Law:

Section:

Section 11, read with section 10(1), of the Income-tax Act, 1961 - Charitable or religious trust - Exemption of income from property held under - Assessment years 1971-72 and 1972-73 - Assessee-trust had earned non-agricultural income as well as certain agricultural income which was exempted under section 10(1) - Assessee was not maintaining any separate account to know how much amount earned from agricultural property was spent for religious/charitable purposes - ITO was unable to find how much of the amount applied towards charitable/religious purposes out of the agricultural income and how much of it was out of the taxable income - He, therefore, allocated the aforesaid amount as between the agricultural income and the taxable income in proportion of the respective amounts of two types of income - Whether ITO was justified - Held, yes FACTS For the assessment years 1971-72 and 1972-73 the assessee-trust was assessed as 'AOP'. While completing the assessments the ITO found that the assessee had earned non-agricultural income as well as certain agricultural income which was exempted by virtue of section 10(7). He was, however, unable to find how much of the amount applied towards charitable/religious purposes out of the agricultural income and how much of it was out of the taxable income. He, therefore, allocated the aforesaid amount as between the agricultural income and the taxable income in proportion of the respective amounts of the two types of income. On that basis he completed the assessments and levied tax. On appeal the AAC held that the agricultural income being exempt under section 10(7), could not be taken into consideration for the purpose of allocating any portion of the amount applied towards charitable/religious purposes. He redetermined the taxable income as well as the amount spent on religious/charitable purposes and found that for the assessment years in question no surplus was left and, hence, no question of assessment of income-tax arose. He, therefore, cancelled the assessment orders. On appeal by the revenue, the Tribunal upheld the order of the AAC. On reference : HELD Exemption under section 11 is not an absolute one. The exemption is…

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