1979 (8) TMI 17 - HC - Income Tax

Court Remands Income Tax Calculation for Trust Properties, Exemptions Clarified

Commissioner Of Income-Tax, Tamil Nadu I Versus Rao Bahadur Calavala Cunnan Chetty Charities

The court remanded the matter to the Income Tax Officer to compute the income in accordance with the principles laid down, considering the exemptions ... Charitable Purpose, Charitable Trust Issues Involved:1. Computation of income u/s 11(1)(a) of the Income-tax Act, 1961.2. Inclusion of income from two schools in the assessee-institution's accumulated income.3. Determination of total income of the assessee-institution for the assessment years 1965-66 and 1966-67.Summary:Issue 1: Computation of Income u/s 11(1)(a)The court addressed whether 'income' for computing accumulation in excess of 25% u/s 11(1)(a) should be computed under the various heads as enumerated under the Income-tax Act. The court concluded that the income from properties held under trust should be arrived at in the normal commercial manner without reference to the provisions attracted by s. 14. The Tribunal's direction to compute income under different heads was incorrect. The ITO must compute the income in light of this interpretation.Issue 2: Inclusion of Income from Two SchoolsThe court examined whether the income from two schools run by the assessee-institution should be included in the accumulated income and computed under the head 'Other sources.' The court noted that the schools are educational institutions and their income is substantially from government grants. According to s. 10(22), any income of an educational institution existing solely for educational purposes and not for profit should be excluded from the total income. The Tribunal's decision to assess this income under 'Other sources' was erroneous. The ITO should consider the exemption under s. 10(22) in light of the judgment in Addl. CIT v. Aditanar Educational Institution.Issue 3: Determination of Total IncomeThe court considered whether the aggregate of the surplus or deficit of the two schools and the charities maintained by the assessee should be the total income for the relevant assessment years. The Tribunal's approach was found to be incorrect as it did not account for the exemption under s. 10(22). The income from the educational institutions should be wholly exempt, and the question of 25% accumulation under s. 11(1)(a) would not be relevant. The Tribunal's direction to assess the income under 'Other sources' was also incorrect.Conclusion:The court remanded the matter to the ITO to compute the income in accordance with the principles laid down, considering the exemptions under s. 10(22) and the proper interpretation of 'income' for the purposes of s. 11(1)(a). The second and third questions were answered in the negative, and there was no order as to costs.