Jagannatha Shetty, J.
1. The common question referred in these references under s. 256(1) of the I.T. Act, 1961 (called 'the Act'), is as follows :
'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the repayment of loans advanced by the assessee did not constitute the assessee's income liable to tax ?'
2. The assessee is a trust existing for charitable purpose. The objects of the trust are to help widows or persons whose financial condition is poor. In pursuance of these objects, the trust sometimes gives loans to needy persons without interest and those loans are subsequently repaid.
3. During the assessment year 1973-74, the trust received back such interest free loans in a sum of Rs. 14,400 and during the assessment year 1974-75, it received Rs. 6,575. The ITO treated a sum of Rs. 12,000 out of Rs. 14,400 as income of the trust for the year 1973-74, and Rs. 6,000 out of Rs. 6,575 as its income for 1974-75. Being aggrieved by the assessment orders, the assessee appealed to the AAC, who held that the repayments of the loans did not constitute taxable income of the trust and hence they were not taxable. Aggrieved by the order of the AAC, the Department preferred an appeal before the Tribunal. Before the Tribunal, the Department relied upon Circular No. 100 dated January 24, 1973, issued by the Central Board of Direct Taxes which, in effect, directed that, as and when a loan is returned to the trust, it has to be treated as an income of that year of the trust, the object of which is financing for education and granting scholarships. The Tribunal, however, dismissed the appeal holding that there was no justification to apply the circular to the assessee's case.
4. The question raised is of some importance and equally interesting and it depends upon the scope of s. 11 of the Act.
5. This section, subject to the provisions of ss. 60 to 63, permits exclusion, as a rule, from total income, in respect of only income applied for charitable or religious purposes during the accounting year. It also evolves a scheme relaxing the rigidity of the general rule within certain limits. Exclusion from total income is granted in respect of whatever part of income is applied for charitable or religious purposes in India as specified in the deed of trust or in the memorandum of objects of the trust. If, say, 50 per cent. of the income is applied, then 50 per cent. is excluded from the total income. If 60 per cent. is applied, then 60 per cent. is excluded and so on. The word 'applied' in the context must necessarily mean 'actually applied' or 'actually expended' on such objects as are mentioned in the deed of trust.
6. In respect of income accumulated or set apart for application, the section also permits exclusion up to a limit of 25 per cent. of the income of the trust from the total income. Thus, the scheme under the Act permits exclusion only in respect of income applied or accumulated up to the permissible extent as aforesaid for charitable or religious purpose.
7. Mr. Sarangan, learned counsel for the assessee, indeed has nothing to say on the benefit extended to the trust on the income actually applied for charitable purposes. He, however, urged that, if the income applied in one year is returned by the beneficiaries in another year, the receipts thereof cannot again be treated as income of the trust so as to attract the provisions of s. 11 of the Act. The counsel urged that the money received from or returned by the beneficiaries cannot be deemed to be the income derived from property held under trust in the absence of any appropriate deeming provision in s. 11. Reference was made to s. 41(1) and (2) of the Act containing deeming provision to treat certain receipts or value of the benefits as income chargeable to income-tax. The absence of such a deeming provision in s. 11, according to the counsel, would be material and indicative of the legislative intent not to treat receipt of such monies as income of the trust.
8. We do not think that any such deeming provision is necessary in regard to the money received by the trust from its beneficiaries. Section 11(1) itself contains sufficient indication to treat such moneys as income of the trust. Under the section, only the income spent on charitable or religious purposes is excluded from the total income of the trust. That exemption from taxation is given not because it is expenditure of the trust or any other outgoing. It is exempted as income to the extent applied for charitable or religious purposes. When that amount is returned by the beneficiaries of the trust, the receipts in the hands of the trust can only be its income of the years in which it is received. It cannot have any different character.
9. If the contention of Mr. Sarangan is accepted and such receipts are treated as not income of the trust, then it might as well defeat the very purpose of the trust. The trust, in that event, is not under an obligation to apply the money for the objects of the trust since by implication it ceases to be income of the trust. On the other hand, if the income is re-cycled by the trust for charitable or religious purposes, it is again and again entitled to the benefit of s. 11. This is also the tenor of the circular dated January 24, 1973, issued by the Central Board of Direct Taxes. The Tribunal, in our opinion, was not justified in ignoring the contention of the Department based on the said circular.
10. In the result, we answer the question in the negative and in favour of the Revenue.
11. In the circumstances of the case, we make no order as to costs.