2002 PLP 1679 (PTD)

‑‑‑‑Charitable purposes‑‑‑Charitable trust‑‑‑Exemption‑‑‑Borrowed funds utilised in construction of building which would augment income of trust‑‑‑Re‑payment of debt amounted to application of income for charitable purposes‑‑‑Indian Income Tax Act, 1961, S.11. When the assessee is a trust entitled to benefit under section 11 of the Income Tax Acct, 1961, the only question that arises for consideration is whether that income or the accumulated income thereof is applied for charitable purpose. 1f investments have been made in the construction of a building which in turn would augment its income, it should also be held that the application of the funds is for the purpose of the trust. The re‑payment of the debt incurred by the trust for construction of the building should be treated as application of the income of the trust for charitable purposes. CIT v. St. George Forana Church (1988) 170 ITR 62 (Ker.) and CIT v. Kannika Parameswari Devasthanam and Charities (1982) 133 ITR 779 (Mad.) fol. H.L. Dattu for the Commissioner. S. Ganesh Rao for the Assessee. S. RAJENDRA BABU, J.‑‑‑‑The assessee is a trust. In the accounting years relevant to the assessment years 1967‑68 and 1969‑70, it constructed a building. The funds required for construction were paid out of the accumulated income of the trust and partly out of borrowings. The said building had been leased to tenants except for a small portion and has been yielding rental income. In the accounting year relevant to the assessment year 1980‑81, the assessee paid a sum of Rs.89,680 out of the rental income earned during the previous year towards debt it had incurred for the construction of the building. The assessee claimed before the Assessing Authority that the repayment of the debt is towards the application of income for charitable purposes. The trust in question is eligible for exemption under section 11 of the Income Tax Act, 1961. The Income‑tax Officer did not accept the claim that the re‑payment of the loan taken for the construction of the building would amount to application of income for charitable purposes. Being aggrieved by this view of the Income‑tax Officer, the assessee preferred an appeal. The Appellate Authority followed the decision of the Tribunal for the earlier assessment year that the re‑‑payment of the loan amounted to application of income for charitable purpose. The Department carried the matter in appeal to the Tribunal against the order of the Appellate Authority. The: Tribunal took the view that the investment in the construction of the building was made for the purpose of augmenting the income of the trust to be applied for the purpose of the trust and, therefore, the re‑payment of debt incurred for construction of the building should be treated as application of income for charitable purposes and, on that basis, disposed of the matter. At the instance of the Revenue, the following question has been referred for our opinion: "Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the re‑payment of the debt incurred by the trust for construction of the building should be treated as application of the income of the trust for charitable purposes?" It is plain that when the assessee is a trust entitled to benefit under section 11 of the Income‑tax Act, the only question that arises for consideration is whether that income or the accumulated income thereof is applied for charitable purpose. If investments have been made in the construction of a building which in turn would augment its income, it should also be held that the application of the funds is for the purpose of the trust. On this principle, we do not think there can be any, quarrel. We are fortified in our view by the decision of the Kerala High Court in CIT v. St. George Forana Church (1988) 170 ITR 62, which in turn relied upon a decision of the Madras High Court in CIT v. Kannika Parameswari Devasthanam and Charities (1982) 133 ITR

779. Hence, we answer the question referred to us in the affirmative and against the Revenue. M.B.A./708/FC? ???????????????????????????????????????????????????????????????????? Reference answered.