Judgment: 1. The assessee has filed this appeal against the order of the AAC confirming the disallowance of relief claimed under Section 80K of the Income-tax Act, 1961 ('the Act') by the assessee. The assessee is a charitable trust. It held 49,750 shares in Caprihans India Ltd. During the accounting period for the present assessment year, it earned a dividend of Rs. 59,700 from the aforesaid company. The trust claimed relief under Section 80K to the extent of Rs. 56,914. The ITO allowed the claim. The assessee appealed before the AAC on various grounds against the order of the ITO. During the course of the hearing of the appeal, the AAC noticed that the ITO had allowed deduction under Section 80K in respect of the dividend income. The AAC served a notice on the assessee proposing to direct the ITO to withdraw the relief allowed under Section 80K by the ITO. After hearing the assessee's objections to the proposed enhancement, the AAC referred to the Madras High Court decisions in the case of CIT v. Rao Bahadur Calavala Cunnan Chetty Charities [1982] 135 ITR 485 and in the case of CIT v. Estate of V.L. Ethiraj (by Official Trustee) [1982] 136 ITR 12 and the Andhra Pradesh High Court decision in the case of CIT v. Trustee of H.E.H. the Nizam's Supplement Religious Endowment Trust [1981] 127 ITR 378 and came to a decision that the provisions of the Act dealing with the computation of total income for the purposes of assessment to income-tax would not apply to the cases of charitable trusts governed by the provisions of Section 11 of the Act. According to him, as long as the income remained exempt from tax in terms of Section 11, there would be no question of chargeability to the extent specified in Section 11. Conversely, there would be no scope for the allowance of deductions from the computation of income in a manner not contemplated by Section 11. He, therefore, withdrew the relief granted by the ITO under Section 80K.2. The assessee is in appeal against the order of the AAC in this respect. It is submitted that the AAC failed to note that the deduction under Section 80K was required to be made if the total income was computed in accordance with the provisions of the Act before making any deductions under Chapter VI-A of the Act. The AAC omitted to take into consideration the position that Section 11 deals with the amount of income that should not be included in the total income in the case of income from property held for charitable or religious purposes. The learned representative for the assessee drew my pointed attention to the provisions of Section 80A(1) of the Act whereunder it has been provided that in computing the total income of an assessee, there shall be allowed from his gross total income, in accordance with and subject to the provisions of Chapter VI-A, the deductions specified in Sections 80C to 80VV of the Act. It was submitted that the exemption was provided in respect of all the assessees. Where the Legislature wanted to make any discrimination between one category of the assessees and others, the Legislature had made the distinction in the provision itself. For example, reference was made to Section 80C wherein different types of exemptions were admissible to an individual and to the HUF. Further, reference was invited to the definition of 'gross total income' under Section 80B(5) of the Act, according to which the gross total income meant the total income computed in accordance with the provisions of the Act, before making any deduction under Chapter VI-A or Section 280-O of the Act. Further, it is submitted that relief in respect of the company dividends was admissible to the trusts under Section 85 of the Act prior to its substitution by the present Section 80K by the Finance (No. 2) Act, 1967, with effect from 1-4-1968. It was nowhere contemplated that this relief was sought to be withdrawn by the replacement of Section 85. Finally, my attention was drawn to Form No.3A prescribed under Rule 12(1)(c) of the Income-tax Rules, 1962 for the assessees including companies claiming exemption under Section 11. In Annexure FI, specific space has been provided for the assessee to furnish the particulars of the dividends attributable to the profits from newly established industrial undertakings, ships or hotel business claimed by the assessee under Section 80K. It is submitted that if relief under Section 80K was not meant to be provided to an assessee which was a charitable trust, the form would not have provided for the claim to be made on behalf of the assessee. On behalf of the revenue, reliance is placed on the order of the AAC and the provisions of Section 80A(2) of the Act.
3. I have carefully considered the facts and circumstances of the case and the submissions on either side. On a perusal of the order of the AAC, it would be clear that he has mainly relied upon the two Madras High Court decisions and the decision of the Andhra Pradesh High Court.
I have carefully perused these decisions. I am unable to agree with the learned AAC that these two High Courts have nowhere taken the view that relief under Section 80K was not available to a charitable trust. The High Courts have only proceeded to lay down the manner in which the total income of a trust was to be determined. The question of relief under Section 80K would arise only after the gross total income of an assessee was determined. As defined under Section 80B(5) of the Act, gross total income meant the total income prior to relief granted under Chapter VI-A in the case of any assessee. Even in the case of a charitable trust, the gross total income has to be determined in the ordinary course by applying the other provisions of the Act including Section 11. Thereafter, the question of granting relief under Section 80K would arise. Nowhere in Chapter VIA or elsewhere it has been laid down that a charitable trust would not be available for deduction under Section 80K. The ITO, therefore, has to allow relief under Section 80K in the manner laid down in the said provision. In my opinion, the learned AAC has clearly misunderstood the import of the Madras and the Andhra Pradesh High Court decisions. His order is reversed and the relief granted by the ITO is restored.