Charitable trust exemption under section 11 applies to income used for hospital property and accumulation within the permitted limit.

Income of a charitable trust used to acquire a building for a hospital remained exempt under section 11(1)(a) because it was applied to charitable purposes in India. The statutory accumulation permitted under section 11(1)(a) also continued to qualify for exemption, and non-compliance with the additional conditions in section 11(2) did not defeat exemption for amounts already applied or for accumulation within the prescribed limit. On the stated facts, the amount applied for the hospital building and the balance income within the allowable accumulation limit were both exempt.

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Issues: Whether income of a charitable trust applied towards purchase of a building for a hospital and the balance accumulation within the statutory limit remained exempt under section 11 despite non-compliance with the conditions for larger accumulation under section 11(2).

Analysis: Section 11(1)(a) grants exemption to income from property held under trust for charitable purposes to the extent it is applied to such purposes in India, and also permits exemption for accumulation up to 25 per cent. of the total income or Rs. 10,000, whichever is higher. Section 11(2) operates only when the trust seeks exemption for accumulation beyond that limit and then requires notice in the prescribed form and investment of the accumulated amount in the prescribed securities. The statutory scheme shows that failure to satisfy section 11(2) does not take away the exemption available under section 11(1)(a) for income already applied to charitable purposes or for accumulation within the permitted limit. On the facts, the amount of Rs. 8 lakhs was applied for a charitable purpose by acquiring a building for a hospital, and the remaining income was within the permissible accumulation limit.

Conclusion: The trust was entitled to exemption under section 11(1)(a) for both the amount applied to the charitable purpose and the balance accumulation within the statutory limit, and the question was answered in favour of the assessee.

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