Law:

Section:

Section 11 of the income-tax act, 1961-Charitable or religious trust-Assessee-company filed its return showing income at "NIL" since its income was immune from tax under section 11-ITO found that assessee did not give actual donation to educational institution but made only appropriation out of profits of relevant year-ITO disallowed entire exemption-AAC and tribunal allowed partial exemption to extent of 25 per cent of income accumulated for future application to charitable purposes and sustained disallowance of Rs. 2,50,000-Whether tribunal right in law-Held, on facts, yes Facts The assessee-company derived income from a transport business which was held under trust, and also from dividend and interest on securities. It was also a partner in two firms. It filed its return for the assessment year 1965-66 showing its income as nil, on the basis that its entire income for the year was exempt under section 11. It rested its claim, inter alia, on the grounds (i) that by virtue of its two following resolutions, dated 16-2-1965 and 1-9-1965, there had been an application or setting apart of the income to the extent of Rs. 3,00,000; (ii) that, in the immediate succeeding year, Rs. 2,77,180 had been donated for various charitable purposes and this included Rs. 2,50,000 paid to NP, an educational institution, which exceeded 75 per cent of the income determined as taxable for that year ; and (iii) that, since the giving of donation was one of its objects, the requirements of section 11 were fulfilled. The ITO rejected the claim and determined the total income at Rs. 3,27,931, holding (i) that no part of this total income had been applied for charitable purposes during the relevant assessment year as the word "applied" occurring in section 11 implied spending or utilisation of the income ; and (ii) that the assessee had only appropriated out of the profits of the year a sum of Rs. 3,00,000 and credited to the "reserve for donation account" which was not tentamount" to application of income. On appeal, the AAC allowed a deduction of only Rs. 81,982 representing 25 per cent of the income which could be accumulated for application in future to charitable purposes and…

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