Under s.11(1)(a) charitable trust may accumulate 25% of income from trust property, donations treated as such

SC held that under s.11(1)(a) a charitable/religious trust may accumulate 25% of its income derived from property held under trust; donations received by the trust constitute such property and the trust is entitled to accumulate 25% of the donations (Rs. 2,57,376) rather than 25% of Rs. 87,010 as argued by Revenue. The court dismissed the Revenue's contention and affirmed the trust's entitlement to the full 25% accumulation.

---

---

Issues: Whether for the purposes of section 11(1)(a) of the Income-tax Act, 1961 the twenty-five per cent accumulation permitted to a charitable trust is to be calculated on the trust's total income derived from property (donations of Rs. 2,57,376) or only on the unapplied balance (Rs. 87,010).

Analysis: Section 11(1)(a) entitles a trust to exemption for income derived from property held under trust for charitable purposes to the extent applied to such purposes in India and, where income is accumulated for such purposes in India, to the extent the accumulation is not in excess of twenty-five per cent of the income from such property. The donations received by the trust constitute property and are the income derived from property held under trust. The statutory language refers to income from such property as the base for the twenty-five per cent accumulation; nothing in the provision confines the base to the unapplied balance alone.

Conclusion: The twenty-five per cent accumulation under section 11(1)(a) is to be computed on the income derived from the trust's property (i.e., the total donations of Rs. 2,57,376). This conclusion is in favour of the assessee.

---