Application of income includes capital asset acquisition for charitable objects when possession and rights in property are effectively transferred.

An advance paid by a charitable trust for purchase of land to be used for its objects was treated as application of income for charitable purposes under section 11. The payment was supported by an irrevocable power of attorney, acknowledgment of receipt, and delivery of possession, showing a genuine acquisition of property rather than mere parking of funds with a third party. The principle that application of income may include capital expenditure applied here, and acquisition of a capital asset for carrying out the trust's objects fell within that scope. The disallowance was therefore deleted and the claim allowed.

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Issues: Whether an advance payment made for acquisition of land to be used for the objects of a charitable trust constitutes application of income for charitable purposes under section 11 of the Income-tax Act, 1961.

Analysis: The assessee trust was registered under section 12A and its objects were charitable. The amount in question was paid as advance towards purchase of land intended for the trust's activities. The land seller subsequently executed an irrevocable power of attorney, acknowledged receipt of the advance and delivered possession. The payment was therefore not a mere retention of funds with a third party, but part of a genuine transaction for acquiring a capital asset for the trust's charitable objects. The facts were materially different from a case where funds were parked with a related concern without effective transfer of rights or use. The application of income for charitable purposes may extend to capital expenditure, and acquisition of property for carrying out the trust's objects falls within that principle.

Conclusion: The advance paid towards purchase of land was application of income for charitable purposes and was allowable under section 11. The disallowance made by the authorities below was set aside in favour of the assessee.

Ratio Decidendi: Payment made towards acquisition of a capital asset for the objects of a charitable trust, accompanied by transfer of possession and enforceable rights in the property, constitutes application of income for charitable purposes under section 11 of the Income-tax Act, 1961.

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