COMMISSIONER OF INCOME TAX Vs. CUTCHI MEMON UNION

JUDGEMENT

(1.) The common question referred in these references under Section 256(1) of the Income Tax Act, 1961, (called the 'Act) is as follows:

(2.) The assessee is a Trust existing for charitable purpose. The objects of the Trust are to help widows or persons whose financial condition is poor. In pursuance of these objects, the Trust sometimes gives loans to needy persons without interest and those loans are subsequently repaid. During the assessment year 1973-74 the 'Trust received back such interest free loans in a sum of Rs. 14,400/- and during the year 1974-75 it received Rs. 6,575/-. The Income Tax Officer treated a sum of Rs.12,000/- out of Rs. 14,400/- as income of the Trust for the year 1973-74 and Rs.6,000/- out of Rs. 6,575/- as its income for 1974-75. Being aggrieved by the assessment orders, the assessee appealed to the Appellate Assistant Commissioner, who, held that the repayments of the loans did not constitute taxable income of the Trust and hence were not taxable. Aggrieved by the order of the Appellate Assistant Commissioner, the Department preferred an appeal before the Tribunal. Before the Tribunal, the Department relied upon the circular No.10 dated January 24, 1973 issued by the Central Board of Direct Taxes which, in effect, directed that, as and when a loan is returned to the Trust, it has to be treated as an income of that year of the Trust the object of which is financing for education and granting scholarships. The Tribunal, however, dismissed the appeal holding that there was no justification to apply the Circular to the assessee's case.

(3.) The question raised is of some importance and equally interesting and it depends upon the scope of Section 11 of the 'Act'. This Section subject to the provisions of Sections 60 to 63 permits exclusion, as a rule, from total income, in respect of only income applied for charitable or religious purposes during the accounting year. It also evolves a scheme relaxing the rigidity of the general rule within certain limits. Exclusion from total income is granted in respect of whatever part of income is applied for charitable or religious purposes in India as specified in the deed of trust or in the memorandum of objects of the trust. If, say, 50 per cent of the income is applied, then 50 per cent is excluded from the total income. If 60 per cent is applied, then 60 percent is excluded and so on. The word 'applied' in the context must necessarily mean 'actually applied' or 'actually expended' on such objects as are mentioned in the deed of trust.