1. This appeal by the revenue relates to the assessment year 1976-77 for which the relevant previous year ended on 31-3-1976.
2. The assessee is a charitable trust known as 'Jnanodayam Sabha'. The assessee filed a return of income on 20-12-1980 claiming exemption under Section 11 of the Act. The Assessing Officer noticed that there was an excess of income over expenditure of Rs. 1,01,607. The details of income and expenditure are as under:-Income & Expenditure statement Rs. 1,01,607Less : Coconut sales R ld. ,543Palm leaves sales Rs. 73Refund from Court R ld. ,401 ----------Add : Donations Rs. 2,836 Murder case exps.
Rs. 7,000Temple expenses Rs. 28,721 Rs. 38,557 The Income-tax Officer treated the expenditure on donation and Temple expenses as application of income for charitable purposes. As regards the balance of Rs. 97,590, the assessee claimed that following loans were given:- Before the Income-tax Officer, the assessee took the contention that these loans were to be treated as application of income for charitable purposes and since the entire excess of income over expenditure had been applied for charitable purposes, there was no income to be assessed. The Income-tax Officer rejected this contention of the assessee. According to him the loans cannot be treated as application of income for charitable purposes. He was of the view that the assessee had not complied with the provisions of Section 11 (2) of the Act, since 75% of the income was not applied for charitable purposes and the assessee had not given any notice to the Income-tax Officer in Form No.10 prescribed under Rule 17 of the Income-tax Rules. Hence, he found that the assessee was not maintaining proper accounts and the auditors have pointed out several discrepancies in the audit report. Taking all these into consideration, the Income-tax Officer came to the conclusion that the assessee was not entitled to any benefit of exemption under Section 11 of the Act and completed the assessment on a total income of Rs. 97,590.
3. Being aggrieved, the assessee went in appeal to the CIT (Appeals).
The contentions before the CIT (A) were that the assessee is a charitable trust of backward community known as "Dheevras" who were traditionally fishermen. The Sabha was properly constituted, in 1091 M.E. at Edacochin. There is a General body of Sabha, committee, President, Secretary, etc. The object of the Trust is the uplift of the members of the backward Dheevra community living in Edacochin in educational, social, communal, cultural, vocational, financial and spiritual games. The Trust applied for registration as required under Section 12A of the Income-tax Act, 1961. The members of the trust are illiterate and the assessee admitted that the mistakes pointed out are bound to occur due to the illiteracy of the members of the trust. After considering all the contentions of the assessee, the CIT (Appeals) held that financial loans to the Members of the trust was one of the objects of the trust and such loans were to be treated as application of income. The CIT (A) relying on the order of this Tribunal granted exemption under Section 11 of the Income-tax Act, 1961. Hence, the revenue is on further appeal.
4. We have heard the parties to the dispute. On a careful consideration of the rival submissions, we hold that the revenue cannot succeed in this appeal. The first question to be decided is whether the assessee trust was established for charitable and religious purposes. According to the assessee it was established for charitable and religious purposes in respect of Dheevra Community in Edacochin. The question as to whether the assessee trust was established for religious and charitable purposes came before the Hon'ble High Court of Kerala in OP No. 6543 of 1986-87. The questions before their Lordships were : (i) Whether the Sabha was established wholly for charitable and religious purposes (ii) Whether the business undertaking is held under trust for the welfare of the community and (iii) Whether the assessee is entitled to exemption under Section 11 of the Income-tax Act All these questions were decided in favour of the assessee by their judgment dated 2-9-1987. But the Income-tax Officer disallowed the following expenditure :-(a) Loan for marriage Rs. 6,960(b) Pettykada Loan Rs. 3,890(c) Kettuthengu loan Rs. 11,950(d) Due from Members Rs. 1,861(e) Fish business loan to women Rs. 31,771(f) Other loans to Members Rs. 50,167(g) Murder case expenses Rs. 7,000 The Income-tax Officer was of the view that the accounts were not maintained properly by the assessee trust as was pointed out by Auditor. The auditor has pointed out certain discrepancies in dates in respect of receipts and payments and also commented that the title deeds in respect of lands have not been produced for verification.
However, he had mentioned that Fixed assets have been valued and certified by the Managing Committee. There are audit comments about the imperfect title deeds also. The auditor has commented that the withdrawal of Rs. 25,000 from the State Bank of Travancore was accounted for in the Suspense account. Further the auditor has commented on the lack of details for debts and loans. Some of these comments lead to the inference with the maintenance of accounts require improvements. Even though the ITO was aware of the comments of the auditor, he has not chosen to reject the accounts of the assessee nor he has chosen to test the veracity or otherwise of the comments of the auditor, but he proceeded to compute the income disallowing the expenditure holding that the same was not applied for charitable purposes. The CIT (Appeals) went into the nature of the expenditure claimed and held that there were in accordance with and are in furtherance of the objects and purposes of the trust. We do not find any infirmity in the order of the CIT (Appeals). According to us, this is a trust for the welfare of the weaker sections and the expenditure was laid down wholly and exclusively for the purpose of the trust.
Granting of loans and advances to the members of the community is well within the object of the trust as has been held by the jurisdictional High Court in the O.P. referred to above. Similarly the fish business loan to the women is to develop the weaker elements in the weaker sections economically. The loans for marriage purposes can also be viewed likewise. The learned departmental representative vehemently argued that the expenditure on murder case was not for the purpose of the trust. But the learned representative of the assessee explained that the members of the trust planted poles in the river and the rival groups had tried to occupy the place, as a result of which there was a confrontation between the members and the rival group. In that, someone was murdered in the melee. Charges were framed against the members of the community and it was in this context the trust had taken the defence. This is to protect the community from losing personal liberty and therefore it is for the purpose of the trust. Having regard to this, we hold that the assessee is entitled to the benefit of exemption under Section 11, if regard to had to the amounts spent on loans, advances, murder case expenses and temple expenses. For these reasons, we uphold the view of the CIT (Appeals).