Law: Income Tax Act, 1961

Section: 11,147

Income-tax----Charitable purpose---Charitable trust---Exemption--Credit entries in accounts of trust in favour of educational institutions---Corresponding withdrawals by educational institution---Amounts to application of income--Trust entitled to exemption-.--Indian Income Tax Act, 1961, S.11. During the previous years relevant to the assessment years 1965-66 1966-67 and 1967-68, the assessee-trust credited certain sums in its book towards the account of A, an educational institution, and claimed that there was an application of income within the meaning of section 11 of the Income Tax Act, 1961. The Income-tax Officer, however, held that mere credit entries would not be sufficient and there was no application of income by the assessee. The Commissioner (Appeals) and the Tribunal held that the crediting to the institution A on the facts of the case would amount to an application of income, because there were actual withdrawals of the amount by the institution A during the relevant years and, therefore, the crediting of the amount in the accounts could be taken as the application of the income. On a reference: Held, that although mere credit entries in favour of the educational institution in the assessee's books of account would not be sufficient, and would not amount to application of income, during the accounting years relevant to the assessment years 1965-66 to 1967-68, the amounts were not only credited in favour of A but the amounts were actually withdrawn by A. As a matter of fact during the assessment year 1966-67 the amounts withdrawn was Rs.70,31,082 which was the amount credited in favour of the educational institution. Hence, it could not be said that it was a case of a mere credit entry in favour of the educational institution, but it was a case of withdrawal of the same by the educational institution. Moreover, the Income ­tax Officer .had at no point of time doubted the genuineness of the credit entries, nor was it the case that he called upon the assessee to produce the account books of the educational institution and the assessee failed to produce the same. There was valid application of income by the assessee during the assessment years…

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