Parsi Zorastrian Anjuman Trust Vs. Commissioner of Income Tax. - Court Judgment

Excerpt:
indore bench - - what we would like to emphasis is that the assessee should apply to the charitable and religious purposes 75% of the income to enable it to come within the sub-s.ordersohani, j. - by this reference under s. 256(1) of the it act, 1961 (hereinafter referred to as 'the act'), the income-tax appellate tribunal, indore bench, has referred the following question of law to this court for its opinion :'whether on the facts and in the circumstances of the case, the tribunal was justified in holding that the sum of rs. 17,414 being rental income, should be excluded from the total income of rs. 73,484.06 (which sum includes the rental income of rs. 17,414) of the trust for the purpose of calculating the permissible limit of accumulation of income under s. 11(1) of the it act, 1961 ?'2. the material facts giving rise to this reference, briefly are as follows : the assessee is a trust and the assessment year in question is 1976-77. under s. 11(1) of the act, the assessee claimed deduction on account of 25% accumulation, for a sum of rs. 17,894. this contention was rejected by the ito. but on appeal, the aac upheld the contention of the assessee. on further appeal before the tribunal by the department, the tribunal held that 'that the aac had proceeded to allow accumulation at the figure of rs. 17,894 on the assumption that the income in question amounted to rs. 73,484 and that 25% thereof would work out to more than rs. 18,000.' the tribunal, however, observed as follows :'it is, however, not certain as to whether this figure of rs. 73,484 is the income after deducting the necessary expenses or is the total of the receipts obtained by the assessee. what we would like to emphasis is that the assessee should apply to the charitable and religious purposes 75% of the income to enable it to come within the sub-s. (2) of s. 11. the total income however, would not include any receipt against which a specific expenditure had been incurred, for example, according to the assessee, expenses amounting to rs. 28,659.74 had been incurred on the property held by the assessee against which it collected rent of rs. 17,414. it is correct that the balance of expenses incurred by the assessee over and above the rents collected amounting to rs. 11,245.74 would be allowable as an expenditure incurred for religious or charitable purposes within the meaning of sub-s. (2) of s. 11, but the amount of rents collected against which specific expenditure for maintaining the property is incurred cannot be said to constitute the income of the assessee. what we mean to say is that the income earned by the assessee would be reduced to the extent to which the sum has been directly utilised for the purpose of the earning of the income itself. at the same time, we agree with the representative of the assessee that the office and other miscellaneous expenses incurred by the office in connection with the running of the institution would qualify for an allowance under s. 11(2). in other words, the deduction presumably allowable under this sub-section would come to rs. 14,015 (1/4 of rs. 73,484 - rs. 17,414) instead of rs. 17,894 claimed by the assessee.'aggrieved by the order passed by the tribunal, the assessee sought reference and it is at the instance of the assessee that the aforesaid question of law has been referred to this court for its opinion.3. during the course of argument, ld. counsel for the assessee and for the department, agreed that the question referred to this court by the tribunal does not bring out the real issue between the parties. the real issue between the parties was whether the sum of rs. 17,414 should be excluded from the income of the trust amounting to rs. 73,484.06 for the purpose of ascertaining the extent to which accumulation was permissible under s. 11(1) of the act. by consent of the parties, therefore, we reframed the question of law referred to this court, as follows.'whether on the facts and in the circumstances of the case, the tribunal was justified in holding that the sum of rs. 17,414 should be excluded from the income of the trust amounting to rs. 73,484.06 for the purpose of ascertaining the permissible limit of accumulation of income under s. 11(1) of the act ?'4. before we proceed to answer the aforesaid question, it would be useful to refer to the relevant provisions of s. 11(1)(a) of the act, which are as follows :'sec. 11(1) : income from property held for charitable or religious purposes :(1) subjects 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 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 accumulated or set part for application to such purposes in india, to the extent to which the income so accumulated or set apart is not in excess of twenty-five per cent of the income from such property;'from a perusal of the aforesaid provisions, it is clear that the reference in sub-s. (1) of s. 11 is to income and not to 'total income' as defined in s. 2(45) of the act. in the instant case, it is not disputed that the income of the trust was rs. 73,484.06. therefore, for the purpose of calculating permissible limit of accumulation of income under s. 11(1) of the act, the tribunal was not justified in deduction from that income the sum of rs. 17,414 received by the trust by was of rental income.5. for all these reasons, our answer to the question reframed by us, is in the negative and against the revenue. in the circumstances of the case, parties shall bear their own costs of this reference.

Judgment:
ORDER

Sohani, J. - By this reference under s. 256(1) of the IT Act, 1961 (hereinafter referred to as 'the Act'), the Income-tax Appellate Tribunal, Indore Bench, has referred the following question of law to this Court for its opinion :

'Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the sum of Rs. 17,414 being rental income, should be excluded from the total income of Rs. 73,484.06 (which sum includes the rental income of Rs. 17,414) of the Trust for the purpose of calculating the permissible limit of accumulation of income under s. 11(1) of the IT Act, 1961 ?'

2. The material facts giving rise to this reference, briefly are as follows : The assessee is a trust and the assessment year in question is 1976-77. Under s. 11(1) of the Act, the assessee claimed deduction on account of 25% accumulation, for a sum of Rs. 17,894. This contention was rejected by the ITO. But on appeal, the AAC upheld the contention of the assessee. On further appeal before the Tribunal by the department, the Tribunal held that 'that the AAC had proceeded to allow accumulation at the figure of Rs. 17,894 on the assumption that the income in question amounted to Rs. 73,484 and that 25% thereof would work out to more than Rs. 18,000.' The Tribunal, however, observed as follows :

'It is, however, not certain as to whether this figure of Rs. 73,484 is the income after deducting the necessary expenses or is the total of the receipts obtained by the assessee. What we would like to emphasis is that the assessee should apply to the charitable and religious purposes 75% of the income to enable it to come within the sub-s. (2) of s. 11. The total income however, would not include any receipt against which a specific expenditure had been incurred, for example, according to the assessee, expenses amounting to Rs. 28,659.74 had been incurred on the property held by the assessee against which it collected rent of Rs. 17,414. It is correct that the balance of expenses incurred by the assessee over and above the rents collected amounting to Rs. 11,245.74 would be allowable as an expenditure incurred for religious or charitable purposes within the meaning of sub-s. (2) of s. 11, but the amount of rents collected against which specific expenditure for maintaining the property is incurred cannot be said to constitute the income of the assessee. What we mean to say is that the income earned by the assessee would be reduced to the extent to which the sum has been directly utilised for the purpose of the earning of the income itself. At the same time, we agree with the representative of the assessee that the office and other miscellaneous expenses incurred by the office in connection with the running of the institution would qualify for an allowance under s. 11(2). In other words, the deduction presumably allowable under this sub-section would come to Rs. 14,015 (1/4 of Rs. 73,484 - Rs. 17,414) instead of Rs. 17,894 claimed by the assessee.'

Aggrieved by the order passed by the Tribunal, the assessee sought reference and it is at the instance of the assessee that the aforesaid question of law has been referred to this Court for its opinion.

3. During the course of argument, ld. counsel for the assessee and for the department, agreed that the question referred to this Court by the Tribunal does not bring out the real issue between the parties. The real issue between the parties was whether the sum of Rs. 17,414 should be excluded from the income of the trust amounting to Rs. 73,484.06 for the purpose of ascertaining the extent to which accumulation was permissible under s. 11(1) of the Act. By consent of the parties, therefore, we reframed the question of law referred to this Court, as follows.

'Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the sum of Rs. 17,414 should be excluded from the income of the trust amounting to Rs. 73,484.06 for the purpose of ascertaining the permissible limit of accumulation of income under s. 11(1) of the Act ?'

4. Before we proceed to answer the aforesaid question, it would be useful to refer to the relevant provisions of s. 11(1)(a) of the Act, which are as follows :

'Sec. 11(1) : Income from property held for charitable or religious purposes :

(1) Subjects 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 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 accumulated or set part for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of twenty-five per cent of the income from such property;'

From a perusal of the aforesaid provisions, it is clear that the reference in sub-s. (1) of s. 11 is to income and not to 'total income' as defined in s. 2(45) of the Act. In the instant case, it is not disputed that the income of the trust was Rs. 73,484.06. Therefore, for the purpose of calculating permissible limit of accumulation of income under s. 11(1) of the Act, the Tribunal was not justified in deduction from that income the sum of Rs. 17,414 received by the trust by was of rental income.

5. For all these reasons, our answer to the question reframed by us, is in the negative and against the Revenue. In the circumstances of the case, parties shall bear their own costs of this reference.