1979 (7) TMI 40 - HC - Income Tax

Court upholds income application ruling for charity, cancels penalty for tax non-payment. Revenue's penalty claim rejected.

The court upheld the Tribunal's decision regarding the application of income for charitable purposes, ruling in favor of the revenue. It found that the ... Accrual Of Income, Export Promotion, Right To Receive Issues Involved:1. Application of income for charitable purposes u/s 11(1) of the Income-tax Act, 1961.2. Entitlement to further exemption from tax for the assessment year 1965-66.3. Cancellation of penalty levied u/s 221 of the Income-tax Act for the assessment year 1965-66.Summary:Issue 1: Application of Income for Charitable Purposes u/s 11(1)The Tribunal held that the amount of Rs. 2,50,000 could not be said to have been applied for charitable or religious purposes in India within the meaning of section 11(1) of the Income-tax Act, 1961, during the accounting period relevant to the assessment year 1965-66. The assessee's resolution to donate Rs. 2,50,000 to Nachimuthu Polytechnic was conditional on profits and was not an actual application of income. The transfer of Rs. 3,00,000 to the 'reserve for donation account' after the close of the previous year did not constitute application of income during the relevant year. The Tribunal found that the amounts debited to the polytechnic were given as loans or advances, not as donations. The Supreme Court's decision in H.E.H. Nizam's Religious Endowment Trust v. CIT was distinguished, as there was no communication or reciprocal entries indicating the amount was set apart for charitable purposes. Thus, the first question was answered in the affirmative and in favor of the revenue.Issue 2: Entitlement to Further Exemption from TaxThe second question did not arise as it was contingent on a negative answer to the first question. The court found the question unintelligible and unnecessary to answer.Issue 3: Cancellation of Penalty u/s 221The Tribunal canceled the penalty of Rs. 20,000 levied u/s 221 for non-payment of tax, considering the default as technical and venial. The assessee's plea of bona fide belief that the income was not taxable and the paucity of funds were accepted as good and sufficient reasons for the default. The Tribunal's conclusion was upheld, and the question referred at the instance of the Commissioner was answered in the affirmative and against the revenue.Conclusion:The court upheld the Tribunal's decisions on both the application of income for charitable purposes and the cancellation of the penalty, ruling in favor of the revenue on the first issue and against the revenue on the third issue. There was no order as to costs.