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Section 11 of the Income-tax Act, 1961 - Charitable or religious trust - Exemption of income from property held under Assessee-trust applied its entire income for payment of income-tax and claimed that such payment of income-tax by it should be taken as application of its income for charitable purposes - Whether, in view of fact that payment of tax is necessary to preserve property of trust, payment of income-tax out of current year's income should be treated as application for charitable purposes for claiming exemption - Held, yes FACTS The assessee, a public charitable trust, came into existence by a deed of trust dated 30-4-1957. It owned and carried on a business. For the assessment year 1964-65, the assessee had a book profit of Rs. 69,152. It claimed exemption from tax under section 11, on the ground that it had spent during the year a sum of Rs. 8,859 for purchase of land, payment of income-tax to the extent of Rs. 1,21,540 and investment in the Tamil Nadu State Electricity Bond Loan to the extent of Rs. 15,000 and that the above three items should be taken as disbursal of its income for charitable purposes. The ITO did not accept the assessee's claim on the ground that the purchase of land, expenditure on income-tax and investment in the Tamil Nadu State Electricity Bond Loan did not constitute application of the assessee's income for charitable purposes, relying on section 11(4). Then the assessee's taxable income was computed by the ITO at Rs. 69,152. On appeal by the assessee, the AAC held that leaving out the amounts spent on construction of buildings and 25 per cent permitted statutory accumulation, there was a balance of Rs. 37,448 to be spent on charity, that the sum of Rs. 1,21,540 paid towards income-tax as not being available for application during the assessment year, the trust must be regarded as having applied more than 75 per cent of its income to charitable purposes. In this view, the AAC annulled the order of the ITO computing the taxable income of assessee at Rs. 69,152. Before the Tribunal, it was contended by the revenue that a correct application of section 11(4) justified the conclusion that expenses which would have been normally…

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