Court upholds charitable institution's expenditure as sourced from taxable income for tax exemption under section 11.

Commissioner Of Income-Tax Versus Silk And Art Silk Mills Association Limited

Commissioner Of Income-Tax Versus Silk And Art Silk Mills Association Limited - [1990] 182 ITR 38, 80 CTR 163, 48 TAXMANN 20 Issues Involved:
The judgment involves the interpretation of provisions of section 11 of the Income-tax Act, 1961 regarding the treatment of expenditure and investments in Government securities by a charitable institution for the assessment years 1967-68 to 1970-71.

Summary:

The reference made u/s 256(1) of the Income-tax Act, 1961 raised the question of whether the Tribunal was correct in holding that the entire expenditure and investments in Government securities should be considered as made out of the assessable income of the assessee before being treated as made out of income from subscriptions. The assessee, a charitable institution entitled to exemption u/s 11, had income from property held under trust and received subscriptions, which were not taxable. The Income-tax Officer treated the expenditure and investments as made on a pro rata basis from the income and subscriptions. The Appellate Assistant Commissioner and the Income-tax Appellate Tribunal disagreed, deeming the expenditure and investments to have come from the taxable income of the trust.

The court considered relevant case laws but found them inapplicable to the present case. Referring to the prudent assessee standard, the court held that the expenditure for the trust's purposes and investments in Government securities were made from the taxable income to avail of the exemption u/s 11. Therefore, the court upheld the Tribunal's view that the expenditure and investments should not be deemed to have been made on a pro rata basis from the income derived from property held under trust and subscriptions.

In conclusion, the court answered the question in the affirmative and in favor of the assessee, stating that the expenditure and investments were made from the taxable income of the trust to obtain the benefit of the exemption u/s 11. No costs were awarded in this matter.