1982 (8) TMI 4 - HC - Income Tax

Charitable Trust Tax Benefits: Income Tax Payment & Investment in Bonds Deemed Necessary for Preserving Property

Commissioner Of Income-Tax Versus Janaki Ammal Ayya Nadar Trust

The Tribunal found that the payment of income-tax and investment in bonds by the charitable trust were necessary for preserving its property and business, ... Charitable Trust Issues Involved:1. Whether the payment of income-tax and investment in Tamil Nadu State Electricity Bonds can be considered as application of the trust's income for charitable purposes u/s 11 of the I.T. Act, 1961.2. Whether the income of the assessee-trust for the assessment year 1964-65 is exempt from tax.Summary:Issue 1: Application of Income for Charitable PurposesThe assessee, a public charitable trust, claimed exemption from tax u/s 11 of the I.T. Act, 1961, for the assessment year 1964-65, arguing that it had spent Rs. 8,859 on land purchase, Rs. 1,21,540 on income-tax, and Rs. 15,000 on investment in Tamil Nadu State Electricity Bonds. The ITO rejected this claim, stating these expenditures did not constitute application of income for charitable purposes. The AAC, however, annulled the ITO's order, holding that the trust had applied more than 75% of its income to charitable purposes. The Revenue appealed to the Tribunal, which found that the payment of income-tax and investment in bonds were necessary to preserve the trust's property and business, thus constituting application of income for charitable purposes. The Tribunal concluded that the trust had met the requirements of s. 11(1).Issue 2: Exemption from TaxThe Revenue sought a reference to the High Court on whether the income of the assessee-trust for the assessment year 1964-65 is exempt from tax. The High Court held that the payment of income-tax was necessary to preserve the trust's property and should be considered as application for charitable purposes. The court agreed with the Tribunal's view that the income of the trust should be determined after deducting the income-tax paid, and there was no surplus income available for allocation. The High Court also referenced CIT v. Gangadhar Banerjee and CIT v. Nizam's Supplemental Religious Endowment Trust, supporting the view that income-tax payments should be deducted from the trust's income to determine the surplus available for charitable purposes. The court concluded that the assessee's claim for exemption was well-founded and answered the question in the affirmative, ruling in favor of the assessee and against the Revenue. The Revenue was ordered to pay the costs of the assessee, with counsel's fee set at Rs. 500.