1. This is an appeal brought on behalf of the Additional Commissioner of Income-Tax, Karnataka and the First Income Tax Officer, Mangalore Circle, Mangalore, against the order made in W.P 597 of 1973 by Venkataramiah, J., by which the learned Judge allowed the writ petition filed by the respondent herein and directed the Commr. of Inecme-Tax to dispose of the proceedings initiated by him under S. 263 of the Income-Tax Act, 1661, hereinafter called ‘the Act’, in the light of the interpretation of S. 11 of the Act made in the said order.

2. The relevant facts in brief are: Respondent A.L.N Rao Charitable Trust, Mangalore, is a Charitable Trust. For the assessment year 1969-1970, the respondent, hereinafter referred to as ‘the assessee’, submitted its return to the First Income-Tax Officer, Mangalore Circle. In the said return, the assessee claimed that a sum of Rs. 85,262, which was the surplus income of the previous year, was exempt from tax under Sec. 11(1)(a) and sub-sec. (2) of the said section. On the Assessing Authority holding that the assessee is not a genuine Trust and therefore not entitled to claim the benefit of Section 11, the assessee preferred an appeal before the Appellate Assistant Commissioner, which was dismissed. In the second appeal preferred by the assessee before the Income-Tax Appellate Tribunal, it was held that the assessee was a Charitable Trust and therefore was entitled to claim exemption from tax under S. 11 of the Act Tn TTRC. 31 of 1973 which was a reference made at the instance of the Department, this Court by its judgment dt. 4-8-1975 answered the question referred in favour of tip assessee and against the Dept. Therefore, that the assessee is a Charitable Trust entitled to claim the benefits of S. 11 is no longer in dispute. The Assessing Authority took up the assessment, to pass an order in accordance with the judgment of the Tribunal and made an order on 21-1-1972 by which it held that the assessee, after complying with the requirement of giving notice under S. 11(2)(a), had invested 75 per cent of the accumulated income intended to be applied for charitable purposes in future years as required by Cl. (b) of Sec. 11(2) and therefore, the entire surplus income was exempt from tax.

3. The Commr. of Income-Tax, hereinafter referred to as ‘the Commissioner’ on looking into the order dt. 21-1-1972 passed by the Assessing Authority, was of the view that the order of the Assessing Authority was erroneous as he had not applied his mind to the question whether the assessee had complied with the provisions of S. 11(2) and that if he had applied his mind to the said provision, would have noticed that the assessee had not invested the entire surplus income, viz., Rs. 85,262 (but only Rs. 70,975) and therefore the assessee was not entitled to the exemption provided under S. 11 of the Act, Thus, in the opinion of the Commr, the order of the Income-Tax Officer was erroneous inasmuch as it was prejudicial to the interests of the Revenue. He issued a show-cause notice under S. 263 of the Act on 18-1-1973 to the assessee to show-cause as to why the entire surplus income of Rs. 85,262 should not be brought to tax. The assessee, on receipt of the said notice, approached this Court for relief under Arts. 226 and 227 of the Constitution and praved for the issue of a writ in the nature of certiorari to quash the notice dt. 18-1-1973 issued by the Commr. In that writ petition (W.P 597 of 1973), Venkataramiah, J., made an order directing the Commr. to dispose of the proceedings initiated under S. 263 in the light of his order as to the interpretation of S. 11(1)(a) and Section 11(2) of the Act.

4. Before the learned single Judge, the contention of the Dept was that in order to claim exemption under S. 11, the assessee should have invested the entire surplus income in one or the other of the securities mentioned in S. 11(2)(b) of the Act and it is not sufficient if 75 per cent of the surplus income alone has been invested by the assessee. The learned Counsel for the assessee urged that the assessee had complied with the requirements of S. 11; according to the learned Counsel, the assessee is entitled to exemption from tax in respect of 25 per cent of the accumulated income plus that portion of the accumulated income in respect of which the conditions prescribed under Cls (a) and (b) of 9.11(2) have been satisfied. According to the assessee, since it has deposited 75 per cent of the accumulated income in the securities mentioned in Sec. 11(2)(b) the entire surplus income which has accumulated was not taxable.

5. The learned single Judge rejected the contention of the Revenue and upheld the contention of the assessee in part only. The learned Judge held that the assessee is entitled to exemption from tax only in respect of 75% of the surplus income which was accumulated for future use. The learned single Judge explained the scope of S. 11(1)(a) and sub-sec. (2) of the said section thus:

“A reading of the provisions of Sec. 11(1)(a) extracted above shows that ordinarily any amount spent by the charitable trust from out of its income during the previous year on charitable purposes would be exempt from taxation and in so far as the income that is allowed to be accumulated for application to charitable purposes in India is concerned, to the extent to which-the income so accumulated is not in excess of 25 per cent of the income from the property or Rs. 10,000 whichever is higher, would be exempt from taxation. To illustrate, let me assume that the income of a charitable trust is Rs. 1,00,000 during any year and a sum of Rs. 40,000 is spent on charitable purposed and the remaining of Rs. 60,000 is allowed to be accumulated for application to charitable purposes in India. Under S. 11(1)(a) the sum of Rs. 40,000 spent on the charitable purposes and a sum of Rs. 25,000 (which is 25 per cent of the total income) out of the balance of Rupees 60,000 which is allowed to be accumulated would be exempt from taxation. The remaining Rs. 35,000 would be subject to taxation. Sub-Sec. (2) provides that in the event of the trust complying with the requirements of Cls (a) and (b) thereto, it would be entitled to claim exemption in respect of any amount that is allowed to be accumulated for application to charitable purposes in India even though it may be in excess of 25 per cent of the income or Rs. 10,000 whichever is higher. I am of the view that the words ‘the restriction specified in Cl. (a) of sub-sec. (1) as respects accumulation….shall not apply for the period during which the said conditions remain complied with’ mean that as respects the amount allowed to be accumulated in respect of which Cls (a) and (h) of sub-sec. (2) have been complied with, the assessee would be entitled to exemption even though it may be in excess of 25 per cent of the total income or Rs. 10,000 whichever is higher. If the Parliament intended that the entire surplus income had to he invested to earn the exemption in sub-sec. (2) it world have said so. The very fact, that there is no reference to the event of the Income that has to be invested in sub-sec. (2), suggests that the intention of the Parliament was that any amount which is curved to be accumulated even though it may he in excess of 25% or Rs. 10,000 whichever is higher, in respect of which Cls (a) and (b) of sub-sec. (2) of S. 11 are complied with shall be exempted from the payment of income-tax.

I am of the view that S. 11(2) is only an alternative to S. 11(1)(a) and it is open to the assessee to adopt the more favourable one having regard to the facts of the case. The assessee is not however entitled to claim ??? in respect of 25 per cent under S. 11(1)(a) and also ??? emotion in respect of the surplus amount invested under S. 11(2). In the facts and circumstances of this case, because admitted the assessee has invested 75 per cent of the surplus income as provided under Cl. (b) of Sec. 11(2) and has also given the required ??? under S. 11(2)(n) he is entitled to claim exemption from payment he income-tax only in respect of 75% of the surplus income.”

6. Aggrieved by the said order, the Dept his preferred the above appeal.

7. Before us. Sri S.R Raiasekhara Murthy, learned Counsel for the appellants, ??? the same contention that was urged before Venkataramiah, J. He argued that the interpretation of S. 11 by the learned Judge is ??? and that we should hold that the assessee is not entitled to exemption in respect of the entire surplus income accumulated, as it has not invested the entire amount in the securities specified in S. 11(2)(b) of the Act. Sri Sarangan, learned Counsel for the respondent-assessee, submitted that on a true and correct interpretaion of S. 31, we should hold that the assessee if it is a Charitable Trust contemplated under the Act, is entitled to exemption of 25 per cent of the income from the property or Rs. 10,000 whichever is higher independent of the provisions of sub-sec. (2): and that, the exemption is not taken away if the assessee invests part of the accumulated amount in the securities specified in Cl. (h) ox sub-sec. (2) of S. 11. In support, of the said contention, he relied on the ??? in Commr. of I.T Patiala v. Shri Krishen Chand Charitable Trust(1). The Pent did not bring to cur notice any authority taking a contrary view. Sved Wasi-ud-Din, J., who delivered the judgment in the above cited case held that it has been undisputed that the assessee in that case is a Cheritable Trust and it would be entiled to exemption of the income accumulated to the extent of 25 per cent or Rs. 10,000 whichever higher under S. 11(1) and it would be further entitled to, exemption under S. 11(2) provided the conditions laid down in that section are satisfied After setting out the relevant provisions of Ss. 11(1)(a) and 11(2), the decision states thus:

“It may be noted that, under the old 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 present Act any income accumulated in excess of 25 per cent or Rs. 10,000, whichever is higher, is taxable under S. 11(1)(a) of the Act, unless the special conditions regarding accumlation as laid down in S. 11(2) are complied with. An examination of S. 11(1)(a) shows that this section comprises of two parts: (1) which excludes that part of the income to the extent to which such income is applied for charitable purposes in India; (2) where there is accumulation of the income, then to the extent to which the income so accumuulated is not in excess of 25 per cent or Rs. 10,000 whichever is higher. 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 if there is a saving, i.e to say an accumulation of 25 per cent or Rs. 10,000 whichever is higher, it will not be included in the taxable income. S. 11(2) quoted above further liberalizes and enlarges the exemption. A combined reading of both the provisions quoted above would clearly show that S. 11(2) while enlarging the scope of exemption removes the restriction imposed by S. 11(1). (a) but it does not take away the exemption allowed by S. 11(1)(a). In my opinion, where a statute, particularly a taxing stature, confers a concession by one particular provision in the statute and then further liberalizes and enlarges that concession by another provision in that statute, then the concession granted by the earlier provision cannot be deemed to be taken away S. 11(2) of course lays down the conditions, the compliance of which is necessary to avail of the exemption but they are merely for the purpose of availing of the further exemption and not for depriving or taking away the exemption granted under Section 11(1)(a).”

8. The judgment of Jammu & Kashmir High Court in Shri Krishen Chand Charitable Trust case was delivered on June 17, 1974. The learned Counsel for the Dept did not bring to our notice any decision taking a contrary view. We asked Sri Rajasekhara Murthy whether the Dept has preferred any appeal to the Supreme Court against the said judgment. The learned Counsel submitted that he has no information of any appeal to the Supreme Court having been preferred by the Dept against the decision of the High Court of Jammu and Kashmir.

9. We are in respectful agreement with the interpretation of S. 11 as laid down in Shri Krishen Chand Charitable Trust case by the High Court of Jammu and Kashmir. We are unable to accept the interpretation of S. 11 as urged by Sri Rajasekhara Murthy, learned Counsel for the Dept. The interpretation given by Venkaramaiah, J., in this Court is also not correct. The learned Judge has stated that in his view, S. 11(2) is alternative to S. 11(1)(a) and it is open to the assessee to adopt the more favourable one, but he cannot have the benefits of both S. 11(1)(a) and S. 11(2), S. 11(1) and S. 11(2) as they stood at the relevant time read thus:

“(1) Subject to the provisions of Ss. 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; and, where any such income is accumulated for application to such purposes in India, to the extent lo, which the income so accumuated is not in excess of twenty five per cent of the income from the property or rupees ten thousand, whichever is higher,……..

(2) Where the persons in receipt of the income have complied with the following conditions, the restriction specified in Cl. (a) or Cl. (b) of sub-sec. (1) as respects accumulation or setting apart shall not apply for the period during which the said conditions remain complied with—

(a) such persons have by notice in writing given to the Income-tax Officer in the prescribed manner, specified 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 in any Govt. security as defined in Cl. (2) of S. 12 of the Public Debt Act, 1944 (XVIII of 1944), or in any other security which may be approved by the Central Government in this behalf.”

10. Under the 1922 Act exemption was available to charitable and religious trusts without any restrictions upon the accumulation of income. Under the Act, income derived from property held under the Trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India is wholly exempt; where the whole or part of the income is accumulated for application for such purposes in ???, then, if the income accumulated is 25 per cent of the income from property or Rs. 10,000 whichever is higher, is also exempt; income accumulation in excess of 25 per cent of the total income of the Trust or Rupees 10,000 whichever is higher, is taxable under S. 11(1)(a) unless the conditions regarding the accumulation set out in S. 11(2) are complied with, if accumulation in excess of 25 per cent of the trust income is made for a purpose of the Trust, to secure exemption for the excess amount a written notice should be given to the Income-tax Officer in the manner prescribed by Rule 17 of the Income-Tax Rules, 1962, and the accumulated income should be invested in Govt. or other approved securities; but in no case is the income allowed to be accumulated for more than 10 years. According to the learned Authors of the Law and Practice of Income Tax by Kanga and Palkhivala, 6th Edn, Vol. I, page 245, where income is accumulated in excess of the allowable limit, it is only the excess amount accumulated, and not the entire trust income, which becomes disentitled to exemption. According to the learned Authors, an assessee does not forfeit the benefit conferred by S. 11(1)(a) if the assessee takes the benefit of S. 11(2) by complying with the conditions laid down therein. The interpretation put by Sri Rajasekhara Murthy for the Dept has this result, namely, that whereas an assessee entitled to the benefit of S. 11 accumulates the income in excess of 25 per sent of the income from property or Rs. 10,000 whichever is higher and does not make any investment in the approved securities, he will be entitled to the exemption provided under Cl. (a) of sub-sec. (1) of S. 11; but where he invests part of the accumulated income in the approved securities, he forfeits the benefit conferred by Section 11(1)(a).

11. One of the canons of interpretation of statutes is that if the language in an Act is capable of more than one interpretation, we ought to discard the more natural meaning if it leads to an unreasonable result and adopt that interpretation which leads to a reasonably practicable result. In the words of Ropier, L.J, ‘the Court, when faced with two possible constructions of legislative language, is entitled to look to the results of adopting each of the alternatives respectively in its quest for the true intention of Parliament’. Vide Maxwell on the Interpretation of Statutes, 12th Edn, pages 105 and 106. In Simms v. Registrar of Probates(2), Lord Hobhouse, giving the advice of the Judicial Committee, said:

“Whert there are two meanings, each adequately satisfying the meaning (of a statute), and great harshness is produced by one of them, that has a legitimate influence in inclining the mind to the other ……it is more probable that the legislature should have used the word (‘evade’) in that interpretation which least offends our sense of justice.”

12. Vide Craies on Statute Law, 7th Edn, page 87:

13. ‘In construing a law of doubtful meaning or application, the policy which induced its enactment, or which was designed to be promoted thereby, is a proper subject for consideration, where such policy is clearly apparent or can be legitimately ascertained. Indeed, the proper course in all cases is to adopt that sense of the words which promotes in the fullest manner the policy of the legislature in the enactment of the law, and to avoid a construction which would alter or defeat that policy, where the construction in harmony with the policy is reasonably consistent with the language used’. Vide 50 American Jurisprudence, pages 279 and 280, paragraph 298.

14. As stated earlier, the 1922 Act had wholly exempted the income derived from property held in trust and there was no restriction upon the accumulation of the income. The 1961 Act with which we are concerned, for the first time imposed restrictions upon the accumulation of income. While imposing restrictions upon accumulation, S. 11(1)(a) provided for exemption of income not exceeding 25 per cent of the total income of the Trust or Rs. 10,000 whichever is higher. The restriction, however, relates to 75 per cent of the total income of the properties; but that restriction in respect of the income in excess of 25 per cent of the Trust income is lifted if the assessee complies with the conditions laid down in Cls (a) and (b) of sub-sec. (2) of S. 11. One condition is that the assessee should give a written notice to the Assessing Authority in the manner prescribed by Rule 17 of the Income Tax Rules, 1962, the second condition is that the accumulated income should be invested in Govt. or other approved securities; the third condition is that in no case the income should be allowed to be accumulated for more than 10 years.

15. Sec. 11 has been amended more than once. The Taxation Laws (Amendment) Act, 1975 has further amended S. 11. After the Amendment, the relevant provisions of S. 11 read thus:

“11. Income from property held for charitable or religious purposes.—(1) Subject to the provisions of Secs. 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; and, where 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 twenty five per cent of the income from such property;

(b) & (c) ***

Explanation. For the purposes of Cls (a) and (b)—

(1) in computing the twenty-five per cent of the income which may be accumulated or set apart, any such voluntary contributions as are referred to in S. 12 shall be deemed to be part of the income;

(2) if, in the previous year, the income applied to charitable or religious purposes in India falls short of seventy-five per cent of the income derived during that year from property held under trust, or, as the case may be, held under trust in part, by any amount—

(i) for the reason that the whole or any part of the income has not been received during that year, or

(ii) for any other reason, then,—

(a) in the case referred to in sub-cl (i), so much of the income applied to such purposes in India during the previous year in which the income is received or during the previous year immediately following as does not exceed the said amount; and

(b) in the case referred to in sub-cl (ii), so much of the income applied to such purposes in India during the previous year immediately following the previous year in which the income was derived as does not exceed the said amount.

may, at the option of the person in receipt of the income (such option to be exercised in writing before the expiry of the time allowed under sub-sec. (1) or sub-sec. (2) of S. 139, whether fixed originally or on extension for furnishing the return of income) be deemed to be income applied to such purposes during the previous year in which the income was derived; and the income so deemed to have been applied shall not be taken into account in calculating the amount of income applied to such purposes, in the case referred to in sub-cl (i), during the previous year in which the income is received or during the previous year immediately following, as the case may be, and, in the case referred to in sub-cl (ii), during the previous year immediately following the previous year in which the income was derived.

(1A) & (IB) ***

(2) Where seventy-five per cent of the income referred to in Cl. (a) or Cl. (b) of sub-sec. (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 Income-tax 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 accumuated or set apart is—

(i) invested in any Govt. security as defined in Cl. (2) of S. 2 of the Public Debt Act, 1944 (18 of 1944), or in any other security which may be approved by the Central Government in this behalf, or

(ii) deposited in any account with the Post Office Savings Banks (including deposits made under the Post Office (Time Deposit) Rules, 1970. or a banking company to which the Banking Regulations Act, 1949 (10 of 1949), applies (including any bank or banking institution referred to in S. 51 of that Act) or a co-operative Society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development Bank), or

(iii) deposited in an account with a financial corporation which is engaged in providing long-term finance for industrial development in India and which is approved by the Central Govt. for the purposes of Clause (viii) of sub-section (1) of Section 36.”

16. Sec. 11, as amended by Act 41 of 1975, makes the provision for exemption of income from trust property clear and leaves no doubt. As the section now stands the following income from Trust property shall not be included in the total income of the Assessee:—

(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; (b) where any such income is accumulated or set apart for application to such purposes, to the extent to which the income so accumulated or set apart is not in excess of 25% of the income from such property; (c) where 75% of the income of the Trust is not applied to charitable or religious purposes in India during the previous year, but is allowed to accumulate for future application to such purposes in India, such income so accumulated or set apart is exempt from taxation provided the condition of giving notice in writing as prescribed by R. 17 is complied with, and further that 75% of the income so accumulated or set apart is invested in Govt. securities or other approved securities. sub-sec. (2) as amended removes all doubt and the intention of the Parliament is made clear that the exemptions under sub-secs (1) and (2) of S. 11 are independent and not alternative. The assessee may or may not be able to obtain the exemption by satisfying the conditions laid down in sub-sec. (2), but if he does not satisfy the conditions laid down in sub-sec. (2), he is not deprived of the exemption conferred under sub-sec. (1) of S. 11. The law imposes restriction only in regard to 75 per cent of the income of Trust property, where the income is allowed to accumulate for future application for the purposes of the Trust in India. In the Report of the Select Committee on Taxation Laws (Amendment) Bill, 1975 it is stated that the proposed amendment of S. 11 by the Bill is of a clarificatory nature. Since S. 11 as it stood before the amendment was capable of conflicting views, the Parliament Pepped in and clarified the provision for exemption in unambiguous terms. There are no principles of construction opposing the utilisation by Court of subsequent enactments of amendments as an aid in arriving at the correct meaning of the prior enactments. The amendment of S. 11 by Act 41 of 1975 amounts to Legislative declaration of its will and will govern the construction of S. 11 as it stood before the said amendment.

17. It is conceded by the learned Counsel for the Dept that in the instant case, the assessee has complied with the condition of giving notice as prescribed by Rule 17 of the Rules. The sum invested in approved securities does not fall short of 75 per cent of the income of the Trust allowed to accumulate. S. 11(1)(a) has granted exemption to the extent of 25 per cent of the income; by complying with the conditions laid down by sub-sec. (2) of S. 11, the assessee became entitled to exemption of the balance 75% of the income accumulated. Therefore, the assessee became entitled to exemption of the entire income of Rs. 85,262. The Income-tax Officer in the order made by him, has rightly exempted the whole of the income allowed to be accumulated. The view that the assessee ought to have invested the entire surplus income allowed to be accumulated, taken by the Commissioner in order to invoke his power under S. 263 is clearly erroneous and the action proposed in his notice L.Rev No. 136/72-CIT dated 18-1-1973 being illegal, the same cannot be supported.

18. The assessee has not preferred any appeal although according to the view of the law taken by Venkataramiah, J., the assesseee is entitled to exemption from tax only in respect of 75 per cent of the accumulated income which it has invested in approved securities under S. 11(2) but is not entitled to the exemption in respect of 25 per cent of the accumulated income under S. 11(1)(a). Art. 265 of the Constitution prohibits the levy and collection of tax save by the authority of law. On a true interpretation of S. 11, we hold that the exemption granted by the Income-tax Officer for the entire accumulated income is correct, and the action proposed by the Commissioner is not authorised by law. Since the entire matter is before us, it is open to us in this appeal to make the right order. For the reasons stated above, in substitution of the order made by Venkataramiah, J., we issue a direction to the first appellant (the Additional Commissioner of Income-Tax) to recall the impugned notice L. Rev. No. 136/72-CIT dt. 18-1-1973. It is ordered accordingly.

19. The respondent is entitled to its costs. Advocate's fee Rs. 250.