Commissioner of Income Tax vs Janmabhumi Press Trust

S. Rajendra BABU, J.—The assessee is a trust. In the accounting years relevant to the asst. yrs. 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 asst. yr. 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 s. 11 of the IT Act, 1961. The ITO did not accept the claim that the repayment 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 ITO, the assessee preferred an appeal. The appellate authority followed the decision of the Tribunal for the earlier assessment year that the repayment 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 repayment 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 repayment 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 s. 11 of the IT 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 argument 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 Commissioner of Income Tax Vs. St. George Forana Church, , which in turn relied upon a decision of the Madras High Court in Commissioner of Income Tax Vs. Kannika Parameswari Devasthanam and Charities, . Hence, we answer the question referred to us in the affirmative and against the Revenue.