ORDER
S.N. Rotho, Accountant Member
1. This appeal has been filed by the assessee against the order dated 22-2-1985 of the AAC relating to the assessment year 1978-79.
2. The assessee is a trust assessed in the status of AOP. In the course of assessment proceedings, the ITO found that the assessee’s net income was Rs. 74,748 which was kept as a deposit with the State Bank of India. A sum of Rs. 75,500 was spent during the previous year under consideration out of the income of the earlier year. There is no dispute about the fact that the assessee is a trust whose income is exempt under Section 11 of the Income-tax Act, 1961 (‘the Act’) provided it spends at least 75 per cent of its income for the charitable purposes in India. The case of the assessee before the ITO was that it had spent a sum of Rs. 75,500 during the previous year under consideration in which its income was Rs. 74,748 and, consequently it spent the statutory portion of its current income during the year under consideration. The ITO did not agree. According to him, the assessee must spend the same income which arose during the previous year and not any amount from any other source during the previous year in order to be eligible for exemption under Section 11. As the assessee has kept the income of the current year as a deposit with the bank, the ITO held that the income which was received during the previous year was not spent within the previous year. In this view of the matter, the ITO held that the assessee was not entitled to the exemption under Section 11. Deducting 25 per cent of Rs. 74,748 as the permissible amount which could be accumulated, the ITO arrived at a taxable income of Rs. 56,060 which he brought to tax.
3. The assessee appealed to the AAC who, however, confirmed the action of the ITO and dismissed the appeal of the assessee.
4. Shri B.D. Shah, the learned representative for the assessee, urged before us that the revenue authorities erred in their decision. He stated that Section 11 stipulates that the assessee should spend an amount equal to at least 75 per cent of the income received during the previous year. But it does not say that the said amount should be spent only out of the income of the previous year and not from any other source. He contended that the assessee had spent the stipulated amount during the previous year under consideration and the source from which it was spent was not material for the purpose of Section 11. On the other hand, Shri B.C. Sinha, the learned representative for the department, urged before us that Section 11(1) clearly states that the amount that had to be spent must come out of the income of the previous year and not out of any other fund. Hence, he urged that the action of the ITO deserved to be upheld.
5. We have considered the contentions of both the parties as well as the facts on record. Section 11(1)(a) states that income derived from property held under trust wholly for charitable or religious purposes is exempt from tax only to the extent to which such income is applied to such purposes in India. The case of the department, as we see it, rests on the meaning of the phrase ‘such income’. According to the department, ‘such income’ refers to the income earned during the previous year and not to any other fund. On the other hand, according to the assessee, ‘such income’ is only a measure for determining the amount to be spent during the previous year and it is not essential that the said amount should come only from the income of the previous year. Considering the context and the scheme of the section, we agree with the contention of the assessee. The intention of the section is quite clear. The income derived by a charitable trust cannot be accumulated beyond a limit. The section requires that the income of the trust should be substantially spent during the previous year in which it was earned. In our opinion, the emphasis is on the spending of the income and not on confining the source of the amount spent to the income earned during the previous year. In this view of the matter, we hold that the assessee is entitled to succeed in this appeal. There is no dispute about the fact that the statutory amount has, in fact, been spent during the year under consideration. However, the ITO had no occasion to go into the question as to whether the expenditure incurred during the previous year under consideration was in fact made for the purposes of the trust and within India. Subject to verification of these two points (which the ITO had no occasion to enquire into at the time he made the assessment), we direct the ITO to accept the contention of the assessee.
6. The other ground relating to the income of the beneficiary was not pressed before us and so we find the same against the assessee.
7. In the result, the appeal is partly allowed.