenue is that when the entire surplus is not invested in the approved securities as provided in clause(b) of section 11(2). But the dispute centers round the construction to be placed on the provisions of section 11. Whereas the contention of the revenue is that when the entire surplus is not invested in the approved securities as provided in clause (b) of section 11(2) of the Act, after issuing notice as required by clause (a) of section 11(2), the entire surplus amount would be liable to income-tax, the contention of the assessee is that if, in respect of any portion of the surplus amount, the assessee has complied with the requirements of clauses (a) and (b) of section 11(2), then the assessee would be entitled to exemption from payment of income-tax in respect of 25% of the income as provided in clause (a) of section 11(1) plus that portion of the income in respect of which the conditions prescribed under clauses (a) and (b) of section 11(2) have been complied with. In the instant case, according to the revenue, the entire surplus income is liable to payment of income-tax because the entire surplus income has not been invested in the Government or approved securities, but according to the assessee the entire surplus income would be exempted from tax because 25% of the surplus income is exempted under section 11(1)(a) and 75% is exempted under section 11(2). The contention urged on behalf of the revenue has to be rejected in view of the provisions of section 11(2) which lays down that as respects accumulation in respect of which clauses (a) and (b) of section 11(2) are complied with, no income-tax is payable, In so far as the contention of the assessee is concerned, it has to be observed that section 11(2) decided ones not provide for an exemption in addition to what is provided in section 11(1)(a). I am of the view that section 11(2) is only an alternative to section 11(1)(a) and it is open to the assessee to adopt the more favourable one having regard to the facts of the case. The assessee is not, however, entitled to claim exemption in respect of 25% under section 11(1)(a) and also claim exemption in respect of the surplus amount invested under section 11(2). In the facts and circumstances of this case, because admittedly the assessee has invested 75% of the surplus income as provided under clause (b) of section 11(2) and has also given the required notice under section 11(2)(a) he is entitled to claim exemption form payment of income-tax only in respect of 75% of the surplus income.

8. Sri G. Sarangam, learned counsel for the petitioner, questioned the validity of Form No. 10 prescribed under the Income-tax Rules which requires the investment of surplus amount to be made before the expiry of the period specified therein. The said question does not arise in these proceedings. It is open to the assessee if it becomes necessary to raise the said question before this court if he feels aggrieved by any decision which the Commissioner may render. The Commissioner of Income-tax shall now dispose of the proceedings under section 263 of the Act in the light of this order after giving reasonable opportunity to the assessee to make its representation. The petition is accordingly disposed of. No. costs.


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