Conditions mentioned in sec.10 are mutually exclusive from condition prescribed in sec. 11

Brief of the case:

In case of DIT (E) Vs. M/s Jasubhai Foundation, Bombay High Court upheld the decision of ITAT in which it was held that section 10 and section 11, though mentioned in same chapter, but conditions mentioned in both sections are mutually exclusive from each other. It was held that in computing the income of charitable institutions exempt u/s 11, income exempt u/s 10 has to be excluded. Section 10 deals with income not included in total income and as far as section 11 is concerned income from property held for charitable purposes is dealt with by it. The requirement in s. 11 with regard to application of income for charitable purposes does not apply to income exempt u/s 10.

Facts of the case:

•  The Assessing Officer was of the view that the return of income which was filed along with income and expenditure account, balance sheet, audited report and by assessee claiming to be a charitable organization needs scrutiny in the light of the legal provision and namely section 11 of the Income Tax Act.
• During the assessment proceedings AO noted that a sum of Rs.25,96,287/- received on account of dividend income is claimed as exempt under section 10(33) of the Income Tax Act which was disallowed.
• Further a sum received of Rs.3,21,124/- on account of long term capital gain on redemption of mutual fund investment is claimed as exempt u/s 10(38) of the Act.
• During the year under consideration an amount of Rs. 30,00,000/- claimed u/s 11 (2) utilised for setting up of Digital Research and Training Centre.

Contention of the revenue:

• This income forms a part of the income from trust property and, therefore, can only be claimed to be exempt under section 11 of the Income Tax Act if applied for charity and not under section 10(33) of the Income Tax Act.
• If the provisions of section 11, 12, and 13 of the Income Tax Act are the governing provisions and relate to exemption claimed by charitable institutions, then, the assessee has no option to choose whether it wants to avail the exemption under section 10(33) or section 11 of the Act.
• The word “income” used in section 11(1)(a) does not have the same meaning as has been specifically assigned to the expression “total income” vide section 2(45) of the Act.
• The term “total income” appearing in section 10 and the wording of section 11 would indicate as to how what shall not be included in terms of section 10 in computing the total income of a previous year of any person will not govern the interpretation of section 11.
• For the purpose of fulfillment of the conditions of section 11 and section 12, particularly on application of the income derived from property held under trust wholly for charitable or religious purpose had not been further subjected to any exclusion.

 Contention of the assessee:

•  Insofar as Chapter III of the Income Tax Act is concerned, though it is titled as “Incomes Which Do Not Form Part of Total Income”, as far as section 10 is concerned, that deals with incomes not included in total income and as far as section 11 is concerned income from property held for charitable or religious purposes is dealt with by it.
• There is no scope for the argument that from the total income of any person which may include a trust or an assessee before us, the exclusion in terms of section 10 would not apply.
• It is after such exclusions that the income from property held for charitable or religious purposes would have to be dealt with and in that amount the matters covered by section 11 would not be included.
• Out of the total expenses of Rs.48,78,000/- incurred during the period relevant to assessment year 2002-03, a sum of Rs.30,00,000/- has been spent out of accumulated amount.
• When the amount accumulated for the assessment year 2001-02 has been fully spent during the period relevant to assessment year 2002-03, then, the condition was fully satisfied.

 Held by CIT (A):

The Commissioner had directed that the Assessing Officer should verify whether Rs.30,00,000/- which was accumulated and set aside under section 11(2) was utilised for the specified purpose and within the stipulated period.

Held By ITAT:

The income which in this case the assessee trust has not included by virtue of section 10, then, that cannot be considered under section 11.

 Held by Court:

 Tribunal’s view cannot be termed as perverse or vitiated by any error or law apparent on the face of the record.

• The provisions, namely, sections 10 and 11 fall under a Chapter which is titled “Incomes Which Do Not Form Part of Total Expenditure” (Chapter III). Section 10 deals with incomes not included in total income whereas section 11 deals with income from property held for charitable or religious purposes.
• There is nothing in the language of the two provisions nor was revenue able to point out as to how when certain income is not to be included in computing total income of a previous year of any person, then, that which is excluded from section 10 could be included in the total income of the previous year of the person / assessee.
• The income which is not to be included in computation of the total income is a matter dealt with by section 10 and by section 11 the case of an assessee who has received income derived from property held under trust only for charitable or religious purposes to the extent to which such income is applied to such property in India and that any such income is accumulated or set apart for application for such purposes in India to the extent of which the income so accumulated or set apart in computing 15% of the income of such property, is dealt with.
• There is nothing in the language of sections 10 or 11 which says that what is provided by section 10 or dealt with is not to be taken into consideration or omitted from the purview of section 11.