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Siddaramanna Charities Trust Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKarnataka High Court
Decided On
Case NumberIncome-tax Reference No. 3 of 1972
Judge
Reported inILR1973KAR1257; [1974]96ITR275(KAR); [1974]96ITR275(Karn); (1973)2MysLJ360
ActsIncome Tax Act, 1961 - Sections 11(1)
AppellantSiddaramanna Charities Trust
RespondentCommissioner of Income-tax
Appellant AdvocateG. Sarangan, Adv.
Respondent AdvocateS.R. Rajasekhara Murthy, Adv.
Excerpt:
.....the land tribunal has got jurisdiction to deal with the same. - 20,136 and other sources like dividends amounting to rs. the appeals preferred by the assessee 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......on october i, 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 assessee 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 september, 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. 3,344.4. on october 1, 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.5. in the assessment of the assessee for the year ended 30th.....
Judgment:

Govinda Bhat, C.J.

1. The Income-tax Appellate Tribunal, Bangalore Bench, has stated a case and referred the following question of law said to arise out of its order under Section 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 October 1, 1963, towards the establishment of a college of engineering does not qualify for exemption conferred by Section 11(1)(a) ?'

2. In our opinion, The question has not been properly framed and it should be recast thus :

'Whether, on the facts arid circumstances of the case, the sum of Rs. 25,000 contributed by the assessee on October I, 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 assessee 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 September, 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.

4. On October 1, 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.

5. 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 Section 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 assessee 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. Section 11(1)(a) of the Act, which is the material provision, reads thus :

'11. Income from properly 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) and (c)....' (omitted as unnecessary)

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 Clauses (a), (b), etc., shall not be included in the total income of the previous year of the person. In other words, it provides for exclusion of such income from the computation of the total income. The conditions pre-requisite for application of the provision are that the income must be derived from property held under trust wholly for charitable or religious purposes and that the exclusion of the income is limited to the extent to which such income is applied to such purposes in India.

7. Sri S. R. Rajasekhara Murthy, learned counsel for the department, submitted that on the first day of the accounting year when there was no income received and the funds had been donated out of the trust funds, it cannot be said that the amount was paid out of the income derived from the property held under trust wholly for charitable or religious purposes. Let us test the logic of the argument of the learned counsel. Stretched to its logical conclusion it will lead to the result that even in a year where there are no profits for the whole year, the assessee may be entitled to the benefits of Section 11(1)(a) of the Act. Let us suppose, that in the first quarter of the previous year the trust earned profits to the extent of Rs. 25,000 and on the last day of the quarter the said sum was donated for charitable purposes. Let us also suppose that during the next three quarters of the year, the result was not profit but on the contrary one of loss of Rs. 50,000, the net result being a total loss of Rs. 25,000 in the year. In such a case if the argument of the learned counsel for the department is to be accepted as sound, the assessee will be entitled to the benefit of Section 11(1)(a) since the donation was made out of the profits of the first quarter although the net result of the profit and loss account for the year has ended in a loss. That is not the intention of the provision of the Act. The benefit of Section 11(1)(a) is available provided the trust has earned profits in the previous year relevant to the assessment year.

We are not prepared to accede to an argument which will defeat the very purpose of the section. In the instant case, it is not disputed that during the previous year relevant to the assessment year, there was a total profit and the sum donated was less than the amount of profits. A copy of the profit and loss statement of account was shown to us and it is seen therefrom that the donation of Rs. 25,000 formed part of profits for the year ending 30th September, 1964, and it is not shown that the said amount was paid out of the capital account.

8. The decision relied on by Sri Rajasekhara Murthy in Commissioner of Income-tax v. Samnnugger Jute Factory Co. Ltd., [1953] 24 I.T.R. 265 (Cal.) in our opinion, has no relevance to the question before us.

9. In the result, for the reasons stated above, we answer the question as recast by us in the negative, i.e., the sum of Rs. 25,000 donated by the assessee shall not be included in the total income of the previous year of the assessee. The assessee is entitled to its costs. Advocate's fee Rs. 250.


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