CPT V24P7-Art1 (Content).pmd - Taxmann

Direct Tax Laws
within the taxable territories but the income
of the Trust is applied elsewhere in the
implementation of such purposes.
The contention of the assessee, that the Supreme
Court’s decision relied on by the High Court
was not applicable to the present case, also
did not find favour of the Court. The assessee’s
argument was that in the case of H.E.H. Nizam’s
Religious Endowment Trust (supra), the trustees
had discretion to apply the income outside
India and such application should have approval
from CBR (present CBDT) which was not
obtained by the Trust at that point of time.
In the light of that particular situation the
Supreme Court had held that the income did
not qualify for exemption. The assessee also
argued that the Supreme Court did not deal
with the contentious issue debated in the present
case, viz., with respect to the meaning of words
“to such religious or charitable purposes as
relate to anything done within the taxable
territories” occurring in section 4(3)(i) of the
old Act.
The High Court also interpreted the natural
grammatical meaning of the words “to the
extent to which such income is applied to such
purposes in India” appearing in section 11(1)
(a) of the Act. The High Court observed that
the word “applied” is a verb in the past tense
used in a transitive form followed by words
“such purposes” and “India” qualified with
two prepositions “to” and “in”. This being the
case, the words should be read as applicable
to charitable purposes and also applied in
India to such purposes.
The assessee’s contention, that “in India” qualifies
only the phrase “such purposes” so that only
the purposes are geographically confined to
India, was not acceptable to the High Court.
The Court observed that if such meaning is
assigned to the words, it would place a strain
on the natural or grammatical interpretation
of the words, “to the extent to which such
income is applied to such purposes in India”.
For this purpose the Court relied on a few
rules of interpretation laid down in the cases
672
of Jugal Kishore Saraf v. Rao Cotton Co. Ltd. AIR
1955 SC 376; Kanai Lal Sur v. Paramnidhi Sadhukhan
AIR 1957 SC 907 and Union of India v. Rajiv
Kumar [2003] 6 SCC 516.
AN ANALYSIS OF HIGH COURT’S
DECISION
August 1 to 15, 2012 u TAXMANN’S CORPORATE PROFESSIONALS TODAY u Vol. 24 u 52
5. A close “look through” in the case discussed
would reveal that the High Court had assigned
a meaning “spent” for the word “applied”
used in Section 11(1)(a) of the Act. However,
“applied” need not necessarily imply “spent”,
(CIT v. Trustees of H.E.H. The Nizam’s Charitable
Trust [1981] 7 Taxman 178 (AP)).
The Compact Oxford Thesaurus Dictionary
meaning of the word is “bring into operation
or use”. As per Webster Dictionary “applied”
means “to put to practical use”; “engaged in
for a utilization or contributory purpose”;
“employed in the decoration, design or execution
of useful object”.
Therefore, “applied” is wider in import than
the word “spent” or “to payout or distribute”
or “expenditure”.
In a charity, situs of beneficiary and benefits
are predominant than situs of payment made
for the procurement of such benefits for the
beneficiary. When a charitable trust/institution
was making payment outside India for acquiring
a benefit for the beneficiaries in India, it was
applying the money paid for charitable purposes
in India.
CONSEQUENCES OF HIGH COURT’S
DECISION
6. In India there are a large number of NGOs
engaged in various charitable activities. The
income of such NGOs (subject to registration
under section 12A of the Act) is exempted
under sections 11, 11A and 12 of the Act. If
the meaning assigned to the word “applied”
in the section is “spent”, it would be interesting
to ponder over the consequences of the above
decision for NGOs.