Law:

Section:

Section 11 of the Income-tax Act, 1961 – Charitable or religious trust – Exemption of income from property held under – Assessment years 1962-63 and 1963-64 – Assessee created a trust for wholly charitable purposes – There was no provision in trust deed reserving a power with assessee to alter the charitable character and object of trust and to provide for application of any part of income from trust properties – Subsequently, a supplemental deed was executed providing for expenditure or gift in favour of poor relations of assessee – Whether supplemental deed constituted breach of trust on part of assessee and therefore, any part of income spent in terms of supplemental deed for benefit of poor relations of assessee would not qualify for benefit of exemption under section 11(1)(a) – Held, yes – Whether, therefore, conclusion of Tribunal that entire income of trust was entitled to exemption under section 11 was erroneous and it was to be directed to examine issue afresh on basis that only original trust deed was in operation – Held, yes [Matter remanded back] FACTS The assessee was the founder and the sole trustee of a charitable trust. One of the recitals in the document of trust was that trust properties and deposit amounts (Fund amounts) should not be transferred or alienated to other institutions and that trust income should not be spent for purposes other than charitable objects specified in the trust deed. Subsequently, the assessee executed a supplemental instrument which provided inter alia, that the trustees using their discretionary powers could either spend or gift away in lieu of expenditure any amounts up to 30 per cent of the annual income to poor relations for their welfare. The ITO held that the amount spent for the benefit of the relations of the founder-assessee could not be allowed as deduction from the gross income. On appeal, the AAC held that the subsequent deed was not valid, because in the original deed the founder did not reserve a power to vary the application of the income, and that the supplemental deed constituted breach of trust on the part of the founder and, therefore, since the trust was created wholly for charitable purposes as…

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