1. These appeals by the assessee relate to the assessment years 1973-74 and 1974-75, for which the previous years ended on 31-12-1972 and 31-12-1973, respectively.
2. The assessee, St. George's Orthodox Syrian Church, Trivandrum, is a religious institution registered with the Commissioner under Section 12A of the Income-tax Act, 1961 ('the Act'). In the return for the assessment year 1973-74, the assessee showed an income of Rs. 1,02,587 as income from various sources and Rs. 1,36,904 as amount applied for charitable purposes, thus, declaring a deficit of Rs. 34,317. For the assessment year 1974-75, the assessee showed a surplus of Rs, 48,445 in the income and. expenditure account. During the assessment year 1973-74, the assessee had spent Rs. 26,226 on the construction of a commercial complex. It had also paid Rs. 25,456 as subscriptions to chitties. The prize amount of the chitties had been used earlier for the purpose of the construction of the commercial complex. Similarly, in the year 1974-75 the assessee had spent Rs. 32,503 on the commercial complex. The ITO held that these amounts spent for acquiring capital assets for the church cannot be treated as income applied for charitable purposes within the meaning of Section 11 of the Act and that the assessee is not, therefore, entitled to claim exemption with regard to these amounts. Under Section 11, income derived from property held under trust wholly for charitable or religious purposes is not to be included in the income to the extent to which such income is applied to such purposes in India.
3. The AAC upheld the finding of the ITO. He held that when the religious institution applies its income for acquiring fixed assets, it can be allowed as an application of the income for religious purposes only when there is a direct nexus between the fixed asset and the religious purpose. He also held that if the income is invested for acquiring a capital asset for earning income, it will not amount to application of the income for religious purposes. Aggrieved with the same, the assessee has come up in appeal.
4. The circumstances under which the assessee embarked upon the construction of a commercial complex can be gathered from a notice issued by the church. It is stated therein that in many places there are no proper places of worship for the members of the church. It is pointed out that at least eight or ten chapels have to be constructed in Southern Travancore to cater to the needs of the members of the church, who are working in various estates. Similarly, it is pointed out that hostel and other accommodation have to be provided for the members of the church who come to Trivandrum on employment or for educational purposes. Similarly, it is also necessary to provide destitute homes, hostels and employment opportunities to offer relief to the weaker Sections among the members of the church. It is then pointed out that the main impediment in carrying out the objects is the lack of funds. The pamphlet says that if modern buildings are constructed in the compound belonging to the church in the centre of the Trivandrum corporation and if these buildings are let out, the income can be utilised for the purposes mentioned earlier. It is then stated that plans have been finalised for construction of a three storeyed building in the church compound with facilities for shop rooms, office, hostels, etc.
4A. The construction of a portion of the commercial complex had been completed. Apart from spending amounts directly for the construction of the complex, the income of the church was utilised for returning the loans taken for the construction and also for paying subscriptions to chitties, the prize amounts of which had been utilised for the construction. The disallowance in the present appeals relates to the amounts spent directly on the construction of the commercial complex and also for the purpose of payment of subscriptions to the chitties.
5. In support of the contention that the amounts spent on the commercial complex and the subscriptions paid to the chitties will amount to application of the income for religious purposes within the meaning of Section 11, the learned representative for the assessee first relied upon a Circular No. 100 [F. No. 195/1/72-IT (A-I)], dated 24-1-1973-Taxmann's Direct Taxes Circulars, Vol.1, 1980 edn., issued by the CBDT. It is stated in the circular that two questions were considered by the CBDT, namely, (i) whether the repayment of a debt incurred by the trust for the purposes of the trust will amount to application of the income for the purposes of the trust and (ii) whether loans or advances for higher studies could be treated as application of income for charitable purposes. In the present case, we are not concerned with the second question. With regard to the first question, it is stated in the circular that the CBDT has decided that the repayment of the loan originally taken to fulfil one of the objects of the trust will amount to an application of the income for charitable and religious purposes. On the strength of this circular, it can be held that no differentiation is necessary between the spending of the income directly on the construction of the complex and the income spent on repayment of loans taken for the purpose of the construction or for payment of subscriptions in the case of chitties, where the prize amount has been utilised for the construction of the complex. But, this circular is of no help in deciding the basic question that arises for consideration in the present case, namely, whether the spending of the income on the construction of a commercial complex can be said to be utilisation of the income for religious purposes. No deed of trust or any other document has been produced by the assessee. The assessee has been registered as a religious institution and the question for consideration will, therefore, be whether the income has been applied for religious purposes. There can be no dispute about the fact that the construction of chapels and the providing of facilities for worship will be acts in furtherance of religious purposes. For the purpose of the present case, we may assume without deciding that the other activities indicated in the pamphlet, namely, the providing of hostel accommodation, etc., for the members of the church will also constitute religious activities. But, in the present case, the income has not been applied directly for the religious purposes mentioned above. On the other hand, the income has been applied for the construction of a commercial complex, the income from which is to be applied for religious purposes. The question for consideration is whether in such cases, the application of the income for the purpose of the construction of commercial complex can be treated as application of the income for religious purposes.
6. The learned representative for the assessee relied upon the decision of the Supreme Court in the case of Addl. CIT v. Swat Art Silk Cloth Mfrs. Association  121 ITR 1. In that case, the Supreme Court was considering the interpretation of the words 'not involving carrying on any activity of profit' occurring in Section 2(15) of the Act. It was held that if the dominant or the primary purpose of the assessee did not involve the carrying on of any activity for profit, then, the assessee will be entitled to claim exemption with regard to its income and that the subsidiary objects, even if they involved some commercial activity, would not militate against the charitable character and the purpose of the assessee. This decision is of no help in deciding the issue involved in the present case.
7. The learned representative for the assessee then relied upon the decision in Satya Vijay Patel Hindu Dharamshala Trust v. CIT  86 ITR 683 (Guj.). In that case, a trust was created and certain immovable properties were transferred to it to be administered as a Hindu dharamshala. The question for consideration was whether the income utilised for the construction of a new dharamshala will amount to application of the income for the purposes of the trust. It was held by the Gujarat High Court that the only requirement of Section 11 is that the income of the trust must be applied to the charitable purposes for which the properties are held under trust by the trustees and that it does not say that the application of the income should be such that it necessarily results in revenue expenditure, that the charitable purpose may, in a given case, require for its fulfilment, purchase of a capital asset and where income is applied for purchase of such a capital asset, it would still be application of income to the charitable purpose. This decision is no authority for the proposition that the investment of the income in a capital asset for the purpose of producing income for application to religious purpose will be application of the income for religious purposes. This decision is only an authority for the prosition that the application of the income for acquiring a capital asset will still be an application of the income for religious or charitable purposes, provided the acquisition of the capital asset is for the said purposes. This decision will only help the assessee in claiming that the utilisation of the income to acquire a capital asset for religious purposes will amount to application of the income for religious purposes. In the light of this decision, the disallowance of the claim by the merely on the ground that the income has been spent for acquiring a capital asset will not stand.
8. We are still left with the question whether the utilisation of the income for the purpose of constructing a commercial complex for the purpose of producing income to be utilised for various religious purposes will amount to application of the income for religious purposes. Our attention was not drawn to any rulings dealing with this aspect. We find that this aspect has been considered at page 401 of Taxation of Charity by M.P. Agrawal, 1981 edition. The learned author states thus: Expenditure on charities need not be in the nature of revenue expenditure. If a trust applies its income for constructing a hospital or school building, or purchasing apparatus or furniture therefor, it would be application of the income to charitable purposes. This, however, does not mean that if a trust spends or invests its income for acquiring a capital asset for earning income, it would still tantamount to the application of the income to charitable purposes. If the assets acquired have a direct nexus with the charitable or religious purposes, it is only then that it will amount to the application of the income within the meaningof Section 11. Investment in an income-earning asset would not be application of the income as envisaged by the Section.
9. It was contended by the learned representative for the assessee that we should have a wider outlook and should take a more liberal view of the matter by holding that the investment of the income in a venture which would bring a higher or increased income which could ultimately be applied for religious purposes, should be held to be application of the income for religious purposes. It appears to be unsafe to accept such a proposition. If the proposition is accepted, a religious institution can apply its entire income on commercial activity and claim the same to be application of the income for religious purposes merely because the income ultimately obtained from the commercial activity is to be applied for religious purposes. Similarly, a religious institution can spend the entire income on the acquisition of a capital asset, which has nothing to do with the religion on the plea that the income derived from the capital asset is going to be used for religious purposes. The essential requirement of Section 11 is that the income for which exemption is sought must be one which has been applied for religious purposes during the relevant previous year.
10. We, therefore, hold that in the present case the income has not been applied for religious purposes. In the result, the appeals are dismissed.