S.C. Agrawal, J. - (1.) THIS reference has been made by the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur (hereinafter referred to as "the Tribunal"), under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), at the instance of the Revenue. The reference relates to the assessment year 1971-72 and the question which has been referred by the Tribunal for the opinion of this court is as under : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in directing that the deficit of Rs. 59,770 arising out of excess of expenditure over income during the previous year relevant to the assessment year 1970-71 should be set off against the surplus of income over expenditure relating to the assessment year 1971-72 in computing the taxable income of the latter assessment year ?"
(2.) THE facts briefly stated as set out in the statement of the case are that the Maharana of Mewar Charitable Foundation (hereinafter referred to as "the assessee") is a public charitable trust, constituted by the Maharaja of Mewar through a deed executed on October 20, 1969. THE Maharaja of Mewar had donated a sum of Rs. 11 lakhs to the assessee which formed the corpus of the trust. During the previous year relevant to the assessment year 1970-71, the assessee spent a sum of Rs. 95,863 towards the aims and objects of the trust and the income of the assessee during the said year was only Rs. 36,093 and thus a sum of Rs. 59,770 was spent in excess of the income during the period relevant to the assessment year 1970-71. In the previous year relevant to the assessment year 1971-72, the assessee claimed adjustment of the sum of Rs. 59,770 against the surplus of income over expenditure during the assessment year 1971-72. THE Income-tax Officer, Udaipur, disallowed the claim of the assessee. THE Appellate Assistant Commissioner of Income-tax, Udaipur, allowed the said claim of the assessee for the deduction of the amount of Rs. 59,770 out of the income of the assessment year 1971-72. THE Tribunal, on appeal, affirmed the order of the Appellate Assistant Commissioner, whereupon the Commissioner of Income-tax moved the Tribunal for referring the question of law arising out of the order passed by the Tribunal and the question mentioned above has been referred by the Tribunal for the opinion of this court. Shri Arora, learned counsel for the Revenue has urged that the deficit of Rs. 59,770 arising on account of the excess of expenditure over income in the previous year relevant to the assessment year 1970-71 could not be adjusted against the income for the assessment year 1971-72 and that the assessee could only claim exemption in respect of expenditure incurred for charitable purposes during the previous year relevant to the assessment year 1971-72. Since the expenditure of Rs. 59,770 had been incurred by the assessee during the previous year relevant to the assessment year 1970-71, the said expenditure could not be claimed as deduction from the income for the assessment year 1971-72. In support of the aforesaid contention, Shri Arora has placed reliance on the decision of the Calcutta High Court in CIT v. Samnugger Jute Factory Co. Ltd. [1953] 24 ITR 265 and the decision of the Mysore High Court in Siddaramanna Charities Trust v. CIT [1974] 96 ITR 275. Shri Mehta, learned counsel for the assessee, has, on the other hand, supported the order passed by the Tribunal and has submitted that the claim of the assessee with regard to the deduction of Rs. 59,770 has been rightly allowed by the Appellate Assistant Commissioner and the Tribunal since the said sum of Rs. 59,770 has been found to have been incurred by the assessee for charitable purposes and was thus applied for charitable purposes. Shri Mehta has placed reliance on the decision of the Andhra Pradesh High Court in CIT v. Trustees of H.E.H. the Nizam's Charitable Trust [1981] 131 ITR 497. The relevant provision which needs to be examined is that contained in Section 11(1)(a) of the Act. The said provision, as it stood during the relevant assessment year, provided as under : "11. (1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the 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; ... " A perusal of the aforesaid provision would show that the 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 is to be excluded for the purposes of computing the income of the trust for the purposes of assessment. There are no words of limitation in this section explaining that the income should have been applied for charitable or religious purposes only in the year in which the income had arisen.
(3.) SHRI Arora has urged that the aforesaid provisions, as it stood at the relevant time, provided that only that income would be excluded which was applied for charitable and religious purposes during the relevant assessment year in which the income was earned and any expenditure incurred for religious and charitable purposes in the earlier year could not be adjusted against the income of the succeeding year. We are unable to accept the aforesaid contention of Shri Arora. In our view, there is nothing in the language of Section 11(1)(a) which lends support to the contention of Shri Arora that the expenditure incurred in the earlier year cannot be met out of the income of the subsequent year and utilisation of such income for meeting the expenditure of the earlier year would not amount to such income being applied for charitable or religious purposes. In our opinion, the words used in Section 11(1)(a) must be given their natural meaning. The word "applied" as defined in Chambers' Dictionary means "to put to use" or "to turn to use". According to the Oxford Dictionary, the word "applied" means "to make use" or "to put to practical use". When the income of a trust is used or put to use to meet the expenses incurred for religious or charitable purposes, it is applied for charitable or religious purposes. The said application of the income for charitable or religious purposes takes place in the year in which the income is adjusted to meet the expenses incurred for charitable or religious purposes. In other words, even if the expenses for charitable and religious purposes have been incurred in the earlier year and the said expenses are adjusted against the income of a subsequent year, the income of that year can be said to have been applied for charitable and religious purposes in the year in which the expenses incurred for charitable and religious purposes had been adjusted. In this context, it may be mentioned that the Central Board of Direct Taxes has issued a Circular dated January 24, 1973, wherein the Central Board of Direct Taxes has considered the question as to whether where a trust incurs a debt for the purpose of the trust, the repayment of the debt would amount to an application of income for the purposes of the trust. In the said circular, the Central Board of Direct Taxes has expressed the view that the repayment of the loan originally taken to fulfil one of the objects of the trust will amount to an application of the income for charitable and religious purposes. In other words, according to the said circular, if the trust wants to spend more money on charitable and religious purposes, then, in a particular year, it can take a loan and the said loan can be repaid out of the income of the subsequent year and the repayment of the said loan out of the income of the subsequent year would amount to application of income for charitable and religious purposes under Section 11(1)(a) of the Act. ;