Madras High Court
Sir M. Ct. Muthiah Chettiar Family Trust vs Income-Tax Officer. on 5 February, 1990
Equivalent citations: [1990]33ITD294(MAD)
ORDER
Per Shri T. V. Rajagopala Rao, Judicial Member - This is an appeal filed by the assessee against the revisionary order, dated 20-11-1986 pass by the Commissioner of Income-tax, Tamilnadu-III, Madras. The assessee is Sir M. Ct. Muthiah Chettair Family Trust. This trust appears to have come into existence under the terms of the trust deed dated 15-2-1945. Admittedly the assessee is a public charitable trust, as its objects are intended to serve wholly religious or charitable purposes. The assessee trust did not apply 75% of its income for charitable or religious purposes, but had sought permission from the Income-tax Officer to accumulate for the assessment years 1972-73 to 1981-82. There was a meeting of Board of Trustees of the assessee trust on 27-6-1972 and a copy of the proceedings of the meeting dated 27-6-1972 at 11 a. m. is give to us. As per the proceedings we understand that there were only two members in the board of trustees, viz., (i) Shri M. Ct. Muthaiah and (ii) Shri M. Ct. Pethachi. Shri M. Ct. Muthiah, who occupied the chair on that day and for those proceedings appears to have explained to the Board of Trustees the following matters and the approval of the proposals was obtained in that meeting. The matters discussed and the resolutions passed in that meeting are the following :-
"He further explained that it is proposed to accumulate the income of the Trust for the accounting year ended 13th April 1972 and subsequent nine years and to utilise the income for the charitable purposes. After a discussion it was unanimously resolved as follow :-
1. That the income of the Trust for the accounting year ended 13th April, 1972 and subsequent nine years to accumulate and the accumulated income be spent for the charitable purposes set our hereunder :-
(a) To award scholarships, stipends to students to enable them to prosecute their studies in India or in foreign countries to award prizes to students for proficiency in any subject or language.
(b) to give substantial donation to any relief fund by way of charity.
(c) To establish and maintain and manage educational institutions or libraries for imparting technical knowledge or scientific knowledge or knowledge in any subject or language.
(d) to establish, maintain and manage hospitals, clinics, laboratories, medical research centres and to provide the poor with the medical relief, surgical advice and aid.
(e) To acquire or take over any hospitals, clinics, laboratories or research centres and to maintain and manage them.
2. That the draft of the notice to be filed with the Income-tax Officer and placed before this meeting and signed by the Chairman of the meeting for the purpose of identification be and is hereby approved.
3. That Mr. M. Ct. Muthaiah or Mr. M. Ct. Pethachi may sign the notice referred to above and other necessary papers and have them filed with the concerned Income-tax Officer to enable to get exemption from tax."
In pursuance of the resolutions passed in the above meeting of the Board of Directors of the assessee-trust every year beginning from the accounting year relevant to the assessment year 1972-73 and nine subsequent years up to the assessment year 1981-82 the assessee trust accumulated its income for the objects set out in From No. 10. Copy of Form No. 10, which was filed in the assessment years 1972-73 to 1981-82 before the Income-tax Officer and on which permission for accumulation was sought and obtained, was filed before us. The objects set out in Form No. 10 are the following :-
"(a) to establish and maintain and manage educational institutions or libraries for imparting technical knowledge or scientific knowledge or knowledge in any subject or language.
(b) To establish and maintain and man age hospitals, clinics, laboratories and medical research centres and to provide the poor with medical relief, surgical advice and aid.
(c) To acquire or take over any hospital, clinics, laboratories or research centres and to maintain and manage them
(d) To award scholarships, stipends to students to enable them to prosecute their studies in India or in foreign countries and to award prizes to students for proficiency in any subject or language.
(e) To give substantial donations to any relief fund by way of charity."
The income thus permitted to be accumulated by the Income-tax Officer over the assessment year 1972-73 to 1981-82 came to Rs. 15,87,935.
2. In the accounting year relevant to the assessment year 1982-83 the assessee-trust gave a donation of Rs. 17.5 lakhs on 10-4-1982 towards the corpus of the trust of M. Ct. M. Chidambaram Chettyar Foundation. The assessee is hereinafter called the donor, whereas M. Ct. M. Chindambaram Chettyar Foundation is hereinafter referred to as the donee. The donee came into existence under the trust deed dated 28-12-1971. The authors of the donee trust are three trusts mentioned below. (i) S. Rm. M. Ct. M. Thirupani Trust, (ii) Sir M. Ct. Muthiah Chettair Family Trust (assessee-donor), and (iii) Sir M. Ct. Trust. The trustees of the above three trusts are only two and they are Shri M. Ct. Muthaiah and Shri M. Ct. Pethachi. The Board of Trustees of the donee trust are Shri F. B. Pithavadian, Shri C. Ramakrishna and Shri T. M. Srinivasan. The authors of the donee trust transferred a sum of Rs. 15,000 to the Board of Trustees and the objects of the trust as appearing from the trust deed regarding the donee trust are the following :-
"(a) To construct a hospital in the premises belonging to the Thirupani Trust and known as "Rama Vilas", situated in Luz Church Road, Mylapore, Madras, and maintaining and managing the said Hospital, and for such purposes to prepare a scheme and carry it out as expeditiously as possible.
(b) To repair, renovate, reconstruct and/or expand Sir M. Ct. Muthaiah Chettiar High School, Lady Muthaiah Chettiar Girls High School and M. Ct. M. Chidambaram Chettyar Memorial Boys Hostel, all situated in Madras and expand M. Ct. M. Chidambaram Chettyar Memorial higher Elementary School, Kanadukanthan.
(c) To meet all expenses necessary and incidental for carrying out the aforesaid purposes and for management of the Trust hereby constituted.
(d) Subject to availability of funds after providing for the aforesaid objects, to construct a school for education in "Rama Vilas" property and maintain and manage the school."
Having regard to the objects we are of the opinion that the donee trust also is a public charitable trust with similar objects as that of the donor trust. The Income-tax Officer, while framing the assessment for the assessment year 1982-83 found that since one of the objects for which accumulation in Form No. 10 was sought for and permitted is to give substantial donations to any relief fund by way of charity, the Income-tax Officer held that the accumulated funds were properly utilised or that the application of income of the donor trust is in order and granted exemption to the donor trust under section 11 of the Income-tax Act, 1961.
3. The Commissioner of Income-tax, Tamilnadu-III, Madras, after going through the assessment records, held that the trust by making corpus donation had not applied the accumulated funds for the objectives for which the amounts were accumulated and tentatively opined that the entire amount of Rs. 17.5 lakhs should be deemed to be the income of the donor trust for the previous year relevant to the assessment year 1982-83. He also held that the assessment framed against the donor trust for the assessment year 1982-83 is both erroneous and prejudicial to the interests of the Revenue. Consequently he gave a notice to the donor trust to show cause why its assessment for the assessment year 1982-83 should not be revised under section 263 of the Income-tax Act, 1961.
4. It was argued before the learned Commissioner that there were no violations of the objectives of the trust in giving the corpus donation to another trust, which is having similar objectives. It is also argued that the Income-tax Officer before recording a finding that the application of donors income is quite in order, fully verified the details of the transactions. It was further submitted that since there was no loss of revenue, there is no scope for any action under section 263. It was further contended that this Tribunal in its Special Bench decision relating to this very assessee, reported in 1 SOT 54, held that even transfer of funds to another charitable trust will amount to application of income for purposes of the trust. The facts of the case for the assessment year 1982-83 are quite identical with the facts of the case decided by the Special Bench of the Tribunal and since there is no violation of the provisions of the trust deed or the conditions for accumulation of income, it is not a fit case for revision.
5. The Commissioner of Income-tax did not agree with the contentions put forward on behalf of the donor trust. Firstly he held that thought the Special Bench decision in M. Ct. Muthiah Chettiyar Family Trust v. Third ITO [1982] 1 SOT 53 (Mad.) appears to be on similar facts, on a detailed examination it would appear that the facts on which the Special Bench decided are quite different from the facts of the present case. The learned Commissioner appears to have laid great stress on the contents of the receipt dated 10-4-1982 passed by the donee trust in favour of the donor trust when it made a gift of Rs. 17.5 lakhs. The receipt, a copy of which is given to us, is as follow :-
"Received with thanks from Sir M. Ct. Muthaiah Chettiar Family Trust a sum of Rs. 17,50,000 (Rupees Seventeen lakhs fifty thousand only) being the donation so kindly sent to us towards the corpus of the Trust".
The learned Commissioner firstly held that in the facts of the case decided by the Special Bench of the Tribunal, the donation of the amount is not towards the corpus of the trust. He further held that if it is a donation simpliciter, then the donated amount would have represented the income for the donee trust under section 12 of the Income-tax Act, 1961 attracting the provisions of section 11(2). The learned Commissioner held that in order to avoid the consequence, that is in order to avoid the obligation of spending the donated amount for the objects for which the accumulation was sought for in From No. 10 and in order to do away with the necessity of spending the whole of the accumulated amount for the objects of the donee trust and in order to obviate the donee trust from the necessity of filing Form No. 10 seeking accumulation if it is not able to spend 75% of its income in the assessment year 1982-83 itself, the donor trust made a corpus or spend it to any other objects, which may be a charitable object without complying with sub-section (3A) of section 11. The learned Commissioner exclaims as to what happened to the undertaking given in Form No. 10 for the application of income for a specified charitable object. He was of the opinion that by this method of inter-trust donation the very purpose of section 11 can be easily defeated. But for the permission granted to accumulate the income it would have been necessary for the donor to spend major portion of the amount derived as income on some charitable object to qualify for the exemption. The donor trust obtained the benefit of exemption by giving an undertaking that the accumulated amount would be spent for a particular charitable object. The donor trust obtained the benefit of exemption by giving an undertaking that the accumulated amount would be spent for a particular charitable object. the donor trust can make a contribution to another trust if the donee trust is going to spend it for the same object on the basis of which the donor trust obtained the exemption. But if the donee trust is going to receive it as corpus and when there is no compulsion on the part of the donee trust to spend any part of the donation to the specified charitable object though the donee may spend it for some other charitable object the condition requisite of section 11 is not satisfied and in such a case it cannot be said that the donor trust has applied the funds for the specified charitable object mentioned in Form No. 10 on the basis of which permission to accumulate the income was granted. The learned Commissioner of Income-tax further held that a corpus donation only increase the capital of the donee trust and the gifted amount cannot be utilised directly for the charitable object of the donee trust. Only the income which may arise out of the corpus can be utilised for the objectives of the donee trust. In this case the sum of Rs. 17.5 lakhs cannot be and is not meant to be used for the objectives of the donee trust as it had been received only as a corpus of the trust. By giving a corpus donation by one trust to another with the same objectives as that of the former it cannot be said that the donor trust is applying or utilising its income for charitable objects. The Special Bench decision rendered by the Tribunal does not apply to the facts to the case. Ultimately the Commissioner held that since the donor trust had not applied the accumulated income for the purpose for which it was accumulated and for the reasons already stated above and since the whole of the income which was not utilised, it should be taken to be the income of the donor trust for this year. He, therefore, directed that the amount of Rs. 17.5 lakhs should be treated as the income of the donor trust for the assessment year 1982-83 and he directed the Income-tax Officer to modify the assessment order and bring Rs. 17.5 lakhs to tax in the hands of the donor trust for the assessment year 1982-83. For that purpose he had set aside the assessment made by the Income-tax Officer.
6. As against the said order of the Commissioner of Income-tax, dated 20-11-1986 the present appeal is filed before this Tribunal and thus the matter stands for our consideration. We have heard Shri C. Ramakrishna and Shri K. J. Rebello for the assessee and Shri Anil Kumar for the department. The learned counsel for the assessee relied on the following decision :-
1. M. Ct. Muthiah Chettiyar Family Trusts case (supra).
2. CIT v. Sarladevi Sarabhai Trust No. 2 [1988] 172 ITR 698/40 Taxman 388 (Guj.).
3. CIT v. Thanthi Trust [1982] 137 ITR 735 (Mad.).
The learned counsel for the assessee contended mainly that contribution towards corpus of another trust also amounts to utilisation of the trust funds and simply because the donation is made towards the corpus of the donee trust it does not amount to transgression under section 11(3). It is also argued that in any event 25% of the income for each of the assessment year cannot be considered as deemed income for the donor trust. It is argued that under Form No. 10 the accumulation can be made and it relates to 75% of the income derived by the trust. No permission to accumulate is required with reference to 25% of the income derived by a trust. Since the said 25% can be accumulated under section 11(1) (a) and not under section 11(2), he further argued that the amount of accumulation which can be deemed as income of a trust under section 11(3) (c) is that portion of the income which was allowed to be accumulated for the purpose mentioned in Form No. 10, but which was not subsequently utilised for those purposes. Section 11(2) contemplates From No. 10. It takes in only 75% of the income which can be accumulated under the provisions of section 11(2). It does not take in the remaining 25% accumulation permissible under section 11(1) (a). Therefore the learned counsel argued that in any event such of the accumulations which do not exceed 25% of the total income derived by the donor trust in each of the years over which the accumulation was permitted during the assessment years 1972-73 to 1981-82 cannot under any circumstances be considered as the deemed income of the donor trust under section 11(3) of the Income-tax Act. The gross income for each of the years, 25% of the said income and the net income required to be utilised under section 11(2) for the assessment years 1972-73 to 1981-82 are furnished in a tabular form as follows :-
Assessment year Gross income 25% of income Net amount required to be utilised Rs.
Rs.
Rs.
1972-73 1,06,932
-
1,06,932 1973-74 1,52,853
-
1,52,853 1974-75 1,62,018
-
1,62,018 1975-76 60,943
-
60,943 1976-77 2,12,796 67,816 1,44,980 1977-78 2,31,230 67,031 1,64,199 1978-79 2,28,203 67,689 1,60,514 1979-80 1,86,541 53,688 1,32,953 1980-81 1,68,754 47,789 1,20,965 1981-82 2,09,349 64,974 1,54,375 17,19,619 3,58,887 13,60,732 In the above table, according to the assessee, there is no scope to consider Rs. 3,58,887, which represents 25% of the income derived by the donor trust from the assessment years 1976-77 to 1981-82 as its deemed income under the provisions of section 11(3) on the ground that such amounts were not spent for the objects for which they were accumulated. The learned counsel for the assessee also contended that the donor trust and the donee trust are public charitable trusts and they were having similar objects for charitable and religious purposes and this finding of fact was found by the Madras Special bench decision of the Tribunal in the assessees own case in M. Ct. Muthiah Chettiyar Family Trusts case (supra). It is also contended by the learned counsel for the assessee that contribution towards corpus of another trust amounts to utilisation. It is the ultimate argument of the learned counsel for the assessee that simply because the donor trust contributed towards the corpus of the donee trust the amount of Rs. 17.5 lakhs there is no scope to assume that it does not amount to utilisation and that by itself does not make the donor trust a defaulter under the provisions of section 11(3). It is argued that the donated corpus is available to the donee, which is a religious and charitable trust for its own purposes. The donee trust cannot utilise the corpus for any other purpose nor can it utilise the income arising from such corpus for any extraneous purpose. Keeping the corpus intact and utilising the income accruing from the corpus for religious and charitable purposes would itself amount to application of income arising from the corpus for religious and charitable purposes. It is further contended that corpus fund also can be treated to be held for religious and charitable purposes by the donee trust. Therefore the learned Commissioner of Income-tax is not at all correct in treating the corpus donation as non-utilisation for purposes of section 11(3) of the Income-tax Act and the impugned order, which is based upon the above said wrong notion, is completely vitiated and therefore it should be set aside and the appeal should be allowed.
7. On the other hand, the learned departmental representative contended that notice of accumulation expected to be given by an assessee trust seeking permission for accumulation has a certain sanctity. The purpose for which the accumulation is to be made should necessarily be disclosed in Form No. 10 filed in the assessment proceedings for each year during which the accumulation is sought for an permission obtained. Permission also should be obtained whether the accumulation is intended to be donated as income or as corpus. If for instance the permission is obtained for accumulation to donate the accumulated amount as income only then no assessee trust would be entitled to change the mode of gift. No assessee trust can be permitted to change the intended gift towards income of another trust into gift towards corpus. The only other way known to law by which the mode of utilisation can be changed is by seeking a fresh permission from the Income-tax Officer under section 11(3A). Under section 11(2) the assessee is expected to specify by submitting Form No. 10 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. The period should in no case exceed ten years. During the period of accumulation the accumulated money should be invested or deposited in specified securities mentioned in sub section (5) only. Under sub-section (3A) when a trust cannot apply its accumulations for the purposes for which it was accumulated and which were made known in Form No. 10 and if it wants to change the utilisation of the accumulated funds for a different charitable or religious purpose than what is mentioned in Form No. 10, then such other different charitable or religious purpose in India should be specified in an application filed before the Income-tax Officer and his permission should be obtained under sub-section (3A). But such different charitable or religious purposes for which the accumulations are intended to be spent should be in conformity with the objects of the trust itself. In such a case the substituted charitable or religious purpose mentioned in an application filed before the Income-tax Officer under section 11(3A) would be deemed to be the Charitable and religious purposes mentioned in Form No. 10 itself for which accumulation was sought for and permission obtained under section 11(2). In this case as can be seen from the resolution passed in the Board of Directors meeting of the donor trust, the amounts were accumulated from 1972-73 to 1981-82 in order that the accumulated income be spent for charitable purposes by the assessee itself and thus utilise the accumulations by the donor trust itself. However, the accumulations were said to be made over to the donee trust as income but as corpus of that trust. Firstly no permission was sought by the assessee to gift the accumulations to the donee trust. Much less did it obtain the permission of the Income-tax Officer to utilise the accumulations as gift to the corpus of the donee trust instead of the donation of the gifted amount simpliciter. According to the learned departmental representative the undertakings given by the assessee in Form No. 10 for several years beginning from 1972-73 to 1981-82 were violated. The donor trust never gave the Income-tax Officer to understand that it would not utilise the accumulated amounts by itself but would donate the amounts to another trust, that too towards the corpus and not as income in its hands. Therefore, according to the learned departmental representative the accumulated amounts were deemed to have been not utilised for the purposes for which they were accumulated or they were set apart during all the ten years for which they were accumulated and therefore since 1982-83 was the immediately succeeding assessment year for the ten years for which accumulations were allowed, the total of the accumulations should be held as deemed income of the assessee and in this respect of the Commissioner correctly appreciated the legal position. The learned departmental representative further argued that if all the accumulated moneys were given not towards corpus but given as gift simpliciter then the donor trust is obliged to spend at least 75% of the total of the accumulations in the assessment year 1982-83. Since the authors of the donee trust would very well know that the donee trust is not in a position to do so they paved a safe way for the donee trust by making it accept the donation towards the corpus of the trust. It is further argued by the learned departmental representative that if such inter trust donations are allowed freely in the fashion in which the assessee wants in this appeal, then the very purpose of section 11 would be frustrated. As we have seen section 11(2) would give us a maximum period of ten years only for accumulation. If a donation by one trust to another after having accumulated the donated amount for over ten years is freely allowed, then the accumulation would not be allowed either for charitable or religious purposes for any number of years and it would be tied down as corpus of one or the other trust, instead of being available to the public or charitable purposes. This development was never intended by the Legislature, and he submitted in all humility that we should not accept this interpretation sought to be placed by the assessee. The learned departmental representative relied upon the Calcutta High Court decision in CIT v. Ramchandra Poddar Charitable Trust [1987] 164 ITR 666. In the said case, the learned departmental representative submits that, gift of shares by the donor trust to the donee trust was held not to amount to application of income for charitable purposes and the Tribunals decision holding it to be contra was held to be wrong by the Calcutta High Court. Ultimately the learned departmental representative argued that the impugned order of the Commissioner is pre-eminently just and legal and does not call for any interference from this Tribunal.
8. After hearing both sides in the matter, we hold as follows. Firstly we hold that the deemed income under section 11(3) is only such income which is permitted to be accumulated under section 11(2) by means of filing From No. 10 before the Income-tax Officer on which the Income-tax Officer permitted the accumulation. The accumulation and seeking permission of the Income-tax Officer therefore confines itself only to 75% of the total income obtained by any trust 25% of the total income derived by an assessee trust which is contemplated under section 11(1) (a) was not covered by either section 11(2) or section 11(3). Section 11(1) (a) reads as follow : "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, whether any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income from such property". Therefore it can be seen from the above provision that such of the income derived from the property held under trust is not wholly applied or partially applied it can be accumulated to be subsequently applied or partially applied it can be accumulated to be subsequently applied for such purposes to an extent not exceeding 25%. This accumulation is quite different from the accumulation contemplated under section 11(2), because section 11(2) concerns itself only with 75% of the income but not with the 25% which is already available for accumulation to an assessee trust. When accumulation is sought for out of 75% of the income then only Form No. 10 is to be filed before the Income-tax Officer and in such a case only the maximum period for which accumulation can be allowed is prescribed as ten years. Under section 11(3) if the accumulated income is held to be not utilised for the purposes for which it is so accumulated, the accumulated income should be deemed to be the income of the person who might have defaulted to spend the accumulated income for either charitable or religious purposes. The deeming provision under section 11(3) applies only to the accumulated income permitted under section 11(2) but not to the statutorily permitted fraction of 25% under section 11(1) (a). Therefore in any view of the matter there is no scope for the Revenue to treat the amount of Rs. 3,58,887 shown in the table in the above paragraph as deemed income of the assessee under section 11(3). We also hold that the accumulated amount was only Rs. 13,60,732 and this amount only can be considered as deemed income of the assessee under section 11(3), in case we uphold the Commissioners impugned order on the question of law.
9. The objects of the donor trust as well as the donee trust were fully examined by the Special Bench of the Madras Tribunal in M. Ct. Muthiah Chettiyar Family Trusts case (supra) and the learned Members constituting the Bench unanimously held that the donee trust herein also a trust with similar objects as that of the donor trust. In view of the Special Bench decision on the point we need not go into this question once again. We take it for granted that the object of the donor and the done trusts were similar or identical and both of them are created for public or charitable purposes.
10. The main question to be resolved is whether the making over the accumulations of the donor trust to the corpus of the donee trust can be said to be utilisation of the accumulations permitted by the Income-tax Officer for the period from 1972-73 to 1981-82. The learned departmental representative relied upon the Calcutta High Court decision in Ramchandra a Poddar Charitable Trusts case (supra). He stated that the Calcutta High Court in that case decided that gift of shares by the assessee to another trust would not amount to application of its income for charitable purposes. We have gone though the cited decision. It concerns itself only with section 11(1) (a) and not with section 11(2) and (3), with which we are concerned in this case. For instance the Calcutta High Court held that what section 11(1) (a) requires is application of income derived from charitable property held under trust. At page 669 the Calcutta High Court held that since the gift of shares of Rs. 30,000 was made by the assessee trust to another trust, not from the income but from the accumulated income of the past years, it cannot be said that Rs. 30,000 is actually applied for purposes of the trust. In the view of the Calcutta High Court for earning exemption under section 11, 75% of the income actually derived by the trust from its properties should actually be spent from out of the said income but not from out of it accumulated income over the years. However, we are either here nor there and this ratio is utterly inapplicable for our purposes. We are concerned with the right interpretation of section 11(2) and 11(3) and we are not concerned here with section 11(1) (a) on the main point at issue. Therefore, we hold that the Calcutta High Court decision relied upon by the Revenue is inapplicable to the facts of the case.
11. Now let us take up the Gujarat High Court decision in Sarladevi Sarabhai Trusts case (supra). In that case the facts briefly stated are as follows. The assessment year concerned was 1975-76. In the original assessment the Income-tax Officer granted exemption to the assessee trust under section 11 of the Income-tax Act. The Commissioner exercising his powers under section 263 felt that the income of the trust was utilised directly or indirectly for the benefit of prohibited categories of persons mentioned in section 13(2) (h) read with section 13(3). Ultimately he held that the income was not actually applied and spent on charitable purposes and the exemption given the Income-tax Officer under section 11 to the assessee is not correct. He also held that the funds of the trusts were utilised by persons in the prohibited categories under section 13(3) of the Income-tax Act and hence in view of section 13(2) (h) the assessee was not entitled to exemption. The Tribunal disposting of the appeal of the assessee along with other similar appeals, reversed the decision of the Commissioners order was based on two important aspects, the first being that donations to other trusts with a condition that donations should form a part of the corpus of the trusts, or otherwise did not amount to actual spending by the assessee. Therefore, it can be seen that the question with which we are primarily concerned in this appeal is also formed part of subject-matter of appeal before the Gujarat High Court. The first contention which was identified for consideration by the Gujarat High Court is the following : "Whether the trust was not entitled to get the benefit of section 11 of the Act because instead of spending the amount itself, it had donated it to another charitable trust, subject to the condition that the donee trust had to keep intact the donated amount by way of corpus and had to utilise only the income thereof for its purposes ?" At page 705 of the reported decision the Gujarat High Court identified the main question which arose for their consideration as follows : "The main question which we have to consider in this connection is as to whether the assessee-trust during the relevant year applied its income for charitable or religious purposes do not. What the assessee did was that it donated the concerned income to another trust duly registered under the Bombay Public Trusts Act." At page 709 their Lordships of the Gujarat High Court considered what is meant by utilisaiton, whether it envisages spending forthwith and whether keeping the amount in the shape of corpus in the hands of another trust created for religious and charitable purposes can amount to utilisation or not. In that connection the Gujarat High Court held the following : "It cannot be disputed that the donor trust had made payment of the sum of money covered by the donation to another charitable trust, viz., the donee trust and also it was for utilisation by the donee trust for its charitable purposes. In any case, so far as the donor trust which is a religious and charitable trust which has to utilise the donation for its own purposes, it would be a proper application of the income for charitable and religious purposes.
12. As can be seen from the above decision of the Gujarat High Court, keeping the corpus in the hands of another charitable trust, with similar objects, would itself amount to uitilisation, and utilisation does not mean spending forthwith and when once the donor trust makes payment of the donated amount to the donee trust, which is also a charitable or religious trust and which has to utilise the donation for its own purposes, it would be proper application of income for charitable and religious purposes. No doubt the Gujarat High Court did not consider the sanctity of Form No. 10 and the consequences of violating its terms while spending the accumulated amount. But the all important question as to what is meant by utilisation under section 11(3) was already considered. We are bound by the decision of the Gujarat High Court, since it had rendered its decision on the correct interpretation of the word utilisation, which we come across under section 13(3) (c). The main question in this appeal is in what circumstances can it be said that the accumulated amounts can be taken to be not utilised. If the donor trust makes over to the donee trust its accumulated income towards the corpus of the latter trust would it amount to utilisation ? This question is squarely answered, in our humble opinion, in favour of the assessee in the abovementioned Gujarat High Court decision, as can be seen from the above quotation. The donation towards the corpus also can be treated to be utilisation as far as the donor trust is concerned and when once the donor trust made over the gift amount to the donee trust, which is a religious and charitable trust and which is under a duty to utilise the donated amount for its own purposes, it would be a proper application of income for charitable and religious purposes. Therefore, following the above Gujarat High Court decision we have to hold that simply because the accumulated income was ultimately gifted to the corpus of the donee trust there is no scope to hold that the gifted amount was not utilised either for charitable or religious purposes. Donation towards corpus would be held to be proper utilisation. No other High Court decision which is of any relevance is cited before us taking a contrary view. Therefore though several issues which gave rise in this appeal were not answered in the above Gujarat High Court decision, still as it had rendered its decision on an all important question as to what is meant by utilisation, we feel we are justified to follow the Gujarat High Court decision and hold the main issue in favour of the assessee and against the Revenue.
13. The learned counsel for the assessee, as already stated, had also relied upon the Madras High Court decision in Thanthi Trusts case (supra). In that case regarding the question of application of income it was urged on behalf of the trust that it had been throughout adopting the practice of applying 75% of its income for the purpose of education by making credit entries in favour of the Adityanar College of Arts and Science in its books and debiting itself with the same, that the Income-tax Officer had accepted the same as amounting to a proper application of the amount from the year 1962-63 and therefore there was no jurisdiction to the Income-tax Officer to insist on an actual application of the surplus income only for the assessment years in question. The fourth question which was referred for the opinion of the Madras High Court under section 256(1) of the Income-tax Act, 1961 pertaining to this topic is as follows : "Whether on the facts and circumstances of the case, the mere crediting of 75% of the assessees income to the accounts of Adityanar College of Arts and Science in the assessees books will amount to application within the meaning of section 11 of the Income-tax Act, 1961 ?" While answering this question the Madras High Court appears to have followed the decision in IRC v. Helen Slater Charitable Trust Ltd. [1980] 1 All ER 785. At page 775 of the reported decision the Madras High Court discussing the applicability of Helen Slater Charitable Trusts case to the present case before them observed as follow : "The court construed the phrase applied for charitable purposes as including transfer of funds outright to another charitable institution which was exclusively charitable object and the disposition of assets by one institution in favour of another institution in such manner as to pass the while title in such assets to the transferee must ordinarily amount to an application of such assets within the normal use of the legal terminology. Since the credit entries in this case have been followed up by withdrawal of a portion of the amount by the college in one year, and more than the amount credited in another year, it will clearly lead to the inference that the amount has been kept as a fund for the educational purposes which fund can be operated at any time by the college. If the assessee has actually handed over the amounts on the dates when the credit entries were made to the college physically and it had deposited the same with the bank or with a third party, for withdrawal of such amounts as are required by it in future, it cannot be said that there has been no application for educational purposes. The fact that the educational institution chose to keep the money with the assessee-trust itself cannot, in our view, make any difference so long as it has not been shown by the Revenue that the assessee-trust retained any beneficial interest over the money standing to the credit of the educational institution. In our view, the credit entries in this case, when taken along with the conduct of the donee institution of drawing the amounts later, would amount to a gift of the money in favour of the educational institution and as such is a proper Application as contemplated by s. 11. It is not a case of mere credit entry which could be reversed at any time; nor is it a case where credit entry has been made without there being any cash on hand, so that it could be said that the assessee was not in a position to physically and over the money on the dates of the credit entries. We cannot agree with the view of the Tribunal that the amounts which had been credited in favour of the educational institution for the assessment years in question had not been applied for charitable purposes as contemplated by s. 11". It is clearly stated by the Madras High Court that handing over a gift amount to another trust amounts to application of the trust money within the meaning of section 11. Applying the ratio of the above Madras High Court decision we have to hold that the whole of the amount of Rs. 17.5 lakhs gifted by the assessee trust to M. Ct. M. Chidambaram Chettyar Foundation amounts to proper application of the trust funds and amounts to proper utilisation of the trust funds. When there is such a proper utilisation of trust funds it cannot be said that the amount is not utilised for the purpose for which it is accumulated, especially when one of the objects for which the accumulation is sought for and granted is to give substantial donations to any relief funds by way of charity. It is not the case of the Revenue that the gift is made not to any relief fund or that the donee is not a charitable institution with similar objects as that of the donor trust. Therefore we have to hold that the accumulated income of the donor trust was properly utilised for the purpose for which it is so accumulated and there was no contravention of the provisions of section 11(3) (c). Unless there is that contravention it is difficult to include either Rs. 17.5 lakhs or any part of it as the deemed income of the donor trust for the assessment year 1982-83. We, therefore, hold that the impugned order of the Commissioner of Income-tax under section 263 is neither legal nor valid. We, therefore, set aside the same and restore the order of the Income-tax Officer. The appeal is accordingly allowed.