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Income Tax Appellate Tribunal - Chandigarh

Ito vs Trilok Tirath Vidyavati Chuttani ... on 20 December, 2003

Equivalent citations: (2004)91TTJ(CHD)1044

ORDER

Joginder, A.M.:

By this order, we shall dispose of this appeal of the revenue filed against the order of the Commissioner (Appeals), Chandigarh, for the assessment year 1996-97.

2. In this appeal, the revenue has taken the following grounds :

1. The order dated 2-3-2001, passed by the learned Commissioner (Appeals) in appeal No. 15/P/1999-2000 is bad in law and on facts, the same has been passed without proper application of mind.

2. The learned Commissioner (Appeals) has misled herself in coming to conclusion that the trust was existing solely for charitable purposes when no income was utilised for achieving the objectives of the trust. Further, the requirement for claiming exemption under section 11(l) of the Income Tax Act is not fulfilled.

3. (i) The learned Commissioner (Appeals) has misdirected herself in admitting the additional evidence without affording any opportunity to the assessing officer as provided under rule 46A(3) of the IT Rules, 1962.

(ii) Although the learned Commissioner (Appeals) mentioned in her order that detailed report was submitted by Mrs. Jyoti Rani, the then assessing officer, on the written arguments of the appellant vide her letter No. 8389, dated 14-10-1999, but the impugned appellate order has been passed on 2-3-2001. Since, Mrs. Jyoti Rani was transferred and relieved on 12-4-2000, the learned Commissioner (Appeals) was not justified in not allowing any opportunity to the present assessing officer before passing order.

(iii) While allowing relief, the learned Commissioner (Appeals) has relied upon the additional evidences without affording any opportunity, which are not relevant to the year in question and hence are immaterial.

(iv) The learned Commissioner (Appeals) is also incorrect in accepting the plea of the as'sessee regarding donation of Rs. 1 lakh for Kargil war and Rs. 2 lakhs for Gujarat Relief Fund given in the year 1999-2000 pertaining to the assessment year 2000-01 when the appeal in question was for the assessment year 1996-97. Further, the learned Commissioner (Appeals) has gravely erred by not affording any opportunity to the assessing officer as provided under rule 46A(3) before admitting additional evidence.

(v) The learned Commissioner (Appeals) is wrong in holding that the payment of Rs. 50 lakhs to the PGI by the assessee for setting up a centre for tropical diseases amounts to utilisation of funds by the assessee for achievement of its objectives of providing medical relief and encouraging medical research as the same has been given in the year relevant to the assessment year 2001-02 when the appeal decided in question pertains to the assessment year 1996-97. Further, no opportunity was afforded to the assessing officer under rule 46A(3) before admitting the additional evidence. The income has to be computed as provided in section 11 of the Income Tax Act, 1961. Therefore, the order in question, is perverse in law and on facts.

4. The learned Commissioner (Appeals) is wrong in holding that the assessee has established an institute in the name of the CMC for the purpose of achieving the objective by affording medical relief and encouraging medical research which is the sole objective of the trust, whereas on the contrary, as per facts brought on record during the course of assessment proceedings, the assessee could not lead any evidence to the effect that any amount was spent on affording medical relief and encouraging medical research, rather the said institution is being run on the same lines as in the case of other commercial establishments.

5. The learned Commissioner (Appeals) has further erred in coming to the conclusion that donation of Rs. 29 lakhs given to Sardarni Uttam Kaur Educational Society was towards the fulfilment of the objectives of the assessee-trust whereas as per the trust deed, (i) the trust does not allow the trustees to give donations, (ii) the objectives of Sardarni Uttam Kaur Educational Society are not similar to that of the assessee-trust as brought out on record by the assessing officer, (iii) on the date when the donation was given, there was no school in existence, (iv) it came out that amount of donation was immediately transferred by the recipient (beneficiary) trust towards their industrial concern in which the trustees or their relatives had beneficial interest. Thus, the Commissioner (Appeals) committed an error in accepting this fact that the donation was for achievement of objectives of the trust when the facts state otherwise.

6. The learned Commissioner (Appeals) has erred in allowing relief by referring to Instruction No. 1132, dated 5-1-1978. The recipient-trust was not in fact carrying out any educational activity during the year in question and the donation received on 12-7-1995 by Sardarni Uttam Kaur Educational Society was transferred to industrial concerns of the trustees immediately after the receipt of donations. Thus, the whole exercise comes within the ambit of colourable device in view of decision of the Hon'ble Supreme Court in the case of McDowell & Co. Ltd. v. CTO (1985) 154 ITR 148 (SC).

7. The learned Commissioner (Appeals) is not justified in deleting the addition of Rs. 2.49 lakhs by holding that income/loss derived from agricultural operation forms part of income of the appellant-trust and is exempt being a charitable institution without appreciating the facts that the business of the agricultural operation was not incidental to the attainment of the objectives of the trust and hence provisions of section 11(l) of the Income Tax Act, 1961, would not be applicable to such income/loss as provided in section 11(4A) of the Income Tax Act, 1961.

8. It is prayed that the order of the learned Commissioner (Appeals) be cancelled and that of the assessing officer may be restored.

3. The first six grounds of appeal relate to the same issue, i.e., the learned Commissioner (Appeals) was not justified in holding that donation of Rs. 29 lakhs given to Sardarni Uttam Kaur Educational Society (hereinafter referred to as SUKES) was entitled to exemption under section 11 of the Income Tax Act. The facts of the case are that the assessing officer observed that the objects of the assessee-trust were mainly for affording medical relief and encouraging medical research. For achieving these objectives, the assessee was to assist, contribute and augment the development and maintenance of the Post Graduate Institute of Medical Education & Research, Chandigarh, grant research stipends, scholarships or provide help to deserving faculty members, trainees and/or patients therein, and further to maintain, establish, finance, subsidize, exclusively or partly, or give grants-in-aid, recurring or otherwise, for the maintenance of hospital, clinics, dispensaries, nursery schools or other establishments of like nature, and to assist, subsidize, contribute foreign travel in furtherance of or advancement of medical science (research) in all its branches. The assessing officer observed that assessee had donated a sum of Rs. 29 lakhs to SUKES whose objects were not the same as that of the assessee. Besides, as per proviso to clause 4 of the trust deed, the funds made available to any other society may be subject to such conditions as to accounting or for being spent on specified objects as the trustees may, from time to time, think fit to impose. However the assessee did not impose any condition at the time of donating the amount of Rs. 29 lakhs to SUKES. The assessing officer further observed that donation given to SUKES was not in any way related to the medical field, which is the main object of the assessee-trust. Thus, the assessing officer held that donation of Rs. 29 lakhs given to SUKES was not entitled to exemption under section 11 of the Income Tax Act for the reason that the said income had not been utilized for the purpose of achieving the objects enshrined in the trust deed. However, he allowed deduction under section 80G in respect of donation given to SUKES, Thus, the assessing officer completed the assessment on a total income of Rs'. 24.25 lakhs as against loss declared of Rs. 12,82,074.

4. Being aggrieved, the assessee carried the matter in appeal before Commissioner (Appeals). It was submitted before the Commissioner (Appeals) that Dr. P.N. Chuttani was founder of the trust, who was an eminent doctor and had an outstanding record of service in the medical field, He served PGI for almost two decades. Dr. Chuttani was a bachelor and bequeathed his entire wealth to TTVC. Since Dr. Chuttani was associated with medical profession, his dream was also to set up a trust, which would afford medical relief and encourage medical research, and for that purpose Chandigarh Medical Centre and Chuttani Medical Centre were set up. It was emphatically submitted that the assessing officer had failed to appreciate that the assessee-trust's activities were not merely to afford medical relief and encourage medical research but were charitable also which was obvious from its name as 'Trilok Tirath Vidyavati Chuttani Charitable Trust'. It was submitted that the assessing officer had mentioned the donee trust as 'Sardarni Uttam Kaur Charitable Society' all along in the assessment order, whereas the correct name of the donee trust is 'Sardarni Uttam Kaur Educational Society'. It was submitted that the assessing officer had misinterpreted the provision of law governing the trust. As per art. 4 of the trust, donation to university, school or other like institutions is one of the objects of the trust and 'education' stands covered under this article. The assessing officer had deliberately omitted the word 'educational' from the donee society and had substituted the word 'educational' by 'charitable'. It was further submitted that medical education cannot be acquired without completing primary and secondary education and, therefore, nursery and secondary education is an integral part of higher education. It was further pointed out that there is no bar against a charitable trust giving donation to another charitable trust. The CBDT had considered the issue and vide Instruction No. 1132, dated 5-1-1978, it was decided that "as law stands at present, the payment of a sum by one charitable trust to another for utilization by the donee trust towards its charitable objects is proper application of income for charitable purpose in the hands of the donee trust; and the donor trust will not lose exemption under section 11 of the Income Tax Act, 1961, merely because the donee trust did not spend the donation during the year of receipt itselt" It was further submitted that the Hon'ble Supreme Court in the case of CIT. v. Andhra Chamber of Commerce (1965) 55 ITR 722 (SC), had laid down that if the primary or dominant purpose of a trust or institution was charitable, any other object which by itself might not be charitable, which was actually or incidental primary or dominant purpose, would not prevent the trust from being a valid charity. It was submitted that the assessing officer had herself accepted the fact that Sardarni Uttam. Kaur Educational Trust is a charitable trust and allowed exemption under section 80G of the Income Tax Act. Since the assessee-trust has been recognized as a charitable trust, the assessing officer's action in holding that the donation given by the assessee-trust had not been applied towards the objects of the trust, is totally misconceived. It was thus pleaded that the impugned addition made by the assessing officer being contrary to law, should be deleted.

5. On the written submissions filed by the assessee, the assessing officer submitted a detailed report dated 14-10-1999. We may briefly discuss the same as under :

(i) The main objectives of the assessee-trust was to spend for medical research or for providing medical relief, but no such funds had been given to the PGIMER nor any medical relief nor any donation was given for encouraging medical research. It is not understood how nursery schools, not connected with the field of medicine, fit into the scheme of things. When seen in totality, the main, objects of the assessee-trust related to medical field only and not ordinary nursery school.

(ii) SUKES was created in 1993 which had no specific record in the field of nursery education and even while giving the donation, no condition was imposed, which was contrary to the proviso to article 4 of the trust deed. No worthwhile service had been rendered in the field of nursery education by the donee trust, i.e., SUKES till the receipt of the donation.

(iii) It was pointed out that the managing trustee of SUKES was the daughter of Mrs. G.K. Brar. Mrs.. G.K. Brar was one of the trustees with Dr. Chuttani, in another trust named as 'Cancer Society of North India'. As per information gathered, the donee trust had given interest-free advances amounting to Rs. 72,01,362 on 31-3-1996, out of which an advance of Rs. 25 lakhs was given to M/s Falcon T&M Enterprises (P) Ltd., which was one of the companies belonging to Brar family. Similarly, the society had given an advance of Rs. 26 lakhs each to M/s Dashmesh Fab. Yarns Ltd. and M/s Dashmesh Haegons Agro Tech Ltd., which also belonged to Brar family. It was thus contended that the donee society was used as a conduit to pass on the benefit to Brar family and thus the donation was in no way connected with the furtherance of the objectives of the assessee-trust and hence such donation is ultra vires to the objects of the assessee-trust.

(iv) Donation was not given from surplus fund but out of the interest income earned on FDRs purchased out of the sale proceeds of the house property belonging to the assessee-trust.

(v) The assessee did not provide any medical relief which could be called charitable. It was running a hospital as a commercial unit and treatment was provided at charges, which are not less than the other hospitals/institutions in the town. It was pointed out that trust does not provide any concession to the patients and the concession whenever given was at the discretion of doctors. The trust had only a revenue sharing arrangements with the doctors, who practice from the premises of the trust like many other institutions. Thus, it was alleged that the trust had not contributed towards medical relief or medical research nor had it given grant-in-aid for establishment of hospitals, clinics, dispensaries or given any grant towards meeting the cost of foreign travel to the doctors.

(vi) It was pointed out that sub-section (4A) of section 11 was amended by the Finance (No. 2) Act of 1992 with effect from 1-4-1994, where it has been laid down that provisions of sub-sections (1), (2), (3) or (4) shall not apply in relation to any income of trust or institutions, being profits and gains of business, unless the business is incidental to the attainment of the objects of the trust, as the case may be, and separate books of account are maintained by such trust or institution in respect of such income. Thus, it was submitted that the trust was not charitable due to non-application of income towards its objections and nonproviding of any medical relief. It was accordingly urged that assessee should not be allowed any exemption in respect of income given by way of donation to SUKES.

6. The learned Commissioner (Appeals) considered these submissions. She referred to the trust deed and found that as per clause (ii) of article 4, one of the objects of the assesseetrust was to maintain, establish, finance, subsidize, exclusively or partly, or give grants-in-aid, recurring or otherwise, for the maintenance of hospitals, clinics, dispensaries, nursery schools or other establishments of like nature. Thus, she found that providing financial assistance to nursery schools was also included in the objects of the trust. She observed that a donation of Rs. 29 lakhs given to SUKES for running a nursery school fell within the objects of the trust. She further observed that SUKES was also granted exemption under section 80G of the Income Tax Act and, therefore, there is no doubt that SUKES was a public charitable trust. Thus, she held that giving of the donation of Rs. 29 lakhs was not inconsistent with the objects of the assessee-trust. By referring to the CBDT Instruction No. 1132, dated 5-1-1978, the learned Commissioner (Appeals) further held that when a charitable trust donates to another charitable trust, provisions of section 11(l)(a) could be said to have been met. As regards the allegations of the revenue that donation given to SUKES was utilized for giving loans to the business ventures of Brar family and the funds were not utilized for achieving objects of the trust, the learned Commissioner (Appeals) held that donation was given in good faith and bona fide belief that it would be utilized for educational purposes. She also observed that once a donation is given and the money parts company, the donor ceases to have control over the money. If the funds were misutilized by the donee trust, the' donor trust does not have the power to recover the amount donated. Once SUKES was registered under section 12A and had also been granted exemption under section 80G of the Income Tax Act, the assessee had no doubt about the charitable character of the donee trust and, therefore, donation was given towards the objectives of the assessee. She further referred to the provisions of section 13(l)(d) of the Act and held that if the donee trust did not utilize the amount of donation for the objectives for which it had been set up, the assessee-trust would forfeit the benefit of exemption in respect of income by way of donation.

6.1 As regards the charitable character of the assessee-trust, the learned Commissioner (Appeals) observed that the same was never in doubt at the time of completion of the assessment. It was only as a result of post-assessment inquiries that the assessing officer had alleged that the trust was neither charitable nor for public utility. She observed that Dr. P.N. Chuttani, the founder of the trust, was an eminent doctor who bequeathed his entire wealth to the assessee-trust. He had a great commitment towards the public in general. Keeping this interest in view, he had set up a trust for providing medical aid and for encouraging medical research. He also desired to set up an institute of tropical diseases in Chandigarh. Over the years, the trustees were negotiating with the Government of India for sanction of the project and setting up of an institute, and funds were being accumulated for this project. Ultimately, the project had been sanctioned by the Government and an MOU was signed by PGI on 11-11-2001, for setting up the said institute within the premises of the PGI and assessee-trust had already given in initial grant of Rs. 50 lakhs to the PGI. She also took note of the fact that assessee had given donation of Rs. 1 lakh for Kargil War and Rs. 2 lakhs for Gujarat Relief Fund. These donations were given towards the fulfilment of social objectives. Taking note of these facts and definition of 'charitable purpose' given in section 2(15), the learned Commissioner (Appeals) held that the assessee was a charitable institution.

6.2 As regards the objection of the revenue that the assessee was running Chuttani Medical Centre on commercial lines, the learned Commissioner (Appeals) observed that assessee had engaged eminent doctors as consultants, who had revenue sharing arrangement with the trust and were paying 25 per cent of the fees to the centre, and the balance was reflected as income. The operations of the trust were running within the parameters of its objectives. No institution can run without finance, otherwise the trust would be eating its corpus, hence derivation of income was not incongruent to the objectives of the trust and it does not defeat the objectives of the trust provided the income was reinvested in the institution itself. Section 11(4A) allows the trust to run a business and exemption in respect of profits and gains would be available if running of such business was incidental to the attainment of the objectives of the trust, and such money had been reinvested for the objectives of the trust. She took note of the fact that free aid was being given in deserving cases. No benefits were being availed of by any individual of the trust. Thus, she held that the objection raised by the revenue in this regard was not correct. In the light of these facts and circumstances of the case, the learned Commissioner (Appeals) held that assessee was eligible for exemption in respect of donation of Rs. 29 lakhs given to SUKES and the same was consistent with the object of the trust. The concluding para. 6.8 of the impugned order is as under :

"6.8 In view of the foregoing discussion, it is held that the appellant-society is running solely for charitable purposes and if any profit has been derived incidentally, since such income has been reinvested, it is eligible for exemption under sections 11 and 12 of the Income Tax Act. The appellant-trust is not running for any, pecuniary benefit and no part of its income is enduring to the benefit of any of its trustees. The funds, it is seen, have been accumulated over the years for setting up a dream project of Dr. P.N. Chuttani which has since materialized and Rs. 50 lakhs have already been given as grant to the PGI. It is, therefore, held that neither the giving of donation to M/s Sardarni Uttam Kaur Educational Society was contrary to the objects of the appellant-trust and the misutilization of the funds by the donee trust cannot affect adversely the claim for exemption of the appellant-trust. In the light of above, it is held that the appellant trust is existing solely for charitable purpose and for general public utility, and no part of its income is misutilized or misappropriated by the trustees. None of the trustees has enriched itself at the cost of the trust. In the circumstances, it is held that the assessing officer has erred in holding that the donation of Rs. 29 lakhs given to M/s Sardarni Uttam Kaur Educational Society was not spent towards the application of its objects. The appellant's claim is, therefore, allowed."

Revenue is aggrieved by the order of the Commissioner (Appeals). Hence, this appeal before us.

7. The learned. CIT (Departmental Representative), Shri Girish Sharma, took great pains in representing the case of the revenue. In continuation of the oral arguments made at the time of hearing of the case, the learned CIT (Departmental Representative) also filed written submissions on behalf of the revenue on 28-11-2003. The submissions made before the learned lower authorities were reiterated. In this regard, he drew our attention to pp. 1 to 8 of departmental paper book (hereinafter referred to as DPB), which is a copy of assessing officer's letter dated 14-10-1999, to Commissioner (Appeals) giving her comments on the written submissions filed by the assessee. Adverting to the main issue regarding allowance of claim for exemption under sections 11 and 12, the learned Departmental Representative submitted that the assessee-trust had not utilized its income for achieving the objectives of the trust on account of the following facts :

(i) The assessee was granted registration by the CIT in February, 1976, and had no liquid funds in its corpus. The assessee sold one of its properties at Panchsheel Park, New Delhi, for Rs. 3,29,68,428. The sale proceeds were received during assessment year 1995-96 and interest income on such sale proceeds started accruing from assessment year 1995-96. Thus, there is no application of funds for charitable purposes in the earlier year. The assessee was not able to establish in a credible manner that it had carried out activities of a charitable nature as envisaged in its objectives.

(ii) Sardarni Uttam. Kaur Educational Society (recipient society) was used as a conduit by the assessee-trust for canalizing funds to interested persons. The Commissioner (Appeals) in order to prove that the assessee-trust was set up for charitable purposes and as such entitled to exemption under section 11, relied on an outdated CBDT Instruction No. 1132, dated 5-1-1978. The learned Commissioner (Appeals) failed to take notice of the subsequent Instruction No. 1582, dated 19-10-1984 (copy placed at p. 35 of the DPB), which modified the aforesaid Instruction No. 1132, taking note of the audit objections and decisions in the cases of CIT v. Trustees of the Jadi Trust (1982) 133 ITR 494 (Bom) and CIT v. Thanthi Trust (1982) 137 ITR 735 (Mad), where it was provided that where the application of income for charitable purposes is made through the medium of the donee trust, the assessing officer has to satisfy that funds donated to the donee trust will be utilized only for charitable purposes.

(iii) The argument that the assessee-trust is registered under section 12A and is eligible for deduction under section 80G of the Income Tax Act by itself renders it as an eligible charitable trust, is fallacious and far-fetched since at the time of application under section 12A, the CIT is not required to examine the application of income but only to see if the requirements of section 12A read with r. 17A are fulfilled.

(iv) As per the provisions of section 11(4A), benefit of exemption under section 11 will be available to profits and gains of business of the trust only if the business is incidental to the attainment of the objectives of the trust and that too only if separate books of account are maintained by the trust in respect of such business. In the present case, the assessee-trust is providing medical facilities on commercial basis under the name of CMC and also derives income from Chandigarh Medical Centre. He submitted that dominant object should be charitable and not profit-making. He relied on the decision of the Madras High Court in the case of CIT v. Sivakasi Hindunadars Uravinmurali (1996) 217 ITR 118 (Mad). Relying on the judgment of the Allahabad High court in the case of Chamber of Commerce v. ClT (1936) 4 ITR 397 (All), the learned Departmental Representative submitted that there should be an element of altruism. He submitted that since CMC is being run on commercial lines, the element of altruism is missing in this case. He further submitted that whether the activities of the assessee were charitable within the framework of definition of section 2(15), the onus was on the assessee. Here lied on the judgment of the Supreme Court in the case of Indian Chamber of Commerce v. CIT (1975) 101 ITR 796 (SC).

(v) Since the very inception of the assessee-trust, there has been no direct application of income for charitable purpose except the alleged donation of Rs. 29 lakhs given to SUKES. Even the promised application of income for setting up PGIMER was not intended to be fulfilled, as seen from the application seeking accumulation, without specifying the purppe, quantum, etc. It is inexplicable as to why the assessee-trust was so prompt in making donation to SUKES for an incongruent objective but was lethargic and casual in doing so in case of the immediate and primary objective of setting up the proposed PGIMER. Apparently, the intention was to continue with the diversion of the commercially earned income to the interested persons. In this regard, reliance was placed on the judgment of the Supreme Court in the case of CIT v. Rattan Trust (1997) 227 ITR 356 (SC).

(vi) The objectives of the trust when seen in totality refer to running of institutions as related to medical field only and not ordinary nursery schools. Further, the objects of the SUKES are not similar to that of assessee-trust. In this regard, reliance was placed on the decision of the Madras High Court in the case of CIT v. MCT. Muthiah Chettiar Family Trust & Ors. (2000) 245 ITR 400 (Mad), which lays down as under :

"The emphasis given under the provisions of section 11(l) and section 11(2) is application of income' for charitable purposes and it is only in this context that the courts have taken the view that the handing over of the money by one trust to another trust having similar objects would amount to application of income."

Thus, donation to the recipient society cannot be treated as income utilized for the furtherance of the objects of the assessee-trust, as it was found that the objects of the recipient society were not akin/complimentary to those of the assessee-trust. Therefore, the inclusion of the phrase 'nursery school' is not even remotely connected to the primary objective of the assessee-trust.

(vii) No separate accounts for the income from property were held under the trust, as the property was immovable property and the sales realization therefrom was accounted for by the assessee-trust in the year relevant to assessment year 1995-96 when it made its first donation to the recipient society. The claim of the assessee-trust that the expenditure incurred towards CMC was application of funds is incorrect. The primary condition for exemption under section 11 of the Income Tax Act is that the income should be derived from;property held under trust wholly for charitable and the secondary condition is that it should apply a minimum of 75 per cent of such income for charitable purposes. The records show that no application of such income was made in the year relevant to assessment year 1997-98.

(viii) Accumulation of income is only allowed for income derived from property held under trust whereas it was found that the assessee-trust had claimed accumulation for agricultural income/surplus of CMC also.

(ix) The assessee-trust claims to have accumulated income from property held under trust for the purpose of medical research (primary objective) under the name and guise of Tropical Medicine & Research Organization' and for this purpose had sought permission in Form No. 10 for accumulation of Rs. 55 lakhs in assessment year 1997-98. The record shows that the application in Form 10 was not specific as it did not specify the above purpose nor gave specific period nor was backed by a resolution of the trustees. In this regard, he drew our attention to a copy of application dt. 16-6-1997, submitted by the assessee in Form No. 10 for assessment year 1997-98. Reliance was placed on two judgments-One of the Madras High Court in the case of M. CT. Muthiah Chettiar Family Trust (supra) and the other of the Calcutta High Court in the case of Director of IT (Exemption) v. Trustee of Singhania Charitable Trust (1993) 199 ITR 819 (Cal).

Besides, it was submitted that the assessee-trust had ostensibly donated funds to the recipient society for setting up 'nursery schools' for furtherance of the objectives of the recipient society, which was primarily in the field of education. However, it was found as under :

(a) The recipient society was set up on 21-7-1993, for promoting charities in the field of education.

(b) The recipient society was confined to the pages of the trust deed and accounting records without any charitable activity having been conducted ever since its inception till the year relevant to the accounting year under reference.

(c) The recipient society was situated in village Saranaga, with the name of society (SUKES) on a signboard outside the room occupied by the security guard of Brar family.

(d) The recipient society had set up no schools or other educational institutions.

(e) The recipient society had merely transferred the funds so received from the assessee-trust to industrial concerns in which the trustees of the educational society had a beneficial interest and were also beneficiaries of the founder member of the assessee-trust. Founder of the assessee-trust had bequeathed a substantial portion of his property to Ms. Babli Brar in his will executed on 24-6-1993. In this case, indirect benefit has arisen to members of the Brar family. He relied on the following judgments in support of his contention that if the donee trust has been used as conduit for transferring the income, the assessee would not be entitled to exemption in respect of such income

(i) Trustees of the Jadi Trust's case (supra);

(ii) Director of IT v. Bharat Diamond Bourse (2003) 259 ITR 280 (SC).

The learned Departmental Representative summed up his arguments by pleading that the Commissioner (Appeals) committed an error in accepting the fact that the donation of Rs. 29 lakhs given to SUKES was towards fulfilment of the objectives of the trust when the facts, as narrated supra, state otherwise. He thus submitted that the order of the Commissioner (Appeals) be set aside and that of the assessing officer restored.

8. The learned counsel for the assessee, Shri B.M. Khanna, drew our attention to a copy of trust deed placed in the paper book. Drawing our attention to the objectives of the trust mentioned at p. 4 he submitted that the same, inter alia included to maintain, establish, finance, subsidize, exclusively or partly, or give grants-in-aid, recurring or otherwise, for the maintenance of hospitals, clinics, dispensaries, nursery schools or other establishments of like nature. He submitted that providing assistance for maintenance and running of nursery schools was also the objects of the assessee-trust. Proviso to article 4 of the trust deed mentions that funds made available to other institutions may be subject to such conditions as may be imposed by the trustees keeping in view the objects of the trust. However, he further submitted that it has also been mentioned on p. 5 that any contribution by the trustees to any other trust or society, institution, etc. having as its sole objects on all or any of the objects of the assessee-trust shall mean furtherance of the objects of the trust. He further drew our attention to p. 2 of the paper book, which is a copy of balance sheet, as on 31-3-1996, and the same shows corpus of Rs. 3.10 crores of the trust. He drew our attention to p. 33 of the paper book for the assessment year 1997-98, which is a copy of the receipts and expenditure for the financial years 1993-94, 1994-95, 1995-96 and 1996-97. He submitted that right upto the assessment year 1995-96, net result of the trust was a loss. However, the assessee started earning interest income on sale proceeds of the property from the assessment year 1995-96, onwards. He submitted that for the assessment year 1996-97, interest income aggregated to Rs. 32,13,031. Thus, the question of application of income arose in the assessment year 1996-97. The assessee donated an amount of Rs. 29 lakhs to SUKES for the purpose of nursery schools, which was one of the objects of the assessee-trust. He submitted that SUKES was registered with the CIT, Jalandhar, for the purpose of section 80G. He drew our attention to a copy of order dated 21-9-1993, of the CIT, Jalandhar, granting registration to SUKES for the assessment years from 1994-95 to 1997-98. He submitted that the objects of SUKES were, inter alia, to open, run and continue educational and vocational institutions. Thus, the objects of the donee trust were in consonance with the objects of the assessee-trust. He submitted that the fact that the donee trust was registered for the purpose of section 80G was accepted by the assessing officer where he had held that donation of Rs. 29 lakhs given to SUKES would qualify for deduction under section 80G. He further submitted that at the time of completing the assessment, the assessing officer never doubted the charitable character of the institution. His only objection was that the donation given to SUKES was not for furtherance of the objects of the assessee-trust. It was only during the course of appeal proceedings that the assessing officer questioned the charitable character of the institution. He submitted that the learned Commissioner (Appeals) was in error in taking cognizance of the subsequent inquiries made by the assessing officer under the directions of the CIT. For this purpose, he relied on the judgment of the Bombay High Court in the case of Lokenath Tolaram v. CIT (1986) 161 ITR 82 (Bom). The learned counsel drew our attention to order dated 19-5-1997, of the CIT, Patiala, granting exemption under section 80G to the assessee-trust for the assessment years from 1993-94 to 1997-98. He further submitted that once the registration is allowed by the CIT, the charitable character of the trust couldn't be called into question. He relied on the decision of the Tribunal, Ahmedabad Bench, in the case of Stock Exchange, Ahmedabad v. Asstt. CIT (2000) 74 ITD 1 (Ahd), where it has been held that after registration under section 12A has been allowed by the CIT, it is beyond the province of the assessing officer to reject the claim of exemption under section 11 by looking into objects of association and holding the same as non-charitable in nature. He further submitted that the assessee was a charitable institution entitled to exemption. The assessee gave donation of Rs. 29 lakhs to SUKES. Similar donation was also given in the assessment year 1995-96 to the same society. Such donation was accepted by the assessing officer and exemption was allowed. Relying on the judgment of the Supreme Court in the case of Radhasoami Satsang v. ClT (1992) 193 ITR 321 (SC), the learned counsel submitted that when on the same facts the claim of the assessee has been accepted in the past, it is desirable that status quo should be maintained. He further submitted that donations given by one charitable institution to another charitable institution amounted to application of income for charitable purposes and hence the donor trust was entitled to exemption of the amount donated. For this proposition, the learned counsel relied on the judgment of the Bombay High Court in the case, of Trustees of the Jadi Trust (supra) and the judgment of the Gujarat High Court in the case of CIT v. Sarladevi Sarabhai Trust No. 2 (1988) 172 ITR 698 (Guj). He further submitted that there was no bar on assessee to carry on business. The mere fact that assessee was running CMC for commercial consideration did not disentitle the assessee from exemption of its income so long as the income so generated had been utilized and reinvested for the objects of the trust. He relied on the decision of the Tribunal, Amritsar Bench, in the case of Dy. CIT v. Ch. Aishi Ram Batra Charitable Trust (1999) 70 ITD 487 (Asr), decision of the Tribunal, Delhi Bench, in the case of Taxation Owners Sarla Bhargava Memorial Trust v. ITO (1997) 59 ITD 331 (Del) and the decision of the Tribunal, Ahmedabad Bench, in the case of Stock Exchange Ahmedabad (supra). He further submitted that once the assessee had donated the amount to an educational society, it lost control over the. said amount. There are no provisions in any Act under which assessee could recover the amount from the donee trust. However, the assessee satisfied itself that the donee trust was registered for the purpose of section 80G and its objects were similar to the objects of the assessee-trust. Therefore, the assessee was under a bona fide impression that amount would be utilized for the attainment of the objects. He further submitted that even the donee trust had purchased lands for the purpose of running a nursery school. He further submitted that the mere fact that the donee trust has misutilized the funds by way of giving loans to the business ventures of Brar family would not disentitle the assessee from exemption in respect of its income. If the donee trust has misutilized the funds, the same would result in addition in that case because the donee trust would not be entitled to exemption under section 11 of that income. He further submitted that none of the members of Brar family is a trustee or founder of assessee-trust. Therefore, no benefit in respect of the amounts advanced by donee-trust to the Brar family has flown to the trustees of the assessee. He further submitted that the terms charitable purposes' as defined in section 2(15) of the Act is of wide amplitude. The definition was inclusive and not exclusive or exhaustive. He relied on the judgment of the Supreme Court in the case of Andhra Chamber of Commerce (supra). He further submitted that the ratio of the judgment of the Bombay High Court in the case of Trustees of the Jadi Trust (supra) and the judgment of the Supreme Court in the case of Bharat Diamond Bourse (supra), were not applicable to the facts of the present case because the benefits of donations given to the donee trust had not flown back to the trustees of the assessee-trust. He referred to the provisions of section 13 of the Income Tax Act and submitted that benefit of exemption can be denied to the assessee-trust only if any part of such income or any property of the trust is, during the previous year, used or applied directly or indirectly for the benefit of any person referred to in sub-section (3), He submitted that none of the clauses of sub-section (3) applies to the facts of assessee's case. Therefore, such benefit cannot be denied to the assessee. Thus, the learned counsel urged that the order of the Commissioner (Appeals) in allowing exemption in respect of donation of Rs. 29 lakhs given to SUKES did not merit any interference.

9. We have heard both the parties at length and given our thoughtful consideration to the rival submissions. We have carefully gone through the orders of the authorities below, examined the facts, evidence and material placed on record. We have also referred to the respective pages of the paper book to which our attention has been drawn and the various judgments cited at the Bar.

9.1 At the outset, it must be mentioned that appeals for both the assessment years 1996-97 and 1997-98 were heard together. It was announced in the court that the Bench would decide whether to dispose of both the appeals together or only one appeal. We find that the facts for the assessment year 1997-98 are slightly different and relate to accumulation of income on which we feel that both the parties need to be further heard. Therefore, the Bench decided that for the present, only appeal for the assessment year 1996-97 be disposed of.

10. The facts discussed above show that while completing the assessment for the assessment year under reference (1996-97), the assessing officer did not doubt the charitable character of the assessee-trust. However, his objection was that assessee had given donation to SUKES and the activities and objects of the recipient society were not related to the objects of the assessee-trust. Therefore, the assessing officer denied the exemption in respect of donation of Rs. 29 lakhs and treated the same as income of the, assessee. However, during the course of appeal proceedings, the assessee filed written submissions before the Commissioner (Appeals). The written submissions were forwarded to the assessing officer for his comments and the assessing officer submitted her comments vide letter dated 14-10-1999, placed at pp.. 1 to 8 of the DPB, where the assessing officer doubted the charitable character of the institution. The grievance of the assessee is that once the assessment had been completed, the learned Commissioner (Appeals) was not justified in entertaining the subsequent inquiries made by the assessing officer under the directions of the Administrative CIT, doubting the charitable character of the institution. The learned counsel for the assessee submitted before us that such report should have been ignored by the Commissioner (Appeals). Relying on the judgment of the Bombay High Court in the case of Lokenath Tolaram (supra), the learned counsel submitted, that the learned Commissioner (Appeals) exceeded her jurisdiction in entertaining such report. We have considered such submission but we do not find any merit in the same. It is trite law that the powers of the Commissioner (Appeals) are co-terminus with those of the -Income Tax Officer. He can do what the Income Tax Officer can do and also direct him to do what he has failed to do. If the assessing officer has the option to assess one or other of the entities in the alternative, the Commissioner (Appeals) can direct him to do what the Income Tax Officer should have done in the circumstances of the case. Reliance in this regard is placed on the judgment of the apex court in the case of CIT v. Kanpur Coal Syndicate (1964) 53 ITR 225 (SC). The powers of the first appellate authority are not confined to the subjectmatter of the appeal but extend to the subject-matter of the assessment. Reliance in this regard is placed on the judgment of the Gujarat High Court in the case of CIT v. Ahmedabad Crucible Co. (1994) 206 ITR 574 (Gui). However, the only restriction on the powers of the first appellate authority is that such powers should be restricted to the sources of income, which have been considered expressly or by clear implications. The Commissioner (Appeals) cannot discover new sources of income which have not been dealt with in the assessment order. Reliance in this regard is placed on the two judgments of the Supreme Court in the cases of CIT v. Shapoorji Pallonji Mistry (1962) 44 ITR 891 (SC) and CIT v. Rai Bahadur Hardutroy Motilal Chamaria (1967) 66 ITR 443 (SC).

11. Now, in the present case, we find that the assessee had claimed exemption in respect of income of the trust under section 11 of the Income Tax Act. The assessing officer had denied such exemption. The assessee carried the matter in appeal before the Commissioner (Appeals). Thus, the issue whether the assessee was entitled to exemption in respect of its income or not was the subject-matter of dispute before the Commissioner (Appeals) and it was not something which related to new source of income. The report of the assessing officer on the written submissions filed by the assessee also related to the exemption denied by the assessing officer. Therefore, the learned Commissioner (Appeals) was within her powers to take cognizance of such report and decide the matter. As regards the reliance of the assessee on the judgment of the Bombay High Court in the case of Lokenath Tolaram (supra), we find the same is distinguishable on facts. In that case, the facts before the Bombay High Court were that while completing the assessment, the assessing officer had found that assessee had made sales to two sister concerns. But, the rates at which goods were sold to the sister concerns were on the lower side. The assessing officer also found deposits in the accounts of the two sister concerns, which exceeded the amount of sale consideration. The assessing officer, therefore, added the difference between the sale consideration and the deposits found in their names. On appeal, the Commissioner (Appeals) directed the assessing officer to make further inquiries. On inquiry, the assessing officer found that both the sister concerns were in fact Benami concerns of the assessee. He also reported that one more concern was also Benami of the assessee. Thereafter, the learned first appellate authority enhanced the income in respect of three parties. On further appeal, enhancement in respect of two parties dealt with by the assessing officer at the time of assessment was upheld and the enhancement in respect of the third party, which was not dealt with by the assessing officer at the time of assessment was deleted on the ground that that the first appellate authority had no power to enhance income in respect of a new source. But, these are not the facts of the present case. Therefore, the judgment of the Bombay High Court relied upon by the learned counsel for the assessee is not applicable to the facts of the present case and this plea of the assessee is rejected.

12. The facts discussed above further show that the assessee-trust was registered in the year 1976. Thereafter, registration has been allowed from time to time to the assessee-trust. A copy of order dated 19-5-1997, of CIT, Patiala, placed on our file shows that the assessee-trust was allowed exemption under section 80G for the period from 31-3-1993 to 31-3-1997, relevant to assessment years 1993-94 to 1997-98, which also covers the assessment year under reference. The scheme of registration and granting exemption under section 80G is with a specific objective. It enables the trust to collect donations from other parties to be utilized for achieving the objects of the trust. It is sort of incentive granted to the donors to make contributions to the public charitable trust which they can claim deduction in their returns. For this purpose, the institution is required to submit application in the prescribed proforma before the CIT. The CIT examines such application with reference to the objects of the trust and grants registration only if it is found that the objects of the trust are charitable. Procedure in this regard has been spelt out under section 12AA of the Income Tax Act and the requisite conditions for registration have been spelt out in section 12A of the Act. Once registration is granted to the trust, it enables the trust to claim exemption in respect of its income subject to fulfilment of other conditions relating to application and accumulation of income spelt out in sections 11 to 13 of the Income Tax Act. But, grant of registration is a testimony of the fact that trust is a charitable institution. It is also important to note that registration is not granted by the CIT for indefinite period. It is only for a limited period of 3 to 4 years. In case the assessee desires to seek renewal of registration, the assessee has to make fresh application. The same is liable to fresh examination by the CIT and further registration would be allowed only after satisfying that objects of the trust are charitable. However, at the time of completing the assessment, the assessing officer is dutybound to examine whether the requisite conditions' for application and utilization of income for the objects of the trust are met or not. The assessee would be entitled to exemption only if its income has been utilized as per provisions of the Act. But the question is, when once the character of the institution being charitable is accepted by the CIT at the time of granting registration, can the assessing officer still question the charitable character of the institution at the time of completing the assessment ? This issue came to be considered before the Tribunal, Ahmedabad Bench, in the case of Stock Exchange, Ahmedabad (supra). The assessee in the said case was allowed registration under section 12A. The assessing officer rejected the claim for exemption under section 11 mainly on the ground that there was no prohibition clause in trust deed prohibiting the institution from distributing profits to members. On these facts, the Tribunal held that the dominant object of the assessee was development of stock market and it was covered under the definition 'charitable purposes' in section 2(15). It was further held that once the assessee has been allowed registration under section 12A, it was beyond the: jurisdiction of the assessing officer to reject the claim of exemption under section 11 by looking into the objects of association and holding the same as non-charitable in nature, moreso, when the association has been recognized as charitable for the past fifteen years. The facts of the present case are also similar to the facts of the aforesaid case decided by the Tribunal, Ahmedabad Bench. Therefore, the charitable character of the assessee cannot be called into question and the assessee cannot be denied exemption in respect of income on the ground that it was not a charitable institution.

12.1 Sub-section (15) of section 2 of the Income Tax Act defines 'charitable purpose' as to include relief to the poor, education, medical relief and advancement of any other object of general public utility. The language used in section is of wide amplitude. Their Lordships of the Hon'ble Supreme Court considered this issue in the case of Andhra Chamber of Commerce (supra). In that case, the assessee was to promote and protect trade, commerce and industries, to aid, stimulate and promote the development of trade, commerce and industries, and to watch over and protect general commercial interests of India or any part thereof. The memorandum of understanding provided that the income and property of the assessee shall be applied solely towards the promotion of its objects for which it had been set up. The assessee purchased property and rented out the same. The question was, whether the property held under a trust was for charitable purposes and the income therefrom was exempt from tax. On these facts, the Hon'ble Apex Court held that advancement or promotion of trade, commerce and industry, leading to economic prosperity ensured for the benefit of the community. That prosperity would be shared also by those who were engaged in trade, commerce and industry, but on that account the institution retains its character of general public utility. It was held that the legislature has used language of great amplitude in defining 'charitable purposes' and the definition was inclusive and not exhaustive or exclusive. The Hon'ble Supreme Court further held that 'object of general public utility' was not restricted to the objectives beneficial to the whole of. the mankind. An object beneficial to a section of public was an object of general public utility, To serve as a charitable trust, it was sufficient if the intention was to benefit a section of the public as distinguished from specified individuals.

12.2 The expression 'charitable purposes' used in section 2(15) also came to be considered by the Hon'ble Supreme Court in the case of Bharat Diamond Bourse (supra). In that case, the assessee was set up with the primary objects to establish facilities to promote diamond export, effective liaison between industry in India and abroad, promote trade in exports and imports of diamonds, and develop India as a modern diamond market. Dominant purpose was advancement of objects of general public utility. The question was whether the assessee was a charitable institution ? On these facts, the Hon'ble Apex Court held that the assessee was an institution established for charitable purposes and its objects were for the advancement of general public utility within the meaning of clause (15) of section 2 of the Income Tax Act. Thus, it is obvious that the definition of 'charitable purposes' mentioned in clause (15) of section 2 of the Act is wide enough to cover relief to the poor, education, medical relief and advancement of any other object of general public utility. The case of the assessee requires to be examined in the light of the ratio of these judgments and the provisions of law. There is not an iota of doubt that the assessee-trust was set up for affording medical relief and encouraging medical research. For this purpose, the assessee was required to assist, contribute and augment development and maintenance of PGIMER, Chandigarh, grant stipends, scholarship or provide help to deserving faculty members, trainees and/or patients therein. Clauses (ii) and (iii) of art. 4 further provide as under :

(ii) to maintain, establish, finance, subsidise, exclusively or partly, or give grants-in-aid, recurring or otherwise for the maintenance of hospitals, clinics, dispensaries, nursery schools or other establishments of like nature.

(iii) to assist, subsidise, contribute foreign travel in furtherance of or advancement of medical sciences (research) in all its branches.

First proviso to art. 4 provides that funds made available to the said postgraduate institute or any other society may be subject to such conditions as the trustees may impose. The second proviso authorizes that such contributions can be made by the trustees to any other trust, society, institution, etc. having as its sole objects, all or any of the objects of the assessee-trust. The third proviso further provides that no part of income or, corpus of the trust shall be applied directly or indirectly for the benefit of founders or their relatives or other persons specified in section 13 of the Income Tax Act, Thus, these objects enshrined in the trust deed do not cast any doubt in anybody's mind that objects of the trust are for general public utility and not for the benefit of any particular class or community or group. Besides, it restricts that the income or the corpus of the trust shall not be applied directly or indirectly for the benefit of founders, their relatives and other persons as specified in section 13 of the Act.

12.3 One of the objections raised by the learned Departmental Representative is that the assessee is running Chuttani Medical Centre on commercial considerations and, therefore, it ceases to be a charitable institution, and as such its income is not exempt under section 11 of the Income Tax Act. From the facts discussed above, it is obvious that providing medical relief is one of the main objects of the trust. For this purpose, the trust has engaged eminent doctors who have the option to either take cabin on rent and pay fixed rentals, or charge fee from the patients and give fixed percentage to the centre, or to receive salary commensurate to their qualification and experience. The basement and first floor of the building have been rented out to doctors who are paying fixed rentals. On the second and third floors, the assessee is running a nursing home, The fourth floor is being used for outdoor patients. The assessee has provided infrastructure facilities such as accommodation, operation theatre, equipment and machine, rooms for housing the patients, electricity and other paramedical facilities, staff for running such nursing home, etc. For this purpose, eminent doctors have been engaged as consultants who have revenue sharing arrangements and pay 25 per cent of the fees to the centre. Thus, bringing eminent doctors under one roof and providing necessary infrastructure facilities meant for the benefit of public at large amounts to providing medical relief and it is in conformity with the objects of the assessee-trust. It does not affect the charitable character of the institution because these activities are not meant for a particular class of people or group of people; anybody can avail of the benefit of treatment at the given place. The fact that fees from the patients are being charged does not mean that such CMC is being run purely for commercial considerations. In fact, the revenue itself has accepted that concessional rate of fee is being charged in deserving cases at the sole discretion of doctors.

12.4 We wish to mention that there may be world fame doctors having vast experience, professional knowledge and skill in the medical field. But, possession of such professional competence and skill by themselves are not enough. Such doctors require other infrastructure facilities such as hospital, costly machines and equipment, operation theatres, lab oratories, assistance of other paramedical staff, assistance of other specialists necessary for diagnosis and treatment of the patients. All such facilities involve huge investments, which are beyond the reach of such professionally competent and world, fame doctors. It is here that the role of a charitable institution assumes importance. Such charitable institution engages the services of such doctors and provides all infrastructure facilities mentioned supra without which they cannot function. One such instance, is that of Dr. Trehan, a prominent heart specialist/surgeon, working in Escort Hospital, New Delhi, which is again a charitable institution. It is because of such facilities provided by the trust that such doctors can make use of their professional competence and skill in treating the patients. This is exactly what the assessee-trust has done. The assessee has brought prominent professionals under one roof and provided all necessary infrastructure and facilities required for the treatment of patients. Thus, these activities are for the attainment of the main object of the trust, i.e., providing medical relief to the public and, therefore, the running of CMC is for the attainment of the main object of the assessee-trust. In the case of Sivakasi Hindu Nadars Uravinmurai (supra), relied upon by the learned Departmental Representative, the Madras High Court has held that exemption in respect of assessee's income cannot be granted merely because objects of trust are charitable. The facts in the case before the Madras High Court were that the assessee had claimed exemption in respect of income from hiring of furniture and marriage hall purely for profit and these activities had nothing to do with the objects of the trust. On these facts, the High Court held that such commercial activities were not for public utility and the assessee was not entitled to exemption in respect of such income. However, the High Court further held that the manner in which the activities for advancing charitable purposes were being carried on and the surrounding circumstances would alone show whether the assessee has done such activities for charitable purposes or with an object of profit motive. This judgment is not applicable to the facts of the present case. We have already held that the activities of running CMC are in consonance with the objective of the trust for providing medical relief to the public. Since, the activities run by the CMC are not meant for particular caste, community or group or religion, it cannot be said that the same lack an element of altruism or the same are not charitable. Anybody can avail of medical treatment in the CMC. Therefore, the judgment of the Allahabad High Court in the case of Chamber of Commerce (supra), relied upon by the learned Departmental Representative is also of no help to the revenue.

12.5 The objection of the revenue is that activities of the CMC are being run for commercial consideration. But, there is no restriction or bar in the Act for carrying out activities for commercial consideration. In fact, sub-section (4) and sub section (4A) of section 11 of the Income Tax Act provide that property held under trust also includes the business undertaking. However, the assessee shall not be entitled to exemption only in respect of such income of the undertaking, which is found by the assessing officer in excess of the income as shown in the accounts of the undertaking or which has not been utilized for the objects of the trust. However, carrying out of such business activity should be incidental to the attainment of the objectives of the trust. As m ' entioned earlier, providing of medical relief to the public at large is the dominant object of the trust. Therefore, running of such activities is in consonance with the objects of the trust.

13. The issue whether the assessee was carrying on business activity purely for business consideration also came to be considered by the Hon'ble Supreme Court in the case of Indian Chamber of Commerce (supra). The objects of Indian Chamber of Commerce were primarily promotional and protection of Indian trade, interest and other allied service operations,. etc. By referring to the definition of 'charitable purposes' given in section 2(15), the Hon'ble Apex Court held that the benefit of exclusion from total income is taken away when in accomplishing a charitable purpose, the institution engages itself in activities for profit. However, the Supreme Court observed that a little surplus leftover at the end of the year does not mean that the assessee was carrying on such activity for purpose of profit. As would be seen from the subsequent paragraphs, in the present case, the net result from running CMC is a loss. Therefore, it could not be said that the assessee was running CMC only for profit motive. This issue was also considered by the Tribunal, Amritsar Bench, in the case of Ch. Aishi Ram Batra Charitable Trust (supra). In the said case, the Tribunal held that if a property, including running business, was held for charitable and religious purposes and fulfilled all conditions envisaged under section 11, and did not come under any of exceptional clauses under section 13, the assessing officer cannot deny benefit provided to such trust under section 11. It was also held that for carrying on charitable purposes, trust could have activity of profit as well as property which could give income so far as to maintain and execute its basic aim and objects with the only exception that profit earning should not be real object. This does not seem to be the case here.

14. In the present case, we find that the details of income for the assessment year under reference are at p. 4 of the paper book. The assessee derived income from running a nursing home, interest income on FDRs/investments made out of sale proceeds, agricultural income and other miscellaneous receipts by way of rent, etc., aggregating to Rs. 1,61,445. There would hardly be any expenses against such receipts. Against receipts of Rs, 1,36,170 from agriculture, the assessee had incurred agricultural farm expenses of Rs. 2,32,894. Therefore, the net result from agriculture was a loss of Rs. 2.49 lakhs as mentioned in the assessment order. The assessee had received interest income on FDRs/other investments of Rs. 32,13,031 on which the assessee does not seem to have incurred any expenditure. Thus, interest income of Rs. 32,13,031 was net income and donation of Rs. 29 lakhs to SUKES has been given out of such income. The receipts from hospital activities and nursing home were to the tune of Rs. 24,72,443. Against the same, the assessee had incurred expenses including depreciation of Rs. 31,84,765, After adjusting loss of Rs. 2.49 lakhs against such expenses, remaining expenses of Rs. 29 lakhs or so against receipts from CMC, etc. of Rs. 24,72,443, the net result from running CMC would be a loss of Rs. 4 lakhs or so. Thus, it could not be said that assessee was running a nursing home (CMC) purely for commercial consideration or with profit motive as the net result from running such activities was a loss. Page 33 of the paper book for the assessment year 1997-98 further shows that even in the past, net result from running of a nursing home was a loss. Thus, profit motive does not seem to be the dominant objective of CMC. In any case, even if there is a little surplus and the objective is not to make profit and such income is reinvested and utilized for the objectives of the trust, the same would qualify for exemption. It is only such business income which has not been utilized for the objects of the trust or where the income assessed by the assessing officer is found to be higher than shown in the accounts of the assessee that such income would alone be not entitled to exemption as per section 11(4A). This is not the case here. Thus, we do not find any merit in such submission of the learned Departmental Representative.

15. The next objection of the learned Departmental Representative is that for the purpose of claiming exemption in respect of income from business, the assessee was duty bound to maintain separate books of account as per provisions of section 11(4A) of the Act. No doubt, sub-section (4A) provides that running of business activities should be subject to the conditions mentioned in sub-sections (1) to (3A) of section 11 and further requires that trust should maintain separate books of account in respect of such business. It is no doubt true that assessee has not maintained separate books of account in respect of running of nursing home and other allied activities, but as mentioned earlier, the assessee derived income from nursing home, interest on FDRs/other investments, agricultural income and miscellaneous rental receipts, etc. The assessee has not incurred any expenses in respect of interest income. Therefore, the same can easily be determined on the basis of receipts. The assessee has maintained separate account for receipts and expenses of agricultural farm. Therefore, such income can also easily be determined. The only other activity in respect of which expenditure has been incurred is running of nursing home and other allied activities for which complete details are noted in the accounts, which have also been audited. The assessing officer has not made any addition to such income on account of suppression/understatement of income than what has already been disclosed in the books of account. The purpose for maintaining separate books of account is only to enable the assessing officer to find out such income and also whether assessee fulfils the conditions laid down under section 11 for exemption, and also whether running of such undertaking is for profit motive or incidental to the objects of the trust, As mentioned earlier, the details of the income and expenses in respect of such activities are available and the same can easily be determined, Further, the expression used for maintenance of separate account in the section is not shall. Thus, mere non-maintenance of separate books of account shall not prove fatal to the claim of the assessee for exemption under section 11. The assessing officer can still determine the income by apportioning receipts and expenses on estimate basis. The judgment of M.P. High Court in the case of CIT v. Nabhinandan Digamber Jain (2002) 257 ITR 91 (MP) also supports the view that such estimation can be done. Besides, as stated earlier, net result from running of such activities is a loss. There is no income in respect of which it could be said that assessee has claimed exemption. The only income in respect of which assessee has claimed exemption is, interest on FDRs/investments made out of sale proceeds of property at New Delhi. Therefore, the question of denying such exemption on this account does not arise. Therefore, this submission is also rejected.

16. Now, the next important aspect, which requires to be addressed, is whether donation given to SUKES meets the requirement of law for allowing exemption in respect of such income or not. As per provisions of section 11 of the Income Tax Act, the assessee is entitled to exemption in respect of income from property held for charitable or religious proposes. But, such exemption is available only if the income held under the trust is utilized for charitable or religious purposes. As per the trust deed, the trust owned two immovable properties at Panchsheel Park, New Delhi, and agricultural land situated at Village Barkatabad, Tehsil Jhajjar, District Rohtak. One of the two properties at Delhi was sold and the assessee realized the sale proceeds amounting to Rs. 3.29 crores in the accounting year relevant to assessment year 1995-96. Page 2 of the paper book, which is a copy of the balance sheet as on 31-3-1996, shows that sale proceeds were held in the corpus of the trust, as all the immovable properties owned by the trust also constituted the corpus of the trust. The assessee invested such sale proceeds in the fixed deposits and investments, and earned interest aggregating to Rs. 32,13,031. As already discussed, net result from running of nursing home, i.e., CMC and other related activities was a loss. Likewise, the net result from agricultural farm was also a loss. The only income was income from interest. Since, such income was earned from the property held by the trust, the same was eligible for deduction under section 11 subject to fulfilment of other conditions.

17. It is clear that assessee donated a sum of Rs. 29 lakhs to SUKES out of interest income. Now, the question that requires to be considered is whether the donation given to SUKES would be considered for utilization of income for the objects of the trust ? As discussed earlier, the assessee has placed before us copy of letter dated 21-9-1993, of CIT, Jalandhar, allowing exemption to SUKES under section 80G for the assessment years from 1994-95 to 1998-99. A copy of memorandum of rules and regulations of SUKES has also been placed before us. As per art. A thereof, the main objects of the society were to open, run, continue an educational and vocational institution in healthy surroundings. The fact that the said institution was a charitable institution has not been disputed by the assessing officer at the time of completing the assessment. Her only objection was that donation has been given to the society for running a nursery school, which is not the object of the assessee-trust. Therefore, she was of the view that income has not been utilized for the objects for which the assessee-trust had been created. However, sub-section (15) of section 2 defines 'charitable purpose' as under :

"2(15)-'Charitable purpose' includes relief of the poor, education, medical relief and the advancement of any other object of general public utility."

Thus, providing education clearly falls in the definition of 'charitable purposes'. As per clause (ii) of article 4 of the assessee-trust, its objects, inter alia, included to maintain, establish, finance, subsidize, exclusively or partly, or give grants-in-aid, recurring or otherwise, for the maintenance of hospitals, clinics, dispensaries, nursery schools or other establishments of like nature. Thus, the objects of the assessee-trust also included in the trust deed to maintain, establish and finance nursery schools. Second proviso to the trust deed further envisages that the trust may give assistance to the institutions whose sole objects or any of the objects of the assessee-trust would amount to furtherance of the objects of the assessee trust. Thus, it is not correct to say that donation given to SUKES was inconsistent with the objects of the assessee-trust because both, inter alia, include establishment and assistance for running of nursery schools. We have also noted that since SUKES was registered and allowed exemption under section 80G, the assessee was under a bona fide impression that SUKES shall carry out the objects for which donation has been given. Moreover, as per provisions of section 11 of the Income Tax Act, even SUKES was required to utilize the funds for the objects for which it was created. Any misutilization of funds or utilization of funds other than the objects of the society would disentitle the recipient-society to exemption under section 11 of the Income Tax Act. It has rightly been held by the learned Commissioner (Appeals) that once donation is given by the assessee and the money has parted company, the assessee loses control or power to resort to legal course to recover the amount so donated. Therefore, this fact cannot be held against the assessee.

18. The next important part which requires to be examined by us is that the revenue has emphatically argued that SUKES was used as a conduit by the assessee -trust with a view to divert funds to the business adventures of Brar family. At the time of hearing before us, the learned counsel was asked to furnish a list of trustees of the assessee-trust. Such list has been furnished. The same doe~ not show that any members of Brar family were the trustees. In fact, the learned counsel submitted that none of the members of the Brar family ever remained trustee of the assessee-trust. The trust deed shows that the founders of the trust were S/Shri Roop Narain and P.N. Chuttani. As per provisions of section 13 of the Income Tax Act, the assessee is not entitled to exemption in respect of its income in a case where any part of the income from property held under the trust is utilized for private religious purposes or income is utilized for the benefit of any particular religion, community or caste or if any part of such income or any property of the trust or the institution (whenever created or established) is, during the previous year, used or applied, directly or indirectly, for the purpose of any person referred to in sub-section (3) of the Act. Sub-section (3) of section 13 refers to the persons mentioned in sub-section (1) and sub-section (2) as under -, "(a) the author of the trust or the founder of the institution;

(b) 'any person who has made a substantial contribution to the trust or institution, that is to say, any person whose total contribution upto the end of the relevant previous year exceeds fifty thousand rupees;

(c) where such author, founder or person is an HUF, a member of the family;

(cc) any trustee of the trust or manager (by whatever name called) of the institution;

(d) any relative of any such author, founder, person, member, trustee or manager as aforesaid;

(e) any concern in which any of the persons referred to in clause (a), (b), (c), (cc) and (d) has a substantial interest."

The revenue has failed to establish that donation given to SUKES was diverted or the benefit was derived by any of the persons mentioned above, i.e., founders of the trust or any person who has made contribution to the trust, a member of the HUF, any trustee of the assessee, assessee-trust or manager, any relative of any such founders, persons, member or manager or any concern in which any of the persons referred to above has a substantial interest. Since the members of the Brar family, to whom the donations given to SUKES were ultimately diverted and used for their business ventures were not the persons falling in the above category, we are of the opinion that it is not correct to allege that SUKES was utilized as a conduit for diverting the funds. It is no doubt true that members of Brar family were very close or personally known to the founders of the assessee-trust. But, this fact by itself is not enough for denying the exemption to the income given by way of donation to SUKES. The revenue was required to establish that the donation had been diverted to any of the persons mentioned in sub-section (3) of section 13 of the Income Tax Act. The revenue has relied on the judgment of the Supreme Court in the case of Bharat Diamond Bourse (supra). But, in that case, the assessee had advanced a sum of Rs. 70 lakhs without interest and security and also without any written agreement to one 'B' who was one of the persons subscribing to its memorandum of association and also its honorary secretary. The assessee was also not able to establish that amount advanced to 'B' was actually given for acquisition of a suitable premises. The person to whom amount was given was found to be falling in the prohibitive category mentioned in section 13(3A) read with section 13(l)(c)(ii) of the Income Tax Act and, therefore, it was held that assessee was not entitled to exemption of such income. But, in the present case, the revenue has failed to establish that the persons to whom SUKES had diverted the funds were actually persons falling in the prohibitive category mentioned above. Therefore, this judgment is not applicable to the facts of the present case..

18.1 The revenue has also relied on the judgment of the Bombay High Court in the case of Tustees of the Jadi Trust (supra). In that case, the Hon'ble High Court has held that trust to which section applies can make a voluntary contribution to another trust to which also section applies provided the conditions laid down in section 11 are satisfied. The applicability of section 11 is not restricted to a trust which itself carries on a religious or charitable activity in respect of income derived from property held under trust wholly for religious and charitable purposes. When a trust, which holds property for charitable purposes, hands over a donation to another charitable trust, it would amount to an application of income for charitable purposes by donor trust. The donor trust would be entitled to the exemption under section 11 although it may be necessary to ascertain whether the funds are deliberately being diverted to non-charitable purposes through the medium of a donee trust. The ratio of this judgment would apply only if the funds have ultimately been diverted to persons falling in prohibited category mentioned in section 13. This is not the case here. Therefore, this judgment is also of no help to the revenue. In fact, this judgment rather helps the case of the assessee. In this case also the assessee has given donation to another charitable institution. The objects of the recipient institution are similar to the objects of the assessee-trust. Therefore, the assessee would be entitled to exemption in respect of such income because the same has been utilized for the objects of the assessee-trust.

18.2 As regards funds diverted by SUKES to business ventures of Brar family, there is no evidence on record that the founders and trustees of the assessee trust were also the founders or the trustees of SUKES. It, therefore, cannot be said that the amounts diverted to Brar family were under the direction of the assessee-trust. Moreover, the persons to whom funds were diverted were not the persons falling in the prohibitive categories mentioned in section 13.

18.3 Even in the case of Sarladevi Sarabhai Trust No. 2 (supra), the Hon'ble Gujarat High Court has held that donation given by one charitable trust to another charitable trust created by the same group of persons would amount to application of income for charitable purposes. Thus, the mere fact that assessee had given donation to another institution would not disentitle the assessee for exemption under section 11.

18.4 As regards reliance of the learned Departmental Representative on subsequent Instruction No. 1582, dated 19-10-1984, issued by the CBDT, modifying earlier Instruction No. 1132, dated 5-1-1978, the field authorities have only been asked not to give unqualified benefit to the donor trust under section 11 where the application of income for charitable purposes is made through the medium of the donee trust. The field officers have been asked to satisfy themselves whether the funds donated to the donee trust have been utilized for charitable purposes. But, we find from the assessment order that at the time of completing the assessment, the assessing officer had merely held that donation given to SUKES did not qualify for exemption because the same was not in accordance with the objects of the assessee-trust. He had neither made any inquiry nor given any finding that such funds have actually been diverted to the business ventures of Brar family. In any case, the members of Brar family do not fall in the prohibitive category so far as assessee-trust is concerned. Further, the assessee had also donated a sum of Rs. 2.5 lakhs: to SUKES in the assessment year 1995-96. The assessing officer had allowed exemption in respect of the same on the ground that objects of the SUKES were the same and donation given amounted to utilization of income for the objects of the assessee-trust. There does not appear to be any justification for now taking a contrary view on same facts. Moreover, the Board's Circular No. 1582, dated 19-10-1984, only directs the field officers to examine this aspect at the time of completing the assessment. But, it does not say that exemption in respect of donation given to another institution should invariably be denied. Thus, in the light of the detailed discussion and the legal position discussed above, we are of the considered opinion that Commissioner (Appeals) was justified in holding that donation given to SUKES by the assessee-trust amounted to utilization of income for the objects of the assessee-trust and, therefore, such income qualified for exemption under section 11 of the Income Tax Act. Accordingly, we do not find any legal or factual infirmity in the well-reasoned and well-discussed order of learned Commissioner (Appeals). The same is upheld and all the grounds of appeal from ground Nos. 1 to 6 are dismissed.

18.5 Before parting with these grounds, we may like to add that revenue has raised grounds relating to admission of fresh evidence regarding assessee agreeing to give a sum of Rs. 50 lakhs for setting up a centre for tropical diseases, Rs. 2 lakhs for Gujarat Relief Fund and Rs. 1 lakh for Kargil Fund. We find that learned Commissioner (Appeals) has not admitted fresh evidence; she has only referred to the subsequent conduct of the assessee for taking a view that assessee was a charitable institution. There is nothing wrong in the approach of the Commissioner (Appeals). The subsequent conduct of the assessee can be taken into account for deciding the matter if it does not involve admission of fresh evidence. Be that as it may, our findings in the present order are not based on the subsequent conduct of the assessee. Therefore, the submission of the revenue in this respect is rejected.

19. The last ground of revenue's appeal relates to deletion of an addition of Rs. 2.49 lakhs on the ground that income/loss derived from agricultural operation forms part of income of the assessee and exempt, being a charitable institution without appreciating the fact that business of agricultural operation was not incidental to attainment of the objectives of the assessee-trust. Briefly stated, the facts of the case are that the assessing officer observed that assessee had debited and credited certain amounts on account of agricultural operations at its Naraingarh farm. According to the assessing officer, such income or loss did not relate to the objects of the trust and, therefore, such income/loss was not entitled to exemption under section 11 of the Income Tax Act.

20. Being aggrieved, the assessee carried the matter in appeal before the Commissioner (Appeals). It was submitted before the Commissioner (Appeals) that assessee-trust held certain agricultural land, which formed corpus of the trust. It was thus contended that income derived by way of agricultural operation represented income of the trust. The learned Commissioner (Appeals) considered these submissions and found that agricultural lands were bequeathed to the trust by Dr. P.N. Chuttani and these were part of corpus of the trust. These lands could not be left vacant or fallow and the income derived therefrom held for charitable purposes represented income of the trust. She also held that earning of income from such operations was not inimical to the objects of the trust provided the income was reinvested and used for charitable purposes. Thus, the learned Commissioner (Appeals) treated the net loss of Rs. 2.49 lakhs from agricultural operation as part of normal income of the assessee entitled to exemption under section 11 of the Income Tax Act. Revenue is aggrieved by the order of the Commissioner (Appeals).

21. The learned Departmental Representative, Shri Girish Sharma, submitted that carrying on agricultural operation was not incidental to attainment of objectives of the assessee-trust. In any case, agricultural income was exempt under section 10 of the Income Tax Act. Reliance was placed on the judgment of the Madhya Pradesh High Court in the case of Nabhinandan Digamber Jain (supra), where the High Court has held that agricultural income will not form part of total income for the purpose of computing the accumulation of income in excess of 25 per cent of the total income as laid down under section 11 of the Income Tax Act.

22. The learned counsel for the assessee, Shri B.M. Khanna, on the other hand, relied on the order of the Commissioner (Appeals).

23. We have heard both the parties and carefully considered the rival submissions. We have also examined the facts, evidence and material on record. From the facts discussed above, it is obvious that assessee owns agricultural land which was bequeathed by the founder of the trust. The said land is also included in the corpus of the trust. Therefore, carrying on of agricultural operation is part of normal activity of the trust. However, there is no dispute that the net result in carrying on such activity is a loss of Rs. 2.49 lakhs. Therefore, there is no question of applying any income for the objects of the trust. In any case, in the case of ClT v. Panchayati Akhara Nirmal (1991) 190 ITR 121 (AD), the Allahabad High Court has held that agricultural income is exempt under section 10(l) of the Income Tax Act. The High Court has held that where agricultural and non-agricultural properties are held under trust for charitable purposes and no separate accounts are maintained, the Income Tax Officer has no option but to allocate the amount spent on charitable/religious purposes between agricultural and non-agricultural income in an appropriate ratio. Section 11 would apply only in respect of such income from property held under trust for charitable or religious purposes to the extent such income has been applied for such purposes. Once the income is considered as exempt under section 10, there is no question of including the same for the purpose of allowing exemption under section 11 of the Income Tax Act. Reliance is also placed on the decision of the Madhya Pradesh High Court in the case of Nabhinandan Digamber Jain (supra). Thus, income/loss from agricultural properties held under a trust is to be separately computed and cannot be given set off against income from non-agricultural properties held under the trust eligible for exemption under section 11. The assessee has not disputed the agricultural income computed by the assessing officer at loss of Rs. 2.49 lakhs. In the light of these facts and circumstances of the case, we are of the considered opinion that learned Commissioner (Appeals) was not justified in allowing set off of loss against other income for the purpose of allowing exemption under section 11 of the Income Tax Act. We, therefore, set aside the order of the Commissioner (Appeals) and restore that of the assessing officer. This ground of revenue's appeal is allowed.

24. Before parting with the case, we would like to record our appreciation for the painstaking, strenuous and excellent representation made by the learned CIT (Departmental Representative), Shri Girish Sharma.

25. In the result, the appeal of the revenue is partly allowed.