Madras High Court
Commissioner Of Income Tax vs P.A.C. Ramasamy Raja Education Charity ... on 7 January, 1997
Equivalent citations: [2000]241ITR416(MAD)
ORDER Thanikkachalam, J.
1. Mr. P. P. S. Janarthana Raja took notice for the respondent and undertook to file Vakalath.
2. In this tax case petition, the Department requests this Court to direct the Tribunal to refer the following questions said to arise out of the order of the Tribunal, for the opinion of this Court, under s. 256(2) of the IT Act, 1961, hereinafter referred to as "Act" :
"1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in construing the amount of Rs. 42,243 as being part of the amount of Rs. 6,50,000 which the assessee had mentioned in Form 10 under r. 17 of the IT Rules, 1962, as being accumulated or set apart under s. 11(2) of the IT Act, 1961 ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal has not erred in holding that the accumulated income in respect of which the conditions under sub-s. (2) of s. 11 are satisfied will be entitled to exemption over and above 25 per cent of the income which is allowed to be accumulated under sub-s. (1) of that section without losing exemption ?
3. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in stating that there is no reason why the sum of Rs. 25,099 should not be treated as coming under the Explanation to s. 11(2) ?
4. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in treating a loan of employee as an application for charitable purpose ?"
3. The assessee is a charitable trust. For the asst. yr. 1975-76, it submitted a return of income sowing an income of Rs. 10,85,329. Exemption under s. 11 of the IT Act, 1961 was claimed to the extent of Rs. 11,08,550, computed by the assessee as under :
Rs.
(1) Income accumulated or set apart under s. 11(2) of the IT Act, 1961 6,00,000 (2) Income actually applied for charitable purposes during the year 4,66,307 (3) Income applied during the three months, following the and of the accounting year under Explanation to s. 11(1) 42,243
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Total 11,08,550
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While completing the assessment for the asst. yr. 1975-76, the ITO deducted a sum of Rs. 2,000 being the loan advanced to an employee of the assessee-trust from the sum of Rs. 4,66,307 shown against item. (2) above on the ground that loan advanced to an employee could not be treated as an application of income for charitable purposes. The ITO further negatived the plea of the assessee with regard to the deduction of Rs. 42,243 shown in item (3) on the ground that the assessee-trust had not exercised its option under the Explanation to s. 11(1) of the IT Act, 1961, in writing as prescribed in that provision. He, however, under mistaken impression that this amount was also included in the sum of Rs. 4,66,307 shown against item (2), deducted the said amount therefrom erroneously. The total income was determined as Rs. 69,342 in this manner.
4. On appeal, the CIT(A) noticed the mistake referred to in the earlier paragraph, allowed the appeal to that extent, confirming the other findings of the ITO. In the result, the total income was reduced to Rs. 27,099 from Rs. 69,342. Thereafter the assessee filed an appeal before the Tribunal. The Tribunal allowed the assessee's appeal holding as under :
(i) that the advance of Rs. 2,000 made by the assessee to an employee as a loan should be taken as application of income for the purpose of administration of the institution.
(ii) As regards Rs. 42,243, it should be taken as part of the investment ever and above Rs. 6 lakhs invested in approved securities, as according to the Tribunal, the amount opted to be accumulated should be taken as Rs. 6.5 lakhs as mentioned in Form No. 10, and not Rs. 6 lakhs, as taken by the ITO, and that if the amount to be accumulated was taken as Rs. 6.5 lakhs, there was no violation of the undertaking given in Form No. 10, since the balance amount after considering the investment in securities under s. 11(2) amounting to Rs. 6 lakhs was utilised for the charitable purposes, before expiry of six months, being the time allowed by law for investment and that even if there was such a failure in respect of Rs. 50,000, and income could be brought to tax in the succeeding year.
(iii) Even if the authorities were right in assuming that only Rs. 6 lakhs were permitted to be accumulated, there would be no liability because the balance of income as computed was much less than 25 per cent and that the accumulated income of which the conditions of sub-s. (2) of s. 11 were satisfied, was entitled to exemption over and above the 25 per cent of income which was allowed to be accumulated under sub-s. (1) of s. 11 without losing exemption, following the decision of the Karnataka High Court in the case of CIT vs. A. L. N. Rao Charitable Trust (1975) 103 ITR 44 (Kar) : TC 23R.1331.
(iv) The option to be exercised under the Explanation to s. 11(1) need not be in the form of a separate letter and that Rs. 25,099 along with Rs. 2,000 spent in the three succeeding months after the end of the previous year for charitable purposes should be considered as application of income within the meaning of the Explanation to s. 11(1) of the IT Act, 1961".
5. We have heard the learned junior standing counsel appearing for the Department as well as the learned counsel, Mr. P. P. S. Janarthana Raja, who took notice on behalf of the assessee and undertook to file vakalat.
6. In so far as question No. 1 is concerned, the Tribunal held that, as the requirement as to investment was to ensure that the funds were not misused, and as a portion of the funds has been actually utilised for charitable purposes, there can be no inference that there was no accumulation. This finding was arrived at by the Tribunal on the basis of facts. Accordingly, no question of law arises out of the order of the Tribunal as framed and suggested by the Department as question No. 1.
7. In so far as question No. 2 is concerned, the Tribunal held that the sum of Rs. 42,243, should be considered as having been applied within the meaning of s. 11(1) of the Act. This finding of the Tribunal has not been questioned by the Department. In Addl. CIT vs. A. L. N. Rao Charitable Trust , the Supreme Court, while affirming the decision of the Karnataka High Court in Addl. CIT vs. A. L. N. Rao Charitable Trust (supra), held "out of the unspent accumulated income of the previous year, 25 per cent of such total property income or Rs. 10,000, whichever is higher, can be permitted to be accumulated by the trust, earmarked for such charitable or religious purposes. Such 25 per cent of the income or Rs. 10,000, whichever is higher, will also get exempted from income-tax. Then follows sub-s. (2), which deals with the question of investment of the balance of accumulated income, which has still not earned exemption under sub-s. (1)(a). So far as that balance of accumulated income is concerned, that also can earn exemption from income-tax, meaning thereby the ceiling or the limit of exemption of accumulated income from income-tax as imposed by sub-s. (1)(a) of s. 11 would get lifted, if the additional accumulated income beyond 25 per cent or Rs. 10,000 whichever is higher, as the case may be, is invested as laid down by s. 11(2) after following the procedure laid down therein. So far as the order relating to question No. 2, is concerned, it is in accordance with the judgment of the Supreme Court cited supra. Therefore, no referable question of law as framed and suggested as question No. 2 would arise out of the order of the Tribunal.
8. In so far as question Nos. 3 and 4 are concerned, when Rs. 42,243 came out of the accumulated income of Rs. 6,50,000, and Rs. 2,000 also forms part of the same which is exempted under s. 11(2) of the IT Act, 1961, no further answer need be given. Accordingly, question Nos. 3 and 4 also do not arise out of the order of the Tribunal. Accordingly, no referable question of law arises out of the order of the Tribunal as framed and suggested by the Department as Question Nos. 1 to 4.
9. In the result, this tax case petition is dismissed.