TaxTMI 
TaxTMI 
2010 (7) TMI 85
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....its income. 2. The Assessee for the relevant year filed return declaring "Nil" income. The case though processed under Section 143(1) was selected for scrutiny. The Assessee had shown the gross total income for the relevant year as Rs.6,92,453/- and deducted therefrom the amount applied for charitable purposes to the extent of Rs.27,28,001/-. The Assessee had made application of income by donation of Rs.26,66,000/- comprising of donation of Rs.25 lacs to BLB Trust as corpus donation and Rs.1,66,000/- to others. The source of the balance amount over and above the income of Rs.6,92,453/- was from FDR encashment, MIP units and MIP-97 encashment which was the accumulation of income of the past and encashment made out of these accumulations/funds. 3. The ITO found that that donation of Rs.25 lacs as corpus donation to BLB Trust was not from current year's income but out of accumulations from the income of earlier years. The ITO, being of the opinion that owing to the explanation appended to Section 11(2) w.e.f. the Assessment Year 2003-04, any donation made out of income accumulation or set apart during the period of accumulation or thereafter to any trust or institution registere....
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...., to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of fifteen per cent of the income from such property." Thus the income applied for charitable purposes is not to be included in the total income for the relevant year. A Division Bench of this Court, of which one of us was a member, in Commissioner of Income-Tax v. Shri Ram Memorial Foundation (2004) 269 ITR 35 has held that when a donor trust which is itself a charitable and religious trust donates its income to another trust, the provisions of Section 11(1)(a) can be said to have been met by such donor trust and the donor trust can be said to have applied its income for religious and charitable purposes, notwithstanding the fact that the donation is subjected to a condition that the donee trust will treat the donation as towards its corpus and can only utilize the accruing income from the donated corpus for religious and charitable purposes. From the same, it follows that if the Assessee trust either itself uses any part of its inco....
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....n 11(2), is intended to explain 11(2) only and not Section 11(1). There is nothing to indicate that the explanation though placed after sub-Section (2) is intended to explain Section 11(1)(a) also. The Finance Act, 2002 vide which the said explanation was added and/or the objects and reasons thereto do not throw any light as to the reason or purpose of the said explanation or that the same is/was intended to apply even to accumulation to the extent of 15% under Section 11(1)(a). 11. The Supreme Court in M.P.V. Sundararamier & Co. Vs. State of Andhra Pradesh AIR 1958 SC 468 and in Mohanlal Hargovinddas Vs. State of M.P. AIR 1967 SC 1022 held that the context and setting of the enactment governs the scope of the "explanation". In M.K. Salpekar Vs. Sunil Kumar Shamsunder Chaudhari AIR 1988 SC 1814, the scope of the "explanation" was construed again in the light of the scheme of the enactment. In M/s. Patel Roadways Ltd. Vs. M/s. Prasad Trading Co. AIR 1992 SC 1514, the question was whether the explanation to Section 20 of the CPC was to clause (a) only. The Supreme Court decided, taking into consideration the circumstances and the history of the legislation. The Supreme Court in Th....
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....o the exemption of up to 15% under Section 11(1)(a) also, then what is an absolute and unfettered exemption of accumulated income guaranteed by Section 11(1)(a) would become a restricted exemption as laid down in Section 11(2). Section 11(2) was held to not operate to whittle down or to cut across the exemption provision contained in Section 11(1)(a). In this regard, it was further noticed that Section 11(2) does not contain any non obstante clause like "notwithstanding the provisions of the sub-Section (1)". Consequently, it was held that after Section 11(1)(a) has had full play and still if any accumulated income of the previous year is left to be dealt with and to be considered for the purpose of income exemption, sub-Section (2) of Section 11 can be pressed in service and if it is complied with then such additional accumulated income beyond 15% (then 25%) can also earn exemption from income tax on compliance of the conditions laid down by Section 11(2). Section 11(2) while enlarging the scope of exemption by removing the restriction imposed by Section 11(1)(a) was held not to take away the exemption allowed by Section 11(1)(a). 14. The same view was followed in S.RM.M.CT.M. ....