{"id":120561,"date":"2004-09-07T00:00:00","date_gmt":"2004-09-06T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/commissioner-of-income-tax-i-vs-ms-g-r-govindarajulu-sons-on-7-september-2004"},"modified":"2018-06-18T14:50:11","modified_gmt":"2018-06-18T09:20:11","slug":"commissioner-of-income-tax-i-vs-ms-g-r-govindarajulu-sons-on-7-september-2004","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/commissioner-of-income-tax-i-vs-ms-g-r-govindarajulu-sons-on-7-september-2004","title":{"rendered":"Commissioner Of Income Tax-I vs M\/S. G.R.Govindarajulu & Sons … on 7 September, 2004"},"content":{"rendered":"
Madras High Court<\/div>\n
Commissioner Of Income Tax-I vs M\/S. G.R.Govindarajulu & Sons … on 7 September, 2004<\/div>\n
       \n\n  \n\n  \n\n \n \n IN THE HIGH COURT OF JUDICATURE AT MADRAS\n\nDATED: 07\/09\/2004\n\nCORAM\n\nTHE HONOURABLE Mr. JUSTICE P.D.DINAKARAN\nAND\nTHE HONOURABLE Mr. JUSTICE K.RAVIRAJA PANDIAN\n\nTax Case (Appeal) No.561 of 2004\nand\nT.C.(Appeal) No.540 of 2004\n\nCommissioner of Income Tax-I\nCoimbatore.\n                                        ....  Appellant in both the appeals\n\n-Vs-\n\nM\/s. G.R.Govindarajulu & Sons Charities\nCoimbatore\n                                        ....  Respondent in both the appeals\n\n\n        Appeals filed under Section 260A of the Income Tax  Act  1961  against\nthe  order  dated  28.01.2004  made in I.T.A.No.1575\/Mds\/97 on the file of the\nIncome Tax Appellate Tribunal Madras 'B' Bench, and order dated 16.4.2004 made\nin ITA No.1925\/MDS\/1998 on the file  of  the  Income  Tax  Appellate  Tribunal\nMadras 'A' Bench.\n\n!For Appellant :  Mr.  K.Subramaniam\n\n^For Respondent:  .. Nil ...\n\n:ORDER\n<\/pre>\n
(Order of the Court was made by P.D.DINAKARAN,J)<\/p>\n
        Heard the learned counsel appearing for the Appellant\/revenue.\n<\/p>\n
        2.  These appeals are directed against the order dated 28.01.2004 made
\nin ITA No.1575\/ Mds\/97 and order dated 16.4.2004 made in ITA No.1 925\/MDS\/1998
\nreversing  the  order  of  the  Assistant Commissioner, Income Tax Department,
\nCentral Circle II, Coimbatore by granting exemption to the respondent\/assessee
\nunder Section 11(1)(a) of the Income Tax Act (hereinafter referred to as  ACT)
\n.\n<\/p>\n
        3.   The  appellant\/revenue raised the following substantial questions
\nof law for our consideration:\n<\/p>\n
        “i.  Whether on the facts and in the circumstances of  the  case,  the
\nIncome Tax Appellate Tribunal was right in holding that mere mentioning in the
\nadjusted  total  income  statement  that  the  amount  has  been set apart for
\nutilizing for charitable purposes in  the  subsequent  year,  will  amount  to
\nexercising  option  under  Explanation  (2)(i) or (ii) to section 11(1)(a) and
\nsuch amount can be taken as amount set apart  for  application  under  Section
\n11(1)(a) of the Act?\n<\/p>\n
        ii.   Whether  on  the facts and in the circumstances of the case, the
\nIncome Tax Appellate Tribunal was right in holding  that  in  respect  of  the
\namount shown as set apart for use in following year, was not necessary to give
\nnotice of accumulation by complying with the statutory requirements of Section
\n11(2) of the Income tax Act read with Section 17 of Income Tax Rules?”\n<\/p>\n
        4.1.   In  brief,  the assessee claims to be a Public Charitable Trust
\nengaged in promotion of educational  activities.    For  the  assessment  year
\n1994-95, the  assessee  trust  filed  its  return  declaring  NIL income.  The
\nassessment under Section 143(3) was completed on 21.10.1997.  According to the
\nassessing officer, the assessee did not apply 75% of his income for charitable
\npurpose and therefore, it was liable to tax.  The  assessing  officer,  taking
\nnote of the fact that the assessee exceeded the 25% limit for accumulation and
\nso the assessee ought to have sent a notice of accumulation in Form No.10, the
\nassessing officer treated the entire amount as taxable income.\n<\/p>\n
        4.2.   On  appeal  at  the  instance of the assessee, it was contended
\nbefore the Commissioner of Income Tax (Appeals), that Section 11(1) of the Act
\nprovides that income from the Trust to the extent to which it  is  applied  to
\ncharitable  purpose or if it is accumulated or set apart for such purposes, to
\nthe extent to which it is so accumulated shall not be included  in  the  total
\nincome  if  the  amount so accumulated or set apart is not in excess of 25% of
\nthe income.  But as per the explanation 2(ii)(b) under Section  11(1)  of  the
\nAct,  if  the income applied for charitable purposes falls short of 75% of the
\nincome derived during the relevant year by any  amount  i.e.,  if  the  amount
\naccumulated  exceeds  25% of the income at the option of the assessee, then it
\nwould be deemed to be the income applied to such purposes during the  previous
\nyear in  which it was derived.  The Commissioner of Income-Tax (Appeals) after
\ngiving elaborate discussion on this issue, came to  the  conclusion  that  the
\ndisputed amount should be deemed to have been spent for charitable purposes as
\nper Section  11(1B)(b) of the Act.  As the assesee exercised the option as per
\nthe explanation to Section 11(1) of the Act furnished along  with  the  return
\nand statements for the assessment year, the Commissioner of Appeals was of the
\nview  that  the total amount shall be deemed to have been spent for charitable
\npurposes during the year.  He further noted that the amount accumulated or set
\napart for future application is less than 25%  of  the  income.    Hence,  the
\nCommissioner of Appeals rejected the applicability of Section 11(2) of the Act
\nand  the  same  was  confirmed by the Tribunal and gave the benefit of Section
\n11(1)(a) of the Act to the assessee.\n<\/p>\n
        4.3.  According to the Tribunal, Section 11(2) of the  Act  stipulates
\ntwo  conditions, namely, i) that the assessee specifies, by notice in writing,
\nthe purpose for which the income may be accumulated or set apart.  However, it
\nshould not exceed ten years and (ii) the money so accumulated or set apart  is
\nvested or deposited to the forms or modes specified in sub-section (5).  Since
\nthe  case  of  the assessee falls under Section 11(1) of the Act and not under
\nSection 11(2) of the Act, the assessee is entitled for the benefit of  Section
\n11(1) of the Act.\n<\/p>\n
        5.  Assailing the said order of Tribunal dated 28.01.2004, the revenue
\nhas preferred the above appeals contending that the case of the assessee falls
\nunder Section 11(2) of the Act but not under Section11(1 ) of the Act.\n<\/p>\n
        6.   We  heard  the  learned  counsel appearing for revenue in detail,
\nhowever we are not convinced with the arguments  advanced  on  behalf  of  the
\nRevenue.\n<\/p>\n
        7.1.   The  Division  Bench  of this Court interpreting the provisions
\nunder Section 11(1) (a) of the Income Tax Act in the case of  Commissioner  of
\nIncome Tax,  Tamilnadu  v.    C.M.Kothari Charitable Trust<\/a> ((1984) vol.149 ITR\n<\/p>\n
573) held that the income of the assessee was completely exempt on a  combined
\napplication of Sections 11(1)(a) and 11(2) of all the assessment years.\n<\/p>\n
        7.2.   A  similar  view  was expressed by the Bombay High Court in the
\ncase of Commissioner of Income Tax  v.    Trustees  of  Bhat  Family  Research
\nFoundation ((1990) 185 ITR 532), held as follows:\n<\/p>\n
        “It  is  clear from clause (a) of sub-section (1) of Section 11 of the
\nIncome-tax Act, 1961, that income  derived  from  property  held  under  trust
\nwholly for charitable or religious purposes shall not be included in the total
\nincome  to  the  extent to which it is applied for such purposes in India and,
\nwhere it  is  accumulated  for  such  application,  to  the  extent  that  the
\naccumulation  is  not  in  excess  of  25 per cent of the income or Rs.10,000,
\nwhichever is higher.  The exemption of accumulated income to the extent of  25
\nper  cent or Rs.10,000, whichever is higher, is unqualified and unconditional.
\nSub-section (2) of Section 11 provides the  conditions,  the  satisfaction  of
\nwhich  removes  the  restriction  placed  by  sub-section  (1)  in  regard  to
\naccumulation.  The conditions  relate  to  the  giving  of  a  notice  to  the
\nIncome-tax Officer and investment in Government securities.  In the context of
\nthe  removal  of  the  restriction  placed by sub-section (1), the phrase “the
\nmoney so accumulated” in clause  (b)  of  sub-section  (2)  must  be  read  as
\nreferring  only  to  the  accumulation  that  is made in excess of the already
\nexempted 25 per cent.  It is only the excess over 25 per cent  of  the  income
\nwhich is required to be invested in Government securities.”\n<\/p>\n
        7.3.   The  Karnataka  High Court has also taken a similar view in the
\ncase of Additional Commissioner of Income-tax v.  A.L.N.RAO  Charitable  Trust<\/a>
\nreported in (1976) 103 ITR 44.\n<\/p>\n
        7.4.  The view taken in the above decisions were confirmed by the Apex
\nCourt  in an appeal preferred against the decision of the Karnataka High Court
\nin the case of A.L.N.Rao Charitable Trust referred to above.  Accordingly, the
\nApex Court in the case of Additional Commissioner of Income-tax and another v.
\nA.L.N.Rao Charitable  Trust  ((1995)  6  SCC  625)  held  that  the  exemption
\navailable  under  Section  11(2)  of  the Act is in addition to that available
\nunder Section 11(1)(a) of the Act.  The Supreme Court  thus  interpreting  the
\nscope and applicability of Section 11(1)(a) and Section 11(2) of the Act, held
\nas follows:\n<\/p>\n
        “…  para  11.    A  mere look at Section 11(1)(a) as it stood at the
\nrelevant time clearly shows that out of total income accruing to  a  trust  in
\nthe  previous year from property held by it wholly for charitable or religious
\npurpose, to the extent the income is applied for such religious or  charitable
\npurpose,  the  same will get out of the tax net but so far as the income which
\nis not so applied during the previous year is concerned at least 25%  of  such
\nincome  or  Rs.10,000 whichever is higher, will be permitted to be accumulated
\nfor charitable or religious purpose and it will also get exempted from the tax
\nnet.  Then follows sub-section (2) which seeks to lift the restriction or  the
\nceiling  imposed  on such exempted accumulated income during the previous year
\nand also brings such further accumulated income out of  the  tax  net  if  the
\nconditions  laid  down  by sub-section (2) of Section 11 are fulfilled meaning
\nthereby the money so accumulated is set apart to be invested in the government
\nsecurities etc.  as laid down by clause (b) of sub-section (2) of  Section  11
\napart  from  the  procedure  laid  down  by  clause (a) of Section 11(2) being
\nfollowed by the assessee-Trust.  To  highlight  this  point  we  may  take  an
\nillustration.   If  Rs.1,00,000 are earned as the total income of the previous
\nyear by the Trust from property held by it wholly for charitable and religious
\npurposes and if Rs.20,000 are actually applied during the previous year by the
\nsaid Trust to such charitable or religious purposes the income of  Rs.2  0,000
\nwill  get  exempted  from being considered for the purpose of income tax under
\nfirst part of Section 11(1).  So far as the remaining Rs.80,000 are  concerned
\nif  they  could  not  be  actually  applied  for  such religious or charitable
\npurposes during the previous year then as per Section 11(1)(a) at least 25% of
\nsuch total income from property or Rs.10,000, whichever is  higher  will  also
\nearn  exemption from being considered as income for the purpose of income tax,
\nthat is, Rs.25,000 will thus get excluded from the tax net.  Thus out  of  the
\ntotal income of Rs.1,00,000 which has accrued to the Trust Rs.25,000 will earn
\nexemption from payment of income tax as per Section11(1)(a) second part.  Then
\nfollows  sub-section  (2)  which  states  that the ceiling or the limit or the
\nrestriction of accumulation of income to the extent of 25% of  the  income  or
\nRs.10,000  whichever  is  higher for earning income tax exemption as engrafted
\nunder Section11(1)(a) will get lifted if the money so accumulated is  invested
\nas  laid  down by Section11(2)(b) meaning thereby out of the total accumulated
\nincome of Rs.80,000 accruing during the previous year and which could  not  be
\nspent  for  charitable or religious purposes by the Trust balance of Rs.55,000
\nif invested as laid down by sub-Section  (2)  of  Section  11  will  also  get
\nexcluded from the tax net.  But for such investment and if Section 11(1) alone
\nhad  applied Rs.55,000 being the balance of accumulated income would have been
\ncovered by the tax net.  Learned counsel for the Revenue  submitted  that  the
\ninvestment  as  contemplated  by  sub-section  (2)(  b)  of  Section11 must be
\ninvestment of all accumulated income in  government  securities  etc.,  namely
\n100% of  the  accumulated income and not only 75% thereof.  And if that is not
\ndone then only the invested accumulated income to the extent of 75%  will  get
\nexcluded from  income  tax  assessment.    But so far the remaining 25% of the
\naccumulated income is concerned it will  not  earn  such  exemption.    It  is
\ndifficult to appreciate  this contention.  The reason is obvious.  Section 11,
\nsubsection (1)(a) operates on its own.  By its operation two types  of  income
\nearned  by  the  Trust  during the previous year from its properties are given
\nexemption from income-tax, (i) that part of the income of previous year  which
\nis  actually spent for charitable or religious purposes in that year, and (ii)
\nout of the unspent accumulated income of the previous year 25% of  such  total
\nproperty  income  or  Rs.10,000  whichever  is  higher  can be permitted to be
\naccumulated by the trust, earmarked for such charitable or religious purposes.
\nSuch 25% of the income or Rs.10,000 whichever is higher will also get exempted
\nfrom income-tax.  That exhausts the operation of  Section  11(1)  (a).    Then
\nfollows  sub-section(2)  which naturally deals with the question of investment
\nof the balance of accumulated income which  has  still  not  earned  exemption
\nunder sub-section  (1)(a).    So  far as that balance of accumulated income is
\nconcerned, that also  can  earn  exemption  from  income-tax  meaning  thereby
\nceiling  or  the  limit  of exemption of accumulated income from income-tax as
\nimposed by sub-section (1)(a) of Section 11 would  get  lifted  if  additional
\naccumulated  income beyond 25% of Rs.10,00 0, whichever is higher, as the case
\nmay be, is invested as laid  down  by  Section  11  (2)  after  following  the
\nprocedure laid  down  therein.    Therefore, sub-section (2) only will have to
\noperate qua the balance of 75% of the total income of  the  previous  year  or
\nincome  beyond Rs.10 ,000 whichever is higher which has not got the benefit of
\ntax exemption under sub-section (1)(a) of Section11.  If learned  counsel  for
\nthe  Revenue  is  right  and if 100% of the accumulated income of the previous
\nyear is to be invested under Sub-section (2) of Section 11  to  get  exemption
\nfrom  income-tax  then  the  ceiling  of 25% or Rs.10,000 whichever is higher,
\nwhich is available for accumulation of income of the  previous  year  for  the
\nTrust  to  earn  to exemption from income-tax as laid down by Section 11(1)(a)
\nwould be rendered redundant and the  said  exemption  provision  would  become
\notiose.   It  has to be kept in view that out of the accumulated income of the
\nprevious year an amount of Rs.10,000 or 25% of the total income from property,
\nwhichever is higher, is given exemption from income-tax  by  Section  11(1)(a)
\nitself.  That  exemption  is unfettered and not subject to any conditions.  In
\nother words it is a absolute exemption.  If sub-section  (2)  is  so  read  as
\nsuggested  by  the  learned  counsel  for the Revenue, what is an absolute and
\nunfettered exemption of accumulated income as guaranteed by  Section  11(1)(a)
\nwould become  a restricted exemption as laid down by Section11(2).  Section 11
\n(2) does not operate to whittle down or to cut across the exemption provisions
\ncontained in Section 11 (1)(a) so  far  as  such  accumulated  income  of  the
\nprevious year  is  concerned.   It has also to be appreciated that sub-section
\n(2)  of  Section  11  does  not   contain   any   non-obstante   clause   like
\n“notwithstanding the  provisions of sub-section(1)” .  Consequently it must be
\nheld that after Section 11(1)(a) was full play and if  still  any  accumulated
\nincome  of the previous year is left to be dealt with and to be considered for
\nthe purpose of  income-tax  exemption,  sub-section(2)  of  Section11  can  be
\npressed  into  service  and  if  it  is  complied  with  then  such additional
\naccumulated income beyond 25% or Rs.10,000, whichever is higher, can also earn
\nexemption from income-tax in compliance  with  the  conditions  laid  down  by
\nsub-section(2) of Section 11.  It is true that subsection(2) of Section 11 has
\nnot  clearly  mentioned  the  extent  of the accumulated income which is to be
\ninvested.  But on a conjoint reading  for  the  aforesaid  two  provisions  of
\nSections 11(1) and 11(2) this is the only result which can follow.  It is also
\nto  be  kept  in view that under the earlier Income-Tax Act 1922 exemption was
\navailable to charitable trusts without any restriction  upon  the  accumulated
\nincome.  There was a change in this respect under the present Act 1961.  Under
\nthe  present  Act,  any  income  accumulated  in  excess  of  25% or Rs.10,000
\nwhichever is higher, is taxable under Section 11(1)(a) of the Act, unless  the
\nspecial  conditions  regarding  accumulation as laid down in Section 11(2) are
\ncomplied with.  It is clear, therefore, that if the entire income received  by
\na trust is spent for charitable purposes in India, then it will not be taxable
\nbut  if  there  is  a saving, i.e., to say an accumulation of 25% or Rs.10,000
\nwhichever is higher, it will not be included in the taxable income.    Section
\n11(2) quoted above further liberalizes and enlarges the exemption.  A combined
\nreading  of  both  the provisions quoted above would clearly show that Section
\n11(2) while enlarging the scope of exemption removes the  restriction  imposed
\nby  Section  11(1)(a)  but  it  does  not  take  away the exemption allowed by<\/p>\n
Section11(1)(a) on the express language of Sections 11(1) and 11 (2)  as  they
\nstood   on   the   statute  book  at  the  relevant  time  no  other  view  is
\npossible.”(emphasis Supplied)<\/p>\n
        8.  The other  contention  raised  by  the  learned  counsel  for  the
\nappellant is that the assessee failed to exercise the option as
\ncontemplated under Section 11(2) of the Act in a prescribed form, namely, Form
\nNo.10.   But the said contention was rightly rejected by both the Commissioner
\nof Appeals and the Tribunal.  There is no mandatory requirement under  Section
\n11(1)  of  the Act requiring the assessee to exercise the option when he seeks
\nrelief under Section 11(1) of the Act, as it is  enough  for  the  assesee  to
\nsubmit a statement along with the return to exercise such option.\n<\/p>\n
        9.   In  view  of  the above well settled principles of law, we do not
\nfind any substance in the questions of law raised by  the  appellant\/  revenue
\nand  therefore  finding  no  substantial question of law in these appeals, the
\nsame are dismissed.\n<\/p>\n
Index   :Yes
\nInternet: Yes
\nsl<\/p>\n
To<\/p>\n
1.The Assistant Registrar,Income Tax Appellate Tribunal
\nMadras Bench “B”, Rajaji Bhavan III Floor, Besant Nagar, Chennai-90.\n<\/p>\n
2.The Assistant Registrar,Income Tax Appellate Tribunal
\nMadras Bench “A”, Rajaji Bhavan III Floor, Besant Nagar, Chennai-90.\n<\/p>\n
3.The Secretary, Central Board of Direct Taxes, New Delhi.\n<\/p>\n
4.The Commissioner of Income Tax (Appeals), Coimbatore.\n<\/p>\n
5.The Assistant Commissioner, Income-Tax Department,
\nCentral Circle-II, Coimbatore.\n<\/p><\/p>\n","protected":false},"excerpt":{"rendered":"
Madras High Court Commissioner Of Income Tax-I vs M\/S. G.R.Govindarajulu & Sons … on 7 September, 2004 IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 07\/09\/2004 CORAM THE HONOURABLE Mr. JUSTICE P.D.DINAKARAN AND THE HONOURABLE Mr. JUSTICE K.RAVIRAJA PANDIAN Tax Case (Appeal) No.561 of 2004 and T.C.(Appeal) No.540 of 2004 Commissioner of Income Tax-I […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[8,13],"tags":[],"class_list":["post-120561","post","type-post","status-publish","format-standard","hentry","category-high-court","category-madras-high-court"],"yoast_head":"\nCommissioner Of Income Tax-I vs M\/S. G.R.Govindarajulu & Sons ... on 7 September, 2004 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/commissioner-of-income-tax-i-vs-ms-g-r-govindarajulu-sons-on-7-september-2004\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Commissioner Of Income Tax-I vs M\/S. 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