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Section 11 of the Income-tax Act, 1961 - Charitable or religious trust - Exemption of income from property held under - Assessment year 2003-04 - Whether once exclusion contemplated under section 11(4A) is not applicable, exemption has to be allowed as sub-sections (1), (2) and (3) of section 11 become applicable even in respect of profits and gains - Held, yes FACTS The assessee-society was running a school. It claimed exemption under section 11 in respect of its income. The Assessing Officer rejected the claim on the ground that the assessee had not applied 85 per cent of the profit for the purpose of the society as required under section 11(4A), read with section 11(2). That view was reversed by the Commissioner (Appeals) taking into account the fact that the assessee had spent the amount of more than 85 per cent. The Tribunal upheld the order of the Commissioner (Appeals) holding that the income of the society would be covered under section 11(4A). The Tribunal further held that sub-section (1) or sub-section (2) or sub-section (3) or sub-section (3A) shall not apply in relation to any income of a trust or any institution, being profits and gains of business, unless the business is incidental to the attainment of the objectives of the trust or, as the case may be, institution and separate books of account are maintained by such trust or institution in respect of such business. HELD Once exclusion contemplated under section 11(4A) is not applicable, the exemption has to be allowed as sub-sections (1), (2) and (3) of section 11 become applicable even in respect of profits and gains. The Tribunal erred in observing that in such a situation where income falls under section 11(4A), sub-sections (1), (2), (3) or (3A) of section 11 will not apply. Finding of the Tribunal was contradictory. If sub-sections (1), (2) and (3) or (3A) were held to be inapplicable, exemption could not be available. On a plain reading of the provisions, these sub-sections will apply, except where the income falls in the exclusionary provision, which is not the case in the instant case. It was not even the case of the revenue that the income fell in the exclusionary clause. The…

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