MUNDAKAPADAM MANDIRAMS SOCIETY Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE petitioner is a charitable society which was enjoying exemption under S. 80G of the IT Act until the year 1998 99. However, the facility was denied for the year 1999 2000 vide Ext. P3 communication again confirmed by the CIT on application under S. 154 of the IT Act vide Ext P9. The registration under S. 80G authorises the petitioner to receive donations for charitable purposes which enables the donor to claim exemption from tax upto 50 per cent of the donation. The petitioner is contesting Ext. P9 order whereunder S. 80G benefit was denied to the petitioner by the CIT on the ground that an amount of Rs. 25,000 received as donation was invested in a private company which disentitles the petitioner for exemption under S. 13(1)(d) r/w S. 11(5) of the IT Act.

(2.) I heard Sri. P. Balachandran, counsel for the petitioner, and Sri P.K.R. Menon, senior counsel for the respondent.

(3.) IT is admitted and there is finding to the effect that an amount of Rs. 25,000 was deposited by the petitioner with Integrated Finance Company unto 31st March, 1999, the previous year relevant to the assessment year for which renewal of exemption was claimed by the petitioner under s. 80G. This is admittedly not a permissible investment provided under cls. (i) to (xii) of S. 11(5) of the IT Act. The contention of the petitioner is that S. 11(5) directly refers to S. 11(2)(b) which provides for investment if the application of income for charitable purpose is below 75 per cent. In other words, in order to qualify for exemption in the case of expenditure below 75 per cent of the income, the difference between the amount actually spent and 75 per cent of the income has to be invested in any of the modes provided in S. 11(5). According to the petitioner, since the petitioner has spent 75 per cent of the income during the relevant year, the question of applying S. 11(2)(b) and S. 11(5) does not arise at all. In other words, Rs. 25,000 being part of the balance 25 per cent of income which remained invested in investments other than those referred to in S. 11(5) does not disentitle the petitioner of the exemption is the contention of the petitioner. The scheme of S. 11 provides for exemption of the income to the extent it is spent for charitable purposes during the relevant previous year. Though the eligibility for exemption is available only if 75 per cent of the income is spent for charity, there is an exception provided in sub s. (2) of S. 11 which enables the petitioner to get exemption by carrying over any shortage in the expenditure below 75 per cent to the next year after issuing notice to the Department under S. 11(2) of the Act. The further condition under S. 11(2)(b) is that the difference between the actual amount spent and 75 per cent of the income should be invested in any of the modes provided under S. 11(5) of the Act. So much so, so far as the petitioner is concerned, the argument that there is no violation of s.11(2) is correct because the petitioner spent 75 per cent of the income for charity during the year. However, the matter does not end here because S. 13 introduces a further condition which is as follows :