TaxTMI 
TaxTMI 
1990 (12) TMI 47
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....he year 1925. For the assessment year 1971-72, the Income-tax Officer found that out of the total income derived by the assessee (including agricultural as well as non-agricultural income), an amount of Rs. 1,40,761 had been applied to charitable/religious purposes and an amount of Rs. 28,475 had been incurred by way of general expenses. He found that the agricultural income during the said year was Rs. 2,10,890, which was, of course, exempt by virtue of section 10(1) of the Act. He was, however, unable to find how much of the amount applied towards charitable/religious purposes was out of the agricultural income and how much of it was out of the taxable income. He, therefore, allocated the said amount as between the agricultural income and the taxable income in proportion to the respective amounts of the two types of income. On that basis, he completed the assessment and levied the tax. (We are not concerned with other aspects dealt with in the assessment order). For the assessment year 1972-73, he adopted similar process and completed the assessment. The assessee appealed to the Appellate Assistant Commissioner against both the assessment orders. The Appellate Assistant Com....
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.... (d) income in the form of voluntary contributions made with specific direction that they shall form part of the corpus of the trust or institution; Explanation. -For the purposes of clauses (a) and (b):- (1) in computing the twenty-five per cent. of the income which may be accumulated or set apart, any such voluntary contributions as are referred to in section 12 shall be deemed to be part of the income ; (2) if, in the previous year, the income applied to charitable or religious purposes in India falls short of seventy-five per cent. of the income derived during that year from property held under trust, or, as the case may be, held under trust in part, by any amount (i) for the reason that the whole or any part of the income has not been received during that year, or (ii) for any other reason, then (a) in the case referred to in sub-clause (i), so much of the income applied to such purposes in India during the previous year in which the income is received or during the previous year immediately following as does not exceed the said amount ; and (b) in the case referred to in sub-clause (ii), so much of the income applied to such purposes in India during the prev....
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....ricultural income is not includible in the total income of the assessee, no question of allocation can arise, while the Revenue says that since both the agricultural income as well as the non-agricultural income are meant for being applied to specified charitable/religious objects and it is not possible to predicate how much of the income applied to such purposes is drawn from out of the agricultural income and how much from out of the taxable income, the proper course would be to allocate the same between both the types of income. Both sections 10 and 11 occur in Chapter III which specifies "incomes which do not form part of total income". Section 10 so far as it is relevant reads thus : "10. Incomes not included in total income.-In computing the total income of a previous year of any person, any income failing within any of the following clauses shall not be included. (1) agricultural income ;" Section 11, so far as it is relevant for the present purposes, reads thus: "Income from property held for charitable or religious purposes. -(1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous yea....
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....om both these sources been kept apart, it would have been possible to know how much income derived from non-agricultural properties has been applied towards the specified purposes, but in the absence of separate accounts, the Income-tax Officer had no option but to allocate the amount spent between agricultural and non-agricultural income in an appropriate ratio. For this purpose, it is not necessary that there should be a provision in the Act and Rules. If the assessee's contention is accepted and the agricultural income is excluded from consideration altogether, the result would be that no part of the agricultural income would have been applied to the specified purposes. In other words, the Income-tax Officer must proceed on the assumption that only the income derived from non-agricultural properties has been applied towards a specified purpose but in the state of accounts maintained by the assessee (where the agricultural and non-agricultural income is mixed up), it is not possible to say so. It would be unrealistic to say so, besides being unreasonable. Since the assessee has chosen to treat its agricultural and non-agricultural income as one and spent the amounts out of such p....