Section 11

Income of charitable/religious trusts

‘Property’ - Meaning of

‘Property’ signifies every possible interest and includes business - ‘Property’ is a term of the widest import, and subject to any limitation or qualification which the context might require, it signifies every possible interest which a person can acquire, hold and enjoy. ‘Business’ would undoubtedly be ‘property’, unless there is something to the contrary in the enactment. There is nothing in the language of section 11 which restricts in any manner the normal and accepted meaning of the word ‘property’ and which excludes business from its connotation - J.K. Trust v. CIT/CEPT [1957] 32 ITR 535 (SC).

Book debt is ‘property’ - A credit in the books of account can be ‘property’ with regard to which a trust can be created - CIT v. Trustees of Sreeram-Surajmull Charity Trust [1971] 79 ITR 649 (Cal.).

Religious offerings are not ‘property’ - Offerings received by a religious teacher from his disciples would not constitute “property held under trust” - Swami Narsingh Giri  v. CIT [1971] 79 ITR 544 (All.).

Exploitation rights are ‘property’ - The right to exploit space on either side of an overbridge for advertisements is a “property” - A.J. Patel v. CIT [1974] 97 ITR 683 (Bom.).

‘Other legal obligation’ - Meaning of

Settlement of income in favour of another trust is covered - The words ‘or other legal obligation’ cover a case in which the trustees of the original settlement are bound to pay income to other trustees who in their turn are bound to apply it for purposes which are religious or charitable - Vallabhdas Karsondas Natha  v. CIT [1947] 15 ITR 32 (Bom.)/Sree Sree Iswar Gopal Jew v. CIT [1950] 18 ITR 743 (Cal.).

‘Legal obligation’ cannot be separated from ‘property’ - Section 11 does not apply to a case where a trust or legal obligation is not created on any property, but only the income derived from any particular property or source is set apart and charged for a charitable or religious purpose. The expression ‘legal obligation’ cannot be separated from “property” itself, inasmuch as law enjoins that such property must be held under a trust or other legal obligation, and not the fund derived therefrom - CIT v. P.K. Barooah [1970] 77 ITR 967 (Assam).

Religious purpose

If dedication is total and debutter is absolute, minor expenses on allied aspects are not relevant - Where there is an out-and-out dedication to an idol, the reservation of a moderate portion of the income of the endowed estate for the remuneration of the shebait would not invalidate the endowment either as a whole or to the extent of the income so reserved. The quantum of expenditure on the various items is not so decisive of the character of the debutter as absolute or partial, as the accent on and subjective importance of the purposes, in the setting of the totality of commands and cherishments. If, on a consideration of the totality of terms, on sifting the more essential from the less essential purposes, on sounding the depth of the donor’s wishes to find whether his family or his deity were the primary beneficiaries, and on taking note of the language used, if the vesting is in the idol, an absolute debutter can be spelt out. But if the grant is to the heirs with a charge on the income for the performance of pujas, the opposite inference is inevitable - CIT v. Sri Jagannath Jew [1977] 107 ITR 9 (SC).

Creation of trust

Formal deed is not necessary - A formal deed is not necessary to constitute a trust, still less to constitute a legal obligation binding the trustees, the council and the members inter se - All India Spinners’ Association v. CIT [1944] 12 ITR 482 (PC).

No technical words are necessary - A trust may be created by any language sufficient to show the intention and no technical words are necessary and it may even be created by the use of words which are primarily words of condition. The only requisites which must be satisfied are that there should be purposes independent of the donee to which the subject-matter of the gift is required to be applied and an obligation on the donee to satisfy those purposes - CIT v. Tollygunge Club Ltd. [1977] 107 ITR 776 (SC).

Trust in favour of ‘dharam’ is void - A gift or trust in favour of ‘dharam’ is void for vagueness and uncertainty. No valid trust can be created by merely placing an amount in an account and applying the accrued interest towards a charitable purpose - CIT  v. Kalechand Motiram [1949] 17 ITR 304 (Sind).

Wakfs and endowments are included - A trust under the Indian law would include Moslem wakfs and Hindu Endowments - Trustees of the ‘Tribune’, In re [1939] 7 ITR 415 (PC).

Power of revocation/alteration should not be incorporated - A deed of trust that qualifies for exemption under section 11 cannot have any stipulation reserving any power to revoke or alter the terms of the trust deed, because that would lend to the trust the character of a revocable trust attracting the provisions of sections 61 and 63 - Naresh Sengupta Foundation v. CIT [1994] 207 ITR 340 (Cal.).

Registration is not compulsory - For purposes of section 11, there is no requirement under the law that a trust should be registered under the Societies  Registration Act - CIT v. Arya Vysya Kalyana Nilaya Sangam [1986] 159 ITR 324 (AP).

Who controls the funds is not relevant - The matter of management of the fund is not an essential matter for the purpose of defining ‘charitable purpose’ so as far as the Income-tax Act is concerned. What is essential for the Act is whether it ‘enures to the benefit of the public’ or not, whoever may control the fund. - Smt. Ganeshi Devi Rami Devi Charity Trust v. CIT [1969] 71 ITR 696 (Cal.).

Objects of the trust

All the objects must be considered - Whether a trust  is for charitable purpose is to be determined by reference to all the objects for which the trust has been brought into  existence. The proposition that what should be taken into consideration is the activity actually conducted by the assessee and, not what is open to it under the provisions of its memorandum of association cannot be agreed to. If would be a different case where one or more of the stated objects were never intended to be undertaken - Dharmaposhanam Co. v. CIT  [1978] 114 ITR 463 (SC).

Words used by settlor are decisive - In order to find out whether the relevant clauses of a trust deed create a public charitable trust or not, one has to go by the express words employed by the trust deed. - CIT v.  Kamla Town Trust [1996] 84 Taxman 248/217 ITR 699 (SC).

Name given to the trust is not relevant - From the fact that the institution bears the name of a private person, the nature of the trust cannot be determined to be a private one. It is the object of the trust that has to be looked into - CWT v. H.E.H. The Nizam’s Supplemental & Religious Endowment Trust [1973] 89 ITR 80 (AP).

Trust deed should contain broad objectives - The crux of the statutory exemption under section 11(1)(a) is not the income earned from property held under the trust but the actual application of the said income for religious and charitable purposes. It was, therefore, necessary to indicate in the trust deed the broad objectives for which the income derived from the property was to be utilised - Gangabai Charities  v. CIT [1992] 63 Taxman 501/197 ITR 416 (SC).

Choice given to trustees is not relevant - A trust for charitable purposes does not become invalid if the choice of the specific charitable objects to be benefited is left to the trustees, nor is to be condemned as invalid or illusory, if, by the language of the deed, the trustees are given an absolute discretion to apply the fund at such time as they may think fit or retain it so long as they choose - CIT v. Sardar Bahadur Sardar Indra Singh Trust [1956] 29 ITR 781 (Cal.).

Element of altruism must be present - Before an institution can be held to be charitable, there must be an element of altruism, that is to say, the beneficiaries must not be able to claim the benefit - Chamber of Commerce v. CIT [1936] 4 ITR 397 (All.).

Absence of personal/pecuniary benefit is no criterion - The mere fact that the members of a society are not entitled for any personal or pecuniary benefit or advantage does not automatically render the society a charitable institution. Unless positive requirements of law are satisfied, the society cannot be regarded as a charitable institution - Hyderabad Race Club v. CIT [1985] 153 ITR 521 (AP)(FB).

Dominant object should be charitable, and not profit-making - Even if there is no express provision in the constitution of the trust or institution that the activity shall be carried on no-profit-no-loss basis, the nature of the charitable purpose, the manner in which the activity for advancing the charitable purpose is being carried on, and the surrounding  circumstances may clearly indicate that the activity is not propelled by a dominant profit motive. What is necessary to be considered is whether having regard to all the facts and circumstances of the case, the dominant object of the activity is profit-making or carrying out a charitable purpose. If it is the former, the character of the purpose would not be lost. - CIT v. Sivakasi Hindu Nadars Uravinmurai [1996] 217 ITR 118/86 Taxman 290 (Mad.).

Rectification of trust deed

Even founder or Court cannot delete objects originally spelt out - It is well-established that once a trust has been founded with certain objects, those original objects cannot be deleted even by the founder of trust, even though it is possible to add some other charitable objects without detriment to original objects. Even a Court cannot do it under section 92 of the Code of Civil Procedure - Sakthi Charities v. CIT [1984] 149 ITR 624/[1990] 182 ITR 483 (Mad.).

Civil Court can rectify a trust deed - It cannot be said that a Civil Court suffers from lack of inherent jurisdiction to rectify a trust deed, on the ground that the condition precedent for invoking the jurisdiction under section 26 of the Specific Relief Act (i.e., mutual mistake on the part of the parties to the document) is absent in the case of a trust deed, inasmuch as there are no two parties in an instrument of trust. - CIT v. Kamla Town Trust [1996] 84 Taxman 248/217 ITR 699 (SC).

Rectified trust deed cannot be ignored by Assessing Officer - When a rectified trust deed under section 26 of the Specific Relief Act is pressed in service before the income-tax authorities in assessment proceedings concerning the relevant assessment years, the ITO will have to interpret such rectified instrument for finding out its legal effect. It will not be open to the ITO to refuse to look at such rectified instrument of trust and to insist that the trustees of the trust should ignore the said rectified objects and should stick to the instrument as it existed prior to its rectification. The ITO will have to take the instrument as it exists in its actual amended form when it is pressed  into service for framing the assessment concerning the relevant assessment year in which such rectified instrument holds the field - CIT v. Kamla Town Trust [1996] 84 Taxman 248/217 ITR 699 (SC).

Income - Meaning of

“Income” must be understood in commercial sense, and not as ‘total income’ as assessed - It is not the ‘total income’ as would be assessed by the ITO that is relevant for the purpose of investing the funds of the trust or assessing the income of the trust. The mode of determination by the ITO as per the provisions of the Income-tax Act is specially restricted to the income over and above the income shown in the accounts of the business undertaking held by a trust. It follows that with regard to the income of the trust as much, it is the accounts of the trust alone that have to be taken into consideration for the purpose of section 11(1)(a) of the Act. Taking into account the purpose for which the conditions of section 11(1)(a) are imposed, it would be clear that ‘income’ to be considered will be that which is arrived at in the context of what is available in the hands of the assessee subject to an adjustment of any expenses extraneous to the trust - CIT v.  P.S.G. & Sons Charities 1996 Tax LR 477 (Mad.). See also  - CIT v. Programme for community organisation [1997] 228 ITR 620 (Ker.).

Heads of income under section 14 have no relevance and question of allowing statutory deductions will not arise - The ‘income’ contemplated by the provisions of section 11 is the real income and not the income as assessed or assessable. Since the income from property held under trust has to be arrived at in a normal commercial manner and when the income from property held under trust as such is excluded, there is no scope of computing  the income from property by applying the provisions of section 14 of the Act. Therefore, the question of allowing any statutory deductions as contemplated by the different provisions of the Act dealing with different heads of income in computing the income accumulated does not arise when the trust loses the benefit of accumulation - Director of Income-tax v. Girdharilal Shewnarain Tantia Trust [1993] 199 ITR 215/71 Taxman 150 (Cal.).

Deemed income (tax deducted at source) must be excluded - CBDT Circular 5-P/LXX-6 dated 19-5-1968 makes it clear that the word ‘income’ in section 11(1)(a) must be understood in a commercial sense. Thus, deemed income (i.e., tax deducted at source) is not to be taken into account for determining the ‘application’ or ‘accumulation’ of income - CIT v. Jayashree Charity Trust [1986] 159 ITR 280 (Cal.).

Depreciation as per normal rules of accountancy must be allowed - ‘Income’ referred to in section 11(1)(a) is to be computed not in accordance with the provisions of the Act, but in accordance with the normal rules of accountancy, under which depreciation has to be allowed while computing the income - CIT v. Sheth Manilal Ranchhoddas Vishram Bhavan Trust [1992] 198 ITR 598 (Guj.).

Taxes like income-tax and wealth-tax must be excluded - It is not the ‘total income’ as would be assessed by the ITO, that is relevant for the purpose of investing the funds of the trust or assessing the income of the trust. The mode of determination by the ITO as per the provisions of the Act is specifically restricted to the  income over and above the income as shown in the accounts of the business undertaking held by a trust. It follows that with regard to the income of the trust as such, it is the accounts of the trust alone that have to be taken into consideration. Thus, payments of income-tax or wealth-tax made in a year are outgoings and constitute expenditure of the trust, and are therefore liable to be excluded from the income of the trust in the year of payment for the purposes of section 11(1) - CIT v. Trustee of H.E.H. Nizam’s Supplemental Religious Endowment Trust [1981] 127 ITR 378 (AP)/CIT v. Ganga Charity Trust Fund [1986] 162 ITR 612 (Guj.)/CIT v. Janaki Ammal Ayya Nadar Trust [1985] 153 ITR 159 (Mad.).

Amounts returned by beneficiaries must be included - Section 11(1) itself contains sufficient indication to treat moneys received by a trust from its beneficiaries as income of the trust. Under this sub-section, only the income spent on charitable or religious purposes is excluded from the total income of the trust and when that amount is returned by the beneficiaries of the trust, the receipt in the hands of the trust can only be its income of the years in which it is received; it cannot have any different character. This is also the tenor of Circular dated 24-1-1973 issued by the CBDT - CIT v. Cutchi Memon Union [1985] 155 ITR 51 (Kar.).

Salaries and other administrative expenses must be allowed - Expenditure on salaries and miscellaneous expenses for purpose of carrying  out objects and purposes of the trust can be considered as application of income for charitable purpose - CIT v. Birla Janahit Trust [1994] 208 ITR 372/73 Taxman 465 (Cal.).

Expenditure on earning dividend must be apportioned - Where the quantum of expenditure for carrying out the objects and purposes of the trust and the expenditure made to earn income from dividend had not been separately allocated or determined, the assessee would be entitled to the benefit of the said expenditure incurred for the purpose of carrying out objects and purposes of the trust only, but any expenditure incurred for earning the income from dividend would not qualify as amount spent for carrying out objects and purposes of the trust - CIT v. Birla Janahit Trust [1994] 208 ITR 372/73 Taxman 465 (Cal.).

Legal expenses are allowable - The same principle as applies to allowability of expenses for defence in a criminal proceeding emanating in the course of carrying on a trade shall also apply to expenses on defence that a charitable institution may have to incur for the defence of any of its founders or trustees getting involved in criminal prosecution in the course of carrying out the objects of the trust. Hence, legal expenses incurred by a charitable institution for depending its president from criminal charges are allowable as a permissible deduction while computing its income - Ananda Marga Pracharaka Sangha v. CIT [1994] 76 Taxman 88 (Cal.).

Application of income

Section 11(1)(a) and section 11(2) - If section 11(1)(a) has been fully exploited and there is still accumulated income left to be dealt with, sub-section (2) of section 11 can be pressed in service and if it is complied with, such additional accumulated income beyond 25 per cent or Rs. 10,000 whichever is higher, can also earn exemption under section 11(2) - Addl. CIT v. A.L.N. Rao Charitable Trust [1995] 83 Taxman 252/216 ITR 697 (SC).

The accumulated income which is exempt under section 11(1)(a) need not be invested in the Government securities. It is only in respect of any additional accumulated income beyond 25 per cent that, if the assessee wants exemption of this additional accumulated income also, the assessee is required to invest the additional accumulated income in the manner laid down in section 11(2) after following the procedure laid down therein - S.RM.M.CT.M. Tiruppani Trust v. CIT [1998] 96 Taxman 635 (SC).

Purpose need not be confined to taxable territories - In view of the absence of the words ‘in India’ in section 11(1)(a), it is immaterial for the purpose of that clause whether the charitable or religious purposes are confined to taxable territories or not. It is sufficient if the income is spent in India and, to that extent, that income will be exempt under that clause - Trustees of H.E.H. The Nizam’s Pilgrimage Money Trust v. CWT/CIT [1988] 171 ITR 323 (AP).

‘Applied’ need not be equated with ‘spent’ - It is not correct to equate the word ‘applied’ with the word ‘spent’. If the Legislature intended that the amounts should actually be spent, there was nothing preventing it from using that word - CIT v. Trustees of H.E.H. The Nizam’s Charitable Trust [1981] 131 ITR 497 (AP).

The word ‘applied’ does not necessarily mean ‘spent’. Even if the amount has been earmarked for the purposes of the institution and allocated, it may be deemed to have been applied - CIT v. Radhaswami Satsang Sabha [1954] 25 ITR 472 (All.).

Effect of making ‘provision’ - Where an amount was set apart as provision in the accounts of the assessee and the finding of fact was that the amount was not actually applied for charitable or religious purposes, assessee would not be entitled to exemption under section 11 in respect of that amount - Nachimuthu Industrial Association v. CIT [1999] 235 ITR 190 (SC).

Recovery of any outstanding in any form is not application of income - Where the assessee recovers an outstanding, it cannot be stated that it has applied the income of the trust for charitable purposes. The asset, as it is sometimes called, is ‘in mean or in malt’. The change of its shape or form involves no application of income for charitable purposes. Purchase of a building in discharge of a debt due to the assessee-trust could not be said to be an application of income for charitable purposes, even if the building was to be used for charitable purposes - CIT v. S.RM.CT.M. Thiruppani Trust [1982] 134 ITR 555 (Mad.).

Expenditure can be even on capital purposes except those on improvements to property - As far as the objects of the trust are concerned, the application of the amount can be for revenue or capital purposes. So long as the expenditure has to be incurred out of the income earned by the trust, even if such expenditure is for capital purposes on the objects of the trust, the income would be exempt. But expenditure on improvement of a property held under trust would by itself not come within the scope of ‘application of income for charitable purposes’.  - CIT v. Kannika Parameswari Devasthanam & Charities [1982] 133 ITR 779 (Mad.).

Donation to another trust is also application of income - When a donor trust which is itself a charitable and religious trust donates its income to another trust, the provisions of section 11(1)(a) can be said to have been met with by such donor trust, notwithstanding the fact that the donation is subjected to any conditions that the donee trust will treat the donation as towards its corpus and can only utilise the accruing income from the donated corpus for charitable and religious purposes. What the donor trust does is the only relevant matter. Utilisation by the  donee trust in any year will not be relevant for the purpose of deciding whether the donor trust can get exemption under section 11 or not - CIT v. Sarladevi Sarabhai Trust (No. 2) [1988] 172 ITR 698 (Guj.)/CIT v. Hindusthan  Charity Trust [1983] 139 ITR 913 (Cal.).

Amount given by assessee-trust to educational institution by making credit entries in its books and withdrawn by educational institution would be entitled to exemption since it could not be said that despite credit entries assessee trust retained beneficial ownership of sums or retained any control over them - CIT v. Thanthi Trust [1999] 239 ITR 502 (SC).

Donation at commencement of year is eligible provided it formed part of that year’s profits - A donation made on the first day of the accounting year can be treated as application of income under section 11(1)(a), provided that the trust earned profits in that accounting year, and the accounts for that year disclosed that the donation was made, not out of capital account, but get of the profits for that year - Siddaramanna Charities Trust v. CIT [1974] 96 ITR 275 (Mys.).

Donation of shares purchased out of accumulated income is not covered - Section 11 does not permit accumulation of a larger amount that what is prescribed. If the assessee does not apply the income of a year for charitable purposes but spends a like amount for charitable purposes out of its accumulated profits, the conditions laid down in section 11(1)(a) are not fulfilled. The mere fact that the assessee had applied its accumulated income of the earlier years for the purpose of charity will not absolve the assessee of its duty to apply its income for the current year for the purpose of charity, nor will it enlarge the limit of the amount which is permitted to be accumulated under section 11(1)(a). Thus, donation of shares purchased out of accumulated income of earlier year will not amount to application of income for the year of donation - CIT v. Ramchandra Poddar Charitable Trust [1987] 164 ITR 666 (Cal.).

Reimbursement of expenditure of earlier year out of income of current year is application of income - There is nothing in the language of section 11(1)(a) to indicate that the expenditure incurred in the earlier year cannot be met out of the income of the subsequent year, and utilisation of such income for meeting the expenditure of earlier year would not amount to such income being applied for charitable or religious purposes - CIT v. Shri Plot Swetamber Murti Pujak Jain [1994] 119 CTR (Guj.) 144/CIT v. Maharana of Mewar Charitable  Foundation [1987] 164 ITR 439 (Raj.).

Repayment of borrowals is also covered - Where the assessee-trust constructed a building out of its accumulated income as well as from borrowed funds, and later earned rental income from the said building, a part of which was utilised for the repayment of the borrowed funds, such repayment of debt was treated to be as application of income for purposes of section 11 - CIT v. Janmabhumi Press Trust [2000] 242 ITR 457 (Kar.)

Accumulation of income

‘Accumulation’ must be a conscious act - The ‘accumulation’ contemplated under section 11(1)(a) has to be a conscious accumulation and not just a mass of unspent or unapplied profits. - CIT v. State Bank of India [1988] 169 ITR 298 (Bom.).

Deemed income can be included for purposes of accumulation - Where, due to non-investment of accumulated income in the prescribed securities in a year, such income is deemed to be the income of the trust for that year, the assessee will be entitled to accumulate 25 per cent of the total income of that year, inclusive of such deemed income - CIT v. Natwarlal Chowdhury Charity Trust [1991] 189 ITR 656 (Cal.).

25 per cent of accumulated income should be out of ‘total receipts’ - Twenty five per cent of accumulated income which is exempt income under section 11(1)(a) is twenty five per cent of ‘total receipts’, rather than ‘total income’, of assessee-trust - CIT v. Programme For Community Organisation [1997] 228 ITR 620.

If after filing Form No. 10 for accumulation of income, assessee without investing income in Government securities applied the same for charitable purposes, exemption could not be denied on the ground that conditions of section 11(2)(b) were not complied with - S.R.M.M.CT.M. Tiruppani Trust v. CIT [1998] 96 Taxman 635 (SC).

Purpose must be definite and concrete and must be specified - The long-term accumulation of income contemplated under section 11(2) should be for a definite and concrete purpose or purposes, and should not admit of any amount of vagueness. The purposes to be specified cannot under any circumstances tread beyond the objects clause of the trust. - Director of Income-tax (Exemption) v. Trustees of Singhania Charitable Trust [1993] 199 ITR 819 (Cal.).

Option can be exercised along with return filed under section 139(4) - If a return is filed within  the time allowed under sub-section (4) of section 139, and the option contemplated by Explanation to section 11(1) is exercised in writing along with such return, the requirements of the said Explanation will stand satisfied - Trustees of Tulsidas Gopalji Charitable and Chaleshwar Temple Trust v. CIT [1994] 73 Taxman 612/207 ITR 368 (Bom.).

Option is available for capital gains also - Since the definition of ‘income’ under section 2(24) includes ‘capital gains’, the option exercisable under the Explanation to section 11(1)(a) is available on capital gains also, provided such option is exercised in writing before the expiry of the time allowed under section 139(1) for furnishing the return - CIT  v. East India Charitable Trust [1994] 206 ITR 152 (Cal.).

Time-limit for filing Form 10 before completion of assessment is mandatory - It is mandatory for the person claiming the benefit of section 11 to intimate to the assessing authority the particulars required, under rule 17 in Form No. 10 of the Rules. If during the assessment proceedings, the Assessing Officer does not have the necessary information, question of excluding such income from assessment does not arise at all. As a matter of fact, this benefit of excluding this particular part of the income from the net of taxation arises from section 11 and is subjected to the conditions specified therein. Therefore, it is necessary that the assessing authority must have this information at the time he completes the assessment. In the absence of any such information, it will not be possible for the assessing authority to give the assessee the benefit of such exclusion and once the assessment is so completed, it would be futile to find fault with the assessing authority for having included such income in the assessable income of the assessee. Therefore, even assuming that there is no valid limitation prescribed under the Act and the Rules even then, it is reasonable to presume that the intimation required under section 11 about accumulation of income has to be furnished before the assessing authority completes the concerned assessment because such requirement is mandatory and without the particulars of this income, the assessing authority cannot entertain the claim of the assessee under section 11 of the Act; therefore, compliance with the requirement of the Act will have to be any time before the assessment proceedings - CIT v. Nagpur Hotel Owners’ Association [2001] 247 ITR 201 (SC).

Requirement of time-limit is directory and not mandatory - The requirement of rule 17 to file Form No. 10 within a prescribed time-limit is not mandatory but only directory. - CIT v. Anjuman Moinia Fakharia [1994] 208 ITR 568/75 Taxman 517 (Raj.).

The time-limit prescribed in Rule 17 is only directory and not mandatory. As long as the assessee issues the notice under this rule before the assessment is made, he would be entitled to the benefit of section 11. The reason why the notice should be issued before the assessment is made is that the Assessing Officer should be posted with the knowledge that the assessee is claiming the benefit under section 11(2) - CIT v. Mumtaz Yarud Dowla Waqf [1998] 234 ITR 6 (AP).

Only additional accumulated income is required to be invested in government securities - The accumulated income (25 per cent) which is exempt under section 11(1)(a) need not be invested in government securities. It is only in respect of any additional accumulated income beyond 25 per cent that, if the assessee wants exemption of the additional accumulated income also, the assessee is required to invest the additional accumulated income in the manner laid down in section 11(2) after following the procedure laid down therein - S.RM.M.CT.M. Tiruppani Trust v. CIT [1998] 96 Taxman 635/230 ITR 636 (SC).

Partial trusts

Expression ‘in part’ applies to purpose and not to property - The expression ‘in part’ does not refer to an aliquot part; if half a house is held in trust wholly for religious and charitable purposes, the subject-matter of the trust is only the said half of the house, and that half is held wholly for religious and charitable purposes. The expression ‘in part’ therefore must apply to a case other than a property, a part of which is held wholly for religious or charitable purposes. The dichotomy between the two  expressions ‘wholly’ and ‘in part’ is not based upon the dedication of the said property wholly for religious or charitable purposes or in part for such purposes. So construed, the first limb of section 11(1)(a) deals with a property or a part of it held in trust wholly for religious or charitable purposes, while the second limb of that provision provides for such a property held in trust partly for religious or charitable purposes - CIT v. P. Krishna Warrier [1964] 53 ITR 176 (SC).

Donor need not have earmarked manner of utilisation of income - Under section 11(1)(b), it is immaterial whether the donor of the property has specifically earmarked the manner in which the income from the property was to be spent by the trustees. The fact that the donor of the property had earmarked his property for wholly charitable purposes will not be decisive for determining whether it would be exempt from being included in the total income - Addl. CIT v. Sherwani Charitable Trust [1975] 99 ITR 284 (All.).

Investment of capital gains

Deposit in public sector company is an eligible investment - The contention of the revenue that the investment by way of deposit in the public sector company cannot be treated as a new asset acquired with the net consideration, in terms of section 11(1A), is not tenable - CIT  v. East India Charitable Trust [1994] 206 ITR 152/73 Taxman 380 (Cal.).

Investment of sale proceeds of shares in fixed deposits is permissible - Investment in fixed deposit made in previous year relevant to the assessment year 1981-82 out of sale proceeds of shares of companies, amounted to acquiring of another capital assets in terms of section 11(1A) - CIT  v. Hindusthan Welfare Trust [1993] 70 Taxman 93/[1994] 206 ITR 138 (Cal.).

Reinvestment in fixed deposits of any duration is permissible - CBDT Circular dated 24-9-1975, declaring that deposits for a period of six months or more could be considered as capital assets for the purpose of section 11(1A), is not in consonance with the general principles of law and it cannot hold the field. Once a deposit is accepted to be an asset, the larger or lesser duration of the term is an immaterial consideration  - CIT v. Hindusthan Welfare Trust [1993] 70 Taxman 93/[1994] 206 ITR 138 (Cal.).

Business held in trust

Sub-section (4) of section 11 is neither a charging section nor a machinery provision  - Sub-section (4) of section 11 is neither a charging section nor is a machinery provision entitling the ITO to assess the income for purposes of levy of tax. Under this sub-section, when a claim for exemption, which can be made only under sub-section (1), is made, the ITO has been authorised to determine the income. Where the income so determined is in excess of the income as shown in the account books of the business undertaking, then such excess shall be deemed to have been applied for non-charitable or non-religious purposes.

Sub-section (4) was not intended to apply to application of income - CIT v. Birla Education   Trust [1985] 153 ITR 579 (Cal.).

Income for purposes of section 11(4) means gross income - The income spoken of in sub-section (4) appears to be the gross income and not the net income of the business undertaking.  - CIT v. Birla Education Trust [1985] 153 ITR 579 (Cal.).

ITO has to scrutinise accounts to detect undisclosed or unaccounted income - The ITO has to scrutinise the accounts and see if there is suppression of income or manipulation of accounts with a view to conceal income  - CIT v. Birla Education Trust [1985] 153 ITR 579 (Cal.).