COMMISSIONER OF INCOME TAX-I, COIMBATORE versus MIS. G.R. GOVINDARAJULU & SONS
[2015] 9 S.C.R. 289, Supreme Court of India, 2015
Outcome: Appeal(s) allowed (Granted)
Segment: Ratio
[2015] 9 S.C.R. 289 
COMMISSIONER OF INCOME TAX-I, COIMBATORE 
A 
v. 
MIS. G.R. GOVINDARAJULU & SONS 
(Civil Appeal No.4916 of2006) 
SEPTEMBER 03, 2015 
[A.K. SIKRI AND R. F. NARIMAN, JJ.] 
B 
Income Tax Act, 1961 - s. 11(1)(a) - Deduction from 
.income-Assessment of Charitable T rust-Assessee sought 
deduction from income, of (1) the amount actually spent for C 
the objects of the Trust, (2) the amount set apart to be spent 
for charitable purposes and showed his taxable income as 
'nil' - Assessing Officer granted deduction of the amount 
actually spent - However, denied the deduction on the 0 
amount set apart by the assessee, on the ground that no 
option for this purpose was exercised by the assessee before 
filing of the return - The appellate authority allowed the set 
apart amount to be deducted - The order in appeal was 
confirmed by the appellate Tribunal and the High Court -
E 
On appeal, held: High Court and the authorities below rightly 
allowed deduction of set apart amount holding that if option 
is exercised at the time of filing return, it would be in 
conformity with the provisions in s. 11 - However, they have 
gone wrong in treating the entire income as exempted from 
F 
income tax -
The deduction of the set apart amount is 
permissible only to the extent of 25% of total income - The 
set apart amount by the assessee, being more than 25%, 
the entire set apart amount could not have been allowed to 
be deducted -Appeal allowed - Direction to the Assessing
G 
Officer to recompute the taxable income. 
Additional Commissioner of Income Tax vs. A.L.N. Rao 
1995 (4) Suppl. SCR 348: 1995 (6) SCC 62.5- referred to. 
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A 
Case Law Reference 
1995 (4) Suppl. SCR 348 
referred to. 
Para 3 
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 
B 4916of2006 
From the Judgment and Order dated 07.09.2004 of the 
High Court of Judicature at Madras, in Tax (Appeal) No. 561 
of2004. 
C 
Jaideep Gupta, Zahaib Hussain, Sadhana Sandhu,Anil 
D 
Katiyar, B.V. Balaram Das for the Appellant. 
V. Prabhakar, Revathy Raghavan, Jyoti Prashar for the 
Respondents. 
The Judgment of the Court was delivered by 
A.K. SIKRI, J . 1. The respondent-assessee is a Public 
Charitable Trust. It filed its return for the Assessment Year 1994-
95 declaring 'nil' taxable income. In the summary of total 
E 
income filed by the assessee it had mentioned gross income 
forthe year in the sum of Rs. 99,41,221/-"which represented 
interest receipts, rental income, bus collections, miscellaneous 
receipts and surplus in GRS hotel. It was further stated that out 
F of this income the assessee had applied and spent a sum of 
Rs. 47,27,533/-forthe objects of the Trust. In the return it was 
also stated that it was setting apart a sum of Rs. 32 Lacs to be 
spent for charitable purposes in the following year. On that 
basis the assessee claimed that it was entitled to have the 
G deduction of the entire amount and for the purpose of taxation 
the income was 'nil' under Section 11 of the Income Tax 
Act, 1961 (hereinafter referred to as 'the Act'). 
2. Before we proceed further and discuss as to how
the 
H Assessing Office:r made the assessment,' it wouid be
COMMISSIONER OF INCOME TAX-I,. COIMBATORE v. 
291 
G.R. GOVINDARAJULU & SONS [A.K. SIKRI, J .] 
necessary to take note of the provisions of Section 11 of the A 
Act which are relevant for our purpose. 
"11. (1) Subject to the provisions of sections 60 to 63, the 
following income shall hot be included in the total income 
of the previous year of the person in receipt of the B 
income--
[ (a) income derived from property held under trust wholly 
for charitable or religious purposes, to the extent to which 
such income is applied to such purposes in India; and, c 
wher~ any such income is accumulated or set apart for 
application to such purposes in India, to the extent to which 
the income so accumulated or set apart is not in excess 
of [fifteen] per cent of the income from such property; 
xxxxx 
xxxxx 
xxxxx 
Explanation.-Forthe purposes of clauses (a) and (b),-
( 1) in computing the [fifteen] per cent of the income which 
may be accumulated or set apart, any such voluntary 
contributions as are referred to in section 12 shall be 
D 
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deemed to be part of the income; 
F 
(2) if, in the previous year, the income applied to charitable 
or religious purposes in India falls short of [eighty-five] per 
cent of the income derived during that year from property 
held under trust, or, as the case may be, held under trust G 
in part, by any amount-
(1) for the reason that the whole or any part of the income 
has not been received during that year, or 
(i1) for any other reason, 
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xxxxx 
B 
c 
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xxxxx 
xxxxx 
(2) [Where [eighty-five] per cent of the income referred to 
in clause (a) or clause (b) of sub-section (1) read with the 
Explanation to that sub-section is not applied, or is not 
deemed to have been applied, to charitable or religious 
purposes in India during the previous year but is 
accumulated or set apart, either in whole or in part, for 
application to such purposes in India, such income so 
accumulated or set apart shall not be included in the total 
income of the previous year of the person in receipt of the 
income, provided the following conditions are complied 
with, namely:-] 
(a) such person specifies, by notice in writing given to the 
[Assessing] Officer in the prescribed manner, the purpose 
for which the income is being accumulated or set apart 
and the period for which the income is to be accumulated 
or set apart, which shall in no case exceed ten years; 
[(b) the money so accumulated or set apart is invested or 
deposited in the forms or modes specified in sub-section 
(5)]:]" 
This provision has come up for interpretation in Additional 
Commissioner of Income Tax vs. A.L.N. Rao [1995 (6JSCC 
6251 and the legal position contained therein was explained in 
G the following manner: 
"A mere look at Section 11 (1) (a) as it stood at the relevant 
time clearly shows that out of total income accruing to a 
trust in the previous year from property held by i wholly for 
H
charitable or religious purpose, to the extent the income
COMMISSIONER OF INCOME TAX-I, COIMBATORE v. 
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G.R. GOVINDARAJULU & SONS [A.K. SIKRI, J .] 
is applied for such religious or charitable purpose, the A 
same will get out of the tax net but so far as the income 
which is not so applied during the previous year is 
concerned at least J5% of such income or Rs.10,000/-
whichever is higher, will be permitted to be accumulated 
for charitable or religious purpose and will also get B 
exempted from the tax net. Then follows sub-section (2) 
which seeks to lift the restriction or the ceiling imposed 
on such exempted accumulated income during the 
previous year and also brings such further accumulated 
income out of the tax net if the conditions laid down by C 
sub-section (2) of Section 11 are fulfilled meaning thereby 
the money so accumulated is set apart to be invested in 
the Government securities etc. as laid down by clause (b) 
of sub-section (2) of Section 11 apart from the procedure 0 
laid down by clause (a) of Section 11 (2) being followed 
by the assessee-trust. To highlight this point we may take 
an illustration. If Rs.1,00,000/- are earned as the total 
income of he previous year by the trust from property held 
by it wholly for charitable and religious purposes and if E 
Rs. 20,000/- are actually applied during the previous year 
by the said trust to such charitable or religious purposes 
the income of Rs.20,000/-will get exempted from being 
considered for the purpose of income tax under first part 
of Section 11
(1 ). So far as the remaining Rs.80,000/- are 
F 
concerned if they could not be actually applied for such 
religious or charitable purposes during the previous year 
then as per Section 11(1) (a) at least 25% of such total 
income from property or Rs.10,000/-whichever is higher 
will also earn exemption from being considered as income G 
for the purpose of income tax, that is, Rs.25, 000/- will thus 
get excluded from the tax net. Thus out of the total income 
ofRs.1,00,000/-which has accrued to the trust Rs.25,000/ 
- will earn exemption from payment of income tax as per 
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SUPREME COURT REPORTS 
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Section 11(1)(a) second part. Then follows sub-section 
(2) which states thatthe ceiling or the limit or the restriction 
accumulation of income to the extent of 25% of the income 
or Rs.10,000/-, whichever is higher for earning income 
· .. tax exemption as engrafted under Section 11 (1) (a) will 
get lifted if the money so accumulated is invested as laid 
down by Section 11 (2) (b) meaning thereby out of the total 
accumulated income of Rs.80,000/- accruing during 
previous year and which could not be spent for charitable 
or religious purposes by the Trust balance of Rs.55,000/-
if invested as laid down by sub-section (2) of Section 11 
will also get excluded from the tax net. But for such 
investment and if Section 11(1) alohe had applied 
Rs .. 55,000/- being he balance of accumulated income 
would have been covered by the tax net. Learned counsel 
for the Revenue submitted that the investment as 
contemplated by sub-section (2) (b) of Section 11 must 
be investment of all accumulated income in Government 
securities etc., namely, 100% of the accumulated income 
arid not only 75% thereof. And if that is not done then only 
the invested accumulated income to the extent of 75% 
will get excluded from income tax assessment. But so far 
the remaining 25% of the accumulated income is 
concerned it will not earn such exemption. It is difficult to 
appreciate this contention. The reason is obvious. Section
11, subsection (1) (a) operates on its own. By its operation 
two types of income earned by the trust during the previous 
year from its properties are given exemption from income 
tax, (i) that part of the income of previous year which is 
actually spent for charitable or religious purposes in that 
year; and (ii) out of the unspent accumulated income of 
the previous year 25% of such total property income or 
Rs.10,000/- whichever is higher can be permitted to be 
accumulated by the Trust, remarked for such charitable or 
religious purposes. Such 25% of the income or Rs.10, 0001
COMMISSIONER OF INCOME TAX-I, COIMBATORE v. 
295 
G.R. GOVINDARAJULU & SONS [A.K. SIKRI, J .] 
- whichever is higher will also get exempted from income A 
tax. That exhausts the operation of Section 11 (1) (a). Then 
follows sub-section (2) which naturally deals with the 
question of investment of the balance of accumulated 
income which has still not earned exemption under sub-
section (1) (a). So far as that balance of accumulated 
B 
income is concerned, that also can earn exemption from 
income tax meaning thereby the ceiling or the limit of 
exemption of accumulated income from tax as imposed 
by sub-section (1) (a) of Section 11 would get lifted if 
additional accumulated income beyond 25% or C 
Rs.10,000/- whichever is higher, as the case may be, is 
invested as laid by Section 11 (2) after following the 
procedure laid down therein. Therefore, sub-section (2) 
only will have to operate qua the balance of 75% of the D 
total income of the previous year or income beyond 
Rs.10,000/- whichever is higher which has not got the 
benefit of tax exemption under sub-section (1) (a) of 
Section 11. If learned counsel for the Revenue is right and 
if 100% of the accumulated income of the previous year E 
is to be invested under sub-section (2) of Section 11 to 
get exemption from income tax then the ceiling of 25% or 
Rs.1 G,000/- whichever is higher, which is available for 
accumulation of income of the previous year for the Trust 
to earn exemption from income tax as laid by
Section 11 
F 
(1) (a) would be rendered rec:lundant and the said 
exemption provision would become otiose. It has to be 
kept in view that but of the accumulated income of the 
previous year an amount of Rs.10,000/- or 25% of the total 
income from property, whichever is higher, is given G 
exemption from income tax by Section 11 (1) (a) itself. That 
exemption is unfettered and not subject to any conditions. 
In other words it is an absolute exemption. If subsection 
(2) is so read as suggested by the learned counsel for the 
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SUPREME COURT REPORTS 
[2015] 9 S.C.R. 
Revenue, what is an absolute and unfettered exemption 
of accumulated income as guaranteed by Section 11 (1) 
(a) would become a restricted exemption as laid down by 
Section 11 (2). Section 11 (2) does not operate to whittle 
down or to cut across the exemption provisions contained 
in Section 11 (1) (a) so far as such accumulated income 
of the previous year is concerned. It has also "to be 
appreciated that sub-section (2) of Section 11 does not 
contain any non obstante clause like " notwithstanding the 
provisions of sub-section (1)". Consequently it must be 
held that Section 11 (1) (a) has full play and if still any 
accumulated income of the previous year is left to be dealt 
with and to be considered for the purpose of income tax 
exemption, sub-section (2) of Section 11 can be pressed 
into service and if it is complied with then such additional 
accumulated income beyond 25% or Rs.10,000/-, 
whichever is higher, can also earn exemption from income 
tax in compliance which the conditions laid down by sub-
section (2) of Section 11. It is true that sub-section (2) of 
Section 11 has not clearly mentioned the extent of the 
accumulated income which is to be invested. But on a 
conjoint reading of the aforesaid two provisions of Sections 
11 ( 1) and 11 (2) this is the only result which can follow. It is 
also to be kept in view that under the earlier Income Tax 
Act of 1922 exemption was
available to charitable trusts 
without any restriction upon the accumulated income. 
There was a change in this respect under the present Act 
of 1961. Under the presentAct, any income accumulated 
in excess of 25% or Rs.10,000/- whichever is higher, is 
taxable under Section 11(1) (a) of the Act, unless the 
special conditions regarding accumulation as laid down 
in Section 11(2) are complied with. It is clear, therefore, 
that if the entire income received by a trust is spent for 
charitable purposes in India, then it will not be taxable but
COMMISSIONER OF INCOME TAX-I, COIMBATORE v. 
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GR. GOVINDARAJULU & SONS [A.K. SIKRI, J .] 
ifthere is a saving, i.e. to say an accumulated of 25% or A 
Rs.10,000/-whichever is higher, it will not be included in 
the faxable income. Section 11 (2) quoted above further 
liberalizes and enlarges the exemption. A combined 
reading of both the provisions quoted above would clearly 
show that Section 11 (2) while enlarging the scope of B 
exemption removes the restriction imposed by Section 
· 11(1) (a) but it does not take away the exemption allowed 
by Section 11 (1 )(a). On the express language of Sections 
11(1) and (2) as they stood on the Statute Book at the 
relevant time no other view is possible." 
C 
4. To put it in nutshell, the exemption/deduction from the 
income can be taken in three stages which are as under: 
i) The assessee would be entitled to have the deduc ion o 
of entire amount which has actually been spent and app 'ed 
for charitable purposes i.e. in furtherance of the objects of 11e 
Trust. 
·ii) The·assessee is entitled to set apart 25% of the tot< I E 
income for charitable purposes even if not spent in the year ir 
question and when the option is exercised in this behalf stating 
that income up to 25% which is set apart would be spent in the 
succeeding year; 
iii) The assessee would be entitled to deduction of the 
remaining amount, by virtue of sub-section (2), to the extent it 
is invested in the Government securities as mentioned in sub-
section(5). 
F 
5. Following the aforesaid principles laid down in Section G 
11 of the Act, the Assessing Officer found that the assessee 
had actually spent a sum of Rs.47,27,533/. Deduction to this 
effect was given by the Assessing Officer and there is no 
dispute about it. 
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[2015] 9 S.C.R. 
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6. Insofar as second issue is concerned, as mentioned 
, above, the assessee set apart a sum of Rs.32 Lacs. 1:his was, 
however, denied by the Assessing Officer on the ground that 
no option for this purpose was exercised by the assessee 
before the filing of the return. Though the assessee had stated 
B so in the return itself, that was not treated as exercising the 
option in a valid manner. Admittedly, in the present case, no 
amount is invested in any Government securities and, 
therefore, the Assessing Officer held that there was no question 
of giving any further deduction on the balance income. In this 
C manner taxable income was assessed. 
7. The assessee fileff)he appeal against the aforesaid 
order before the Commi~sior1er of Income Tax {Appeals). The 
submission was that since it has set apart Rs.32 Lacs in terms 
D of Section 11A Explanation-II, by exercising this option in the 
return itself that should be treated as valid option. The CIT 
(Appeals) accepted this contention, which view has been 
upheld by the Income Tax Appellate Tribunal as well as the 
High Court. 
E 
8. Insofar as this aspect, viz, exercising the option in the 
return filed by the assessee is concerned, we are of the opinion 
that t~e High Court and the Authorities below are right in their 
approach. The law does not mention any specific mode of 
F exercising the option. The said option has to be exercised 
before filing of the return.
According to us, if the option is 
exercised when the return is filed, that would be treated as in 
conformity and comply with the provisions contained in Section 
11 of the Act. 
G 
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9. However, we find that thereafter CIT (Appeals) went 
wrong. As per the provisions of Section 11(1)(a) oftheActthe 
amount which is actually applied tor. and spent towards the 
objects of the Trust is to be allowed. Actual expenditure which
COMMISSIONER OF INCOME TAX-I, COIMBATORE v. 
299 
· G.R. GOVINDARAJULU & SONS [A.K. SIKRI, J .] 
was made for Rs. 47,27,533/-was allowed by the Assessing A 
Officer also. The aforesaid provision also entitled the 
assessee to set apart further amount if not spent in the same 
year and option is exercised in that behalf. However, where 
CIT (Appeals) has gone wrong is that he ignored the provision 
which entitled the assessee to exercise such an option only to 
B 
the extent of 25%. In the instant case, the assessee had 
exercised the option of setting apart an amount of Rs. 32 lacs 
which was more than 25%. The total income was Rs. 
99,41,221/- and 25% thereof would be Rs.24,85,305/-. Thus, 
the entire amount of Rs. 32 lacs could not have been allowed C 
as directed. This aspect has not been noticed by the High 
Court as well. No further amount could be allowed as deduction 
and we do not understand as to how the entire income is treated 
as exempted from income tax. 
· 10. We, accordingly, allow this appeal by setting aside 
the order of the High Court and direct the Assessing Officer to 
recompute the taxable income in accordance with this 
judgment. 
Kalpana K. Tripathy 
Appeal allowed. 
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