COMMISSIONER OF INCOME TAX Vs. BIRLA EDUCATION TRUST

JUDGEMENT

(1.) The interesting question of law that requires our consideration in this reference is whether Section 11(4) of the I.T. Act, 1961, is applicable to an expenditure which is not allowable as a deduction from the income of the business undertaking owned by a charitable or religious trust. The question relates to the assessment year 1965-66 in respect of an assessee which is a public charitable trust. The assessee carries on business of running a textile mill and a technological institute of textiles. The trust filed a return showing a total income of Rs. 14,24,379 under the head "Other sources". It claimed a refund of Rs. 3,75,755 under Section 237 of the I.T. Act.

(2.) The ITO held that the trust is a public charitable trust which has been granted exemption under Section 11 of the I.T. Act. He observed that the trust has certified that the entire expenditure incurred by it was for charitable purposes in relation to the objects of the trust and no expenditure was incurred outside India. The accumulation of income at the end of the year was below the maximum permissible limit of 25%. The certificate was accepted after verification. The ITO computed the net profit of the textile mill run by the assessee-trust. He held that a sum of Rs. 9,547 debited to the profit and loss account was not an admissible deduction for a business undertaking. According to him, the net profit of the textile mill came to Rs. 40,25,148 while the net profit of the business undertaking as per accounts was Rs. 40,15,601. The difference of Rs. 9,547, though admittedly spent by the assessee for charity and donation, was held by him to be income taxable under Section 11(4) of the I.T. Act, 1961.

(3.) The assessee went on appeal. The AAC upheld the assessee's submission that Sub-section (4) of Section 11 was not applicable to an expenditure which was liable to exclusion under Section 11(1) of the Act.