C.N. Ramachandran Nair, J.
The petitioner is a charitable society which was enjoying exemption under section 8OG of the Income Tax Act until the year 1998-99. However, the facility was denied for the year 1999-2000 vide Ext. P3 communication again confirmed by the Commissioner on application under section 154 of the Income Tax Act vide Ext. P9. The registration under section 80G authorises the petitioner to receive donations for charitable purposes which enables the donor to claim exemption from tax upto 50 per cent of the donation. The petitioner is contesting Ext. P9 order whereunder section 8OG benefit was denied to the petitioner by the Commissioner on the ground that an amount of Rs. 25,000 received as donation was invested in a private company which disentitles the petitioner for exemption under section 13(1)(d) read with section 11(5) of the Income Tax Act.
I heard Sri. P. Balachandran, counsel for the petitioner, and Sri P.K.R. Menon, senior counsel for the respondent.
The petitioner's contention is that even after admitting that the petitioner has spent 75 per cent of the income during the year 1999-2000 for charitable purpose, respondents have denied exemption under section 8OG on account of the alleged violation of section 13(1)(d). The violation pertains to the donation of Rs. 25,000 received by the petitioner. The petitioner had accepted the donation and invested the same as a deposit in Integrated Finance Company Ltd. This amount remained invested with the said company till 31-3-1999, which according to the Commissioner was not permissible under section 13(1)(d) of the Act. Counsel for the petitioner relied on the decisions of the Supreme Court in S. RM. M. CT M. Tiruppani Trust v. CIT (1998) 230 ITR 636 (SC) and in Addl. CIT v. A.L.N. Rao Charitable Trust (1995) 216 ITR 697 (SC) and contended that section 11(2)(b) read with section 11(5) applies only to unspent amount below 75 per cent of the income. According to the petitioner, since it has admittedly spent 75 per cent of the income during the year, sections 11(2)(b) and 11(5) have no application at all. On the other hand, standing counsel for the department pointed out that the decisions pertain to assessment prior to the amendment to section 13 and, therefore, those decisions have no application. Obviously the decisions only refer to section 11 and not to section 13, whereas the decision of the Commissioner under challenge is based on section 13(1)(d) of the Act. Sri P. Balachandran, appearing for the petitioner relied on the decision of the Gujarat High Court in Orpat Charitable Trust v. CIT (2002) 256 ITR 690 (Guj) and that of the Delhi High Court in Director of Income Tax v. Agrim Charan Foundation (2002) 172 CTR (Del) 95 and contended that even if there is violation of section 11 or section 13, the petitioner is entitled to registration under section 8OG(5) of the Act.
It is admitted and there is finding to the effect that an amount of Rs. 25,000 was deposited by the petitioner with Integrated Finance Company unto 31-3-1999, the previous year relevant to the assessment year for which renewal of exemption was claimed by the petitioner under section 80G. This is admittedly not a permissible investment provided under clauses (i) to (Xii) of section 11(5) of the Income Tax Act. The contention of the petitioner is that section 11(5) directly refers to section 11(2)(b) which provides for investment if the application of income for charitable purpose is below 75 per cent. In other words, in order to qualify for exemption in the case of expenditure below 75 per cent of the income, the difference between the amount actually spent and 75 per cent of the income has to be invested in any of the modes provided in section 11(5). According to the petitioner, since the petitioner has spent 75 per cent of the income during the relevant year, the question of applying section 11(2)(b) and section 11(5) does not arise at all. In other words, Rs. 25,000 being part of the balance 25 per cent of income which remained invested in investments other than those referred to in section 11(5) does not disentitle the petitioner of the exemption is the contention of the petitioner. The scheme of section 11 provides for exemption of the income to the extent it is spent for charitable purposes during the relevant previous year. Though the eligibility for exemption is available only if 75 per cent of the income is spent for charity, there is an exception provided in sub-section (2) of section 11 which enables the petitioner to get exemption by carrying over any shortage in the expenditure below 75 per cent to the next year after issuing notice to the department under section 11(2) of the Act. The further condition under section 11(2)(b) is that the difference between the actual amount spent and 75 per cent of the income should be invested in any of the modes provided under section 11(5) of the Act. So much so, so far as the petitioner is concerned, the argument that there is no violation of section 11(2) is correct because the petitioner spent 75 per cent of the income for charity during the year. However, the matter does not end here because section 13 introduces a further condition which is as follows :
"13. (1) Nothing contained in section 11 (or section 12) shall operate so as to exclude from the total income of the previous year of the person in respect thereof :
(d) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof, if for any period during the previous year :
(i) any funds of the trust or institution are invested or deposited after the 28-2-1983, otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11; or
(ii) any funds of the trust or institution invested or deposited before the 1-3-1983, otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11 continue to remain so invested or deposited after the 30-11-1983; or
(iii) any shares in a company (not being a government company as defined in section 617 of the Companies Act, 1956 (1 of 1956), or a corporation established by or under a Central, State or Provincial Act) are held by the trust or institution after the 30-11-1983.
Therefore, section 13(1)(d) which has overriding effect makes it mandatory for the trust to invest the entire left over funds after meeting the expenditure in any of the modes of investments provided under section 11(5) of the Act. Even in a case where 75 per cent is spent by the trust and balance 25 per cent is carried over, such 25 per cent should be invested only in any of the modes provided under section 11(5) of the Act and if there is a violation, then section 13 puts a bar on exemption under section 11. In other words, while the difference between actual expenditure and 75 per cent of the income is covered by section 11(2)(b) read with section 11(5), section 13(1)(d) provides that the entire balance unspent income left in the hands of the trust has to be invested in any of the authorised securities provided under section 11(5). In fact after introduction of section 13(1)(d), section 11(2)(b) has become redundant and unnecessary because section 13(1)(d) speaks about any funds of the trust or institution that takes in not only the remaining 25 per cent but the unspent amount below 75 per cent also. In other words, there is absolute prohibition by virtue of section 13(1)(d) against any charitable institution investing any amount at any point of time in any investments or mode of investments other than those narrated in section 11(5). The petitioner admittedly having kept Rs. 25,000 in deposit in a private company till 31-3-1999, after which it has shifted it to one of the investments under section 11(5), was rightly declined exemption under section 80G of the Act for the year 1999-2000.
While decisions of the Supreme Court relied on by the petitioner do not refer to section 13, the decision of the Delhi High Court referred to pertains to exemption in the hands of the trust under section 11 and not a case of renewal of certification under section 8OG. The decision of the Gujarat High Court relied on by the petitioner is a case of renewal of registration under section 80G. It is to be confined to the facts of that case because it was found in that case that the trustees through whom the deposits had been made had paid up deposits in those institutions to the petitioner and so far as the petitioner was concerned, the technical breach ought not to have been weighed by the Commissioner is the finding of the court. In any case going by the wording of section 80G, it makes it clear that unless a charitable trust or society qualifies for exemption under section 11 during the relevant year, it is not entitled to renewal of registration under section 8OG.
In the circumstances, there is no ground to interfere. OP is dismissed. OPEN