LexADDL. COMMISSIONER OF INCOME TAX AND ANR. versus AL. N. RAO CHARITABLE TRUST
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A ADDL. COMMISSIONER OF INCOME TAX AND ANR. v. AL. N. RAO CHARITABLE TRUST OCTOBER 13, 1995 B [B.P. JEEVAN REDDY AND S.B. MA.IMUDAR, JJ.J Income Tax Act, 1961-Sections ll(J)(a) and 11(2)-Chmitable f/ust-Scope of exemption allowed 11/s 11(1) (a}-Section 11(2) while enlarg- e ing scope of exemption removes restliction imposed by section II (I) (a }-It is an absolute exeniption. Respondent assessee, a charitable Trust, for the assessment year 1969-70, submitted its Return claiming that a sum of Rs. 85,262 which was the surplus income of the previous year, was exempt from tax u/s 11 (1) D (a) and sub-section (2) of Section 11 of the Income Tax Act, 1961. The Assessing Authority held that the assessee was not a genuine Trust and therefore nut entitled tu claim the benefit of section 11. Appeal filed before the Appellate Assistant Commissioner was dismissed. In the second ap- peal, the Income Tax Tribunal held that the assessee was a Charitable E Trust and therefore was entitled to claim exemption from tax u/s 11 of the Act. In reference made at the instance of the Department, the High Court answered the question in favour of the assessee and against the Depart- ment. The order become final. The Assessing Authority took up the assess- ment and held that the assessee, after complying with the requirement of giving notice u/s.11 (2) (a), had invested 75% of the accumulated income f intended to be applied for charitable purposes in future years as required by clause (b) of section 11 (2) and therefore, the entire surplus income was exempted from tax. The Commissioner of Income Tax, on looking into the order, held that the order of the Assessing Authority was erroneous as he had not applied·his mind to the question whether the assessee had com- plied with the provisions of section 11(2) as the assessee had not invested G the entire surplus income and therefore the assessee was not entitled to the exemption provided u/s 11 of the Act. He issued a show cause notice u/s 263 uf the Act to the assessee to show cause as to why th~ entire surplus income of Rs. 85, 262 should not be brought to tax. The assessee prayed for the issue of a Writ in the nature of Certiorari to quash the Notice H issued by the Commissioner. Before the Single Judge of the High Court, 348 ., • ADDL. COMMR. OF INCOME TAX v. A.L.N. RAO 349 the Department alleged that in order to claim exemption u/s 11, the A assessee should have invested the entire surplus income in one or the other of the securities menti<ined in section 11(2)(b) of the Act and it is not sufticient if 75% of the· surplus income alone has been invested by the assessee. The assessee urged that it had complied with the rec1uirement of section 11 and therefore, entitled to exemption from tax in respect of 25% of the accumulated income or Rs. 10,000 whichever was higher plus that portion of the accumulated income in respect of which the conditions prescribed under clauses (a) and (b) of section 11(2) had been satisfied and since it had deposited 75% of the accumulated income in the securities mentioned in section 11 (2) (b), the entire surplus income which had accumulated was not taxable. The Single Judge of the High Court upheld the case .. of the assessee in part holding that the assessee was entitled to exemption from tax only in respect of 75% of the surplus income which was accumulated for future use. B c In writ appeal filed by the Revenue, the Division Bench while dis- D missing the appeal took the view that 25% of the accumulated income of the Trust arising in the previous year got exempted from income tax u/s 11 (1) (a) and that section 11 (2) dealt with remaining 75% of the accumu· lated income of the previous year and if such 75% of the accumulated income was invested the Trust was entitled to get even the 75% of the income exempted from income tax payable on the income arising to the E Trust in the previous year. This appeal by special leave was directed against the decision of the Division Bench of the High Court. The appellants contended that the interpretation placed by Division Bench oftbe High Court on the relevant provision of section 11 (1) (a) and F 11 (2) of the Income Tax Act, 1961, as they stood at the relevant time was not sustained; that u/s ll(l)(a) 25% of the accumulated income of the Trust arising during the previous year or Rs. 10,000 whichever was higher was exempted from income tax, but at the stag
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