2004 (9) TMI 91

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....es in the subsequent year, will amount to exercising option under Explanation (2)(i) or (ii) to section 11(1)(a) and such amount can be taken as amount set apart for application under section 11(1)(a) of the Act? (ii) Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in holding that in respect of the amount shown as set apart for use in the following year, was not necessary to give notice of accumulation by complying with the statutory requirements of section 11(2) of the Income-tax Act read with section 17 of the Income-tax Rules?" In brief, the assessee claims to be a public charitable trust engaged in promotion of educational activities. For the assessment year 1994-95, the assessee trust filed its return declaring nil income. The assessment under section 143(3) was completed on October 21, 1997. According to the Assessing Officer, the assessee did not apply 75 per cent, of his income for charitable purposes and therefore, it was liable to tax. The Assessing Officer, taking note of the fact that the assessee exceeded the 25 per cent, limit for accumulation and so the assessee ought to have sent a notice of accumulation in Fo....

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....he Tribunal dated January 28, 2004, the Revenue has preferred the above appeals contending that the case of the assessee falls under section 11(2) of the Act but not under section 11(1) of the Act. We heard learned counsel appearing for the Revenue in detail, however we are not convinced with the arguments advanced on behalf of the Revenue. The Division Bench of this court interpreting the provisions under section 11(1)(a) of the Income-tax Act in the case of CIT v. C.M. Kothari Charitable Trust [1984] 149 ITR 573 held that the income of the assessee was completely exempt on a combined application of sections 11(1) (a) and 11(2) for all the assessment years. A similar view was expressed by the Bombay High Court in the case of CIT v. Trustees of Bhat Family Research Foundation [1990] 185 ITR 532, held as follows: "It is clear from clause (a) of sub-section (1) of section 11 of the Income-tax Act, 1961, that income derived from property held under trust wholly for charitable or religious purposes shall not be included in the total income to the extent to which it is applied for such purposes in India and, where it is accumulated for such application, to the extent that the accumul....

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....e out of the tax net if the conditions laid down by sub-section (2) of section 11 are fulfilled meaning thereby the money so accumulated is set apart to be invested in the Government securities, etc., as laid down by clause (b) of sub-section (2) of section 11 apart from the procedure laid down by clause (a) of section 11(2) being followed by the assessee-trust. To highlight this point we may take an illustration. If Rs. 1,00,000 are earned as the total income of the previous year by the trust from property held by it wholly for charitable and religious purposes and if Rs. 20,000 are actually applied during the previous year by the said trust to such charitable or religious purposes the income of Rs. 20,000 will get exempted from being considered for the purpose of income-tax under first part of section 11(1). So far as the remaining Rs. 80,000 are concerned if they could not be actually applied for such religious or charitable purposes during the previous year then as per section 11(1)(a) at least 25 per cent, of such total income from property or Rs. 10,000, whichever is higher will also earn exemption, from being considered as income for the purpose of income tax, that is, Rs. 2....

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....deals with the question of investment of the balance of accumulated income which has still not earned exemption under sub-section (1)(a). So far as that balance of accumulated income is concerned, that also can earn exemption from income-tax meaning thereby ceiling or the limit of exemption of accumulated income from income-tax as imposed by sub-section (1)(a) of section 11 would get lifted if additional accumulated income beyond 25 per cent, of Rs. 10,000, whichever is higher, as the case may be, is invested as laid down by section 11(2) after following the procedure laid down therein. Therefore, sub-section (2) only will have to operate qua the balance of 75 per cent, of the total income of the previous year or income beyond Rs. 10,000, whichever is higher which has not got the benefit of tax exemption under sub-section (1)(a) of section 11. If learned counsel for the Revenue is right and if 100 per cent, of the accumulated income of the previous year is to be invested under sub-section (2) of section 11 to get exemption from income-tax, then the ceiling of 25 per cent, or Rs. 10,000, whichever is higher, which is available for accumulation of income of the previous year for the ....