Income Tax Appellate Tribunal - Pune
Smt. Vimalabai (Jiji) Neelkanth Jatar ... vs Income Tax Officer on 13 September, 2004
Equivalent citations: (2005)92TTJ(PUNE)327
ORDER
B.L. Chhibber, A.M.
1. This appeal by the assessee is directed against the order of the CIT-II, Pune, under Section 12AA of the IT Act, 1961, refusing to recognise the assessee-trust as charitable under Section 12A and under Section 80G of the Act.
2. The assessee-trust came into existence by virtue of trust deed dt. 26th Nov., 1992. Even though the declaration of Smt. Vimalabai (Jiji) Neelkanth Jatar Charitable Trust was made on 26th Nov., 1992, the trust could not be made operative until the probate in respect of the will and testament dt. 17th Oct., 1992 was obtained as the substantial bequest was made under the will of the settlor, namely, late Air Vice Marshall Jayaram Neelkanth Jatar, residing at C-4/116, Safdarjang Development Area, New Delhi 110 016, who had handed over a sum of Rs. 4,000 to Shri S.N. Inamdar, one of the trustees, who had gone to Delhi on or about 7th Oct., 1992 with a view to establish a public charitable trust in the name of his mother Smt. Vimalabai (Jiji) Jatar and in the form of residuary bequest. The said probate was obtained on 25th April, 1996. It was only thereafter that the process for registration of the trust under the Bombay Public Trust Act started. The trust was registered under R. No. E/2395/Pune dt. 12th Feb., 1997. Thereafter, on 25th Nov., 1997 the document for registration under Section 12A and for certificate under Section 80G was submitted to the CIT, Pune. Thus there was no delay in submission of the document for registration under Section 12A of the Act.
3. The CIT noted that the main object of the trust as per Clause (4) of the trust deed is as under:
"(4) : The primary object of this trust is education. It shall include offering all or any kind of educational assistance to needy deserving students from India for prosecuting their primary, secondary and higher studies including professional courses in India and abroad. It also includes expenditure of lodging, boarding, books, apparatus that may be necessary to effectively prosecute their studies. The trustees will be entitled to grant scholarships, financial assistance directly to the students or to the institutions where they are studying. Other things being equal, the trustees shall give preference to students belonging to Karhada Brahmin Community from Maharashtra or to Aiyyangar Brahmin Community from Tamil Nadu. It shall not matter even if the students belonging to the above communities or their parents have settled down in any other parts of India."
After perusing the above clause, the learned CIT held that, since the primary object of the trust was for the benefit of a particular religious community or cast, namely, Karhada Brahmin Community from Maharashtra or Aiyyangar Brahmin Community from Tamil Nadu, the trust came under mischief of the provisions contained in Sections 13(1) and 80G(5)(iii) of the Act. The CIT issued a notice to the assessee and the assessee filed written submissions on 27th July, 1998, which have been reproduced by the CIT in para 3 of his order. He was not satisfied with the submissions made and refused to recognise the assessee-trust as charitable observing as under:
"In my view, the various cases cited on behalf of the trust are not relevant because in these cases the Courts were called upon to interpret Section 4(3)(i) of the IT Act 1922, which did not contain any restrictive provisions analogous to Sections 13(1)(b) and 80G(5)(iii) of the IT Act, 1961. These restrictive provisions will not apply to a trust which is created or established before the commencement of the IT Act, 1961. Thus, any charitable or religious trust created or established on or after 1st April, 1962 cannot enjoy benefit of the exemption under Section 11 if it is meant for the benefit of any particular religious community or cast. Similar restriction has been put under Section 80G(5)(iii) of the IT Act. This question has also been considered by the Madras High Court in the case of Reliance Motor Co. (P) Ltd. v. CIT, (1995) 213 ITR 733 (Mad). The ratio of this case is reproduced below from the head note :....."
For the same reasons as stated above, he also held that the assessee-trust is not eligible for certificate under Section 80G of the IT Act.
4. Shri G.N. Gadgil, the learned counsel for the assessee drew our attention to the provisions of Sections 13(1)(b) and Section 80G(5)(iii) and submitted that on reading of the above two provisions, it becomes clear that the charitable trust should not be created or established or expressed for the benefit of any particular religious community or caste. This would mean that the trust has to be created or established or expressed only and exclusively for any particular religious community or caste, and in that case alone it will not be registered under Section 12A and it will also not get certificate under Section 80G(5). The learned counsel referred to the object of the trust as reproduced by the CIT in para 1 of his order (reproduced supra) and submitted that the primary or the predominant object of the trust is education, i.e., offering all or any kind of educational assistance to needy deserving students from India. Therefore, any needy deserving student from India can be the beneficiary. That is the predominant object, according to the learned counsel. The learned counsel further submitted that as a proviso, it is stated in the object clause that "other things being equal", the trustees shall give preference to students belonging to Karhada Brahmin Community from Maharashtra or to Aiyyangar Brahmin Community from Tamil Nadu. According to the learned counsel, it shall not matter even if the students belonging to the above communities or their parents have settled down in any part of India and this fact is clear that "other things being equal", "Karhada Brahmins or Aiyyangar Brahmins" were to be given preference. The learned counsel, submitted that it makes it amply clear that the trust was not created or established or expressed exclusively for the benefit of Karhada Brahmin or Aiyyangar Brahmin communities. It was created for any needy deserving student from India who may include any Karhada or Aiyyangar Brahmin also. Even there also, that student could be preferred "other things being equal". The learned counsel submitted that what is to be examined is the predominant object of the charitable trust and in support of this contention, he relied upon the judgment of the Hon'ble Supreme Court in the case of Trustees of the Charity Fund v. CIT, (1959) 36 ITR 513 (SC), of the Bombay High Court in CIT v. Trustees of Seth Meghji Mathumdas Chanty Trust (1959) 37 ITR 419 (Bom) and of the Calcutta High Court in CIT v. Board of Mutwallis of the Wakf Estate, Ebrahim Sulaiman Saloji (1968) 69 ITR 758 (Cal), He also referred to the following para from Kanga & Palkhivala's The Law & Practice of Income-tax, Vol. I, 7th Edn. p. 295 while commenting on Section 13(1)(b) :
"But this clause denies exemption to such a communal trust or institution created or expressed on or after 1st April, 1962. However, the clause would not apply to a trust or institution which is created for the public, but discretion or direction is given to trustees to give preference, other conditions being equal, to the members of a particular religious community of caste in the selection of the beneficiaries."
The learned counsel thereafter drew our attention to the list of students, institutions which were awarded scholarships so far placed in the paper book and pointed out that the awardees include students of all the communities, religious and the Karhada or Aiyyangar Brahmins are not the exclusive awardees. The awardees even include non-Hindus and in fact, the number of beneficiaries belonging to above class is negligible. We would like to reproduce the list of students who were awarded scholarships during 1998-99 which reads as under :
S.No. Name of student Amt. Remarks
1. Asama Yakub Pathan 10,225 Physically handicapped non-
brahmin
2. Kerba Babu Torwe 10,225 " "
3. Renuka Tanakhiwale 1,30,000 Karhada Brahmin
4. Adity Khamamkar 1,00,000 Deshashta Brahmin
5. P.B. Tatkar 9,700 Karhada Brahmin
6. Swapnil Jakhade 1,600 Non-brahmin
7. Nikita Deshpande 1,095 Deshatha Brahmin
--------
Total 2,62,845 53% of Karhada Brahmins &
Nil for Aiyyangars
The learned counsel further submitted that for the purpose of grant of registration under Section 12A, it is not necessary to consider Sections 11, 12 and 13 and in support of this proposition, he placed reliance on the decision of Gujarat High Court in Shantagauri Ramaniklal Trust v. CIT, (1999) 239 ITR 528 (Guj) at 531 and of the Madras High Court in New Life in Christ Evangelistic Association (NLC) v. CIT, (2000) 246 ITR 532 (Mad).
5. Shri Shishir Agarwal, the learned Departmental Representative strongly supported the order of the learned CIT. He also read the main object clause reproduced by the CIT in his order and submitted that the trust was created for the benefit of a particular community, i.e., Karhada Brahmin community from Maharashtra and Aiyyanagar Brahmin community from Tamil Nadu and as such, the trust is hit by the provisions contained in Section 13(1) and 80G(5)(iii) of the Act and accordingly, the CIT was perfectly justified in refusing to recognise the trust as a charitable trust under Section 11 of the Act and consequently he rightly held that the assessee-trust was not eligible for certificate under Section 80G of the Act.
6. We have considered the rival submissions and perused the facts on record. From a perusal of the trust deed, it is very clear that the primary object of this trust is education which includes offering all or any kind of educational assistance to needy deserving students from India for prosecuting their primary, secondary and higher studies including professional courses in India and abroad. In the case of Addl. CIT v. Surat Art Silk Cloth Manufacturers Association (1980) 121 ITR 1 (SC), the Hon'ble Supreme Court has held that if a primary or dominant purpose of a trust or institution was charitable, another object which by itself may not be charitable but was merely ancillary or incidental to the primary or dominant purpose, would not prevent the trust or institution from being a valid charity. In this judgment, the judgment of the Hon'ble Supreme Court in the case of CIT v. Dharmodayan Co. (1977) 109 ITR 527 (SC), CIT v. Cochin Chamber of Commerce & Industry (1973) 87 ITR 83 (Ker) and Andhra Pradesh State Road Transport Corpn. v. CIT, (1975) 100 ITR 392 (AP) have been approved. The Hon'ble Bench of the Supreme Court consisting of five judges presided over by P.K. Bhagwati, J. (as he then was) overruled its earlier judgment in the case of Indian Chamber of Commerce v. CIT, (1975) 101 ITR 796 (SC). The Hon'ble Bench also disapproved the observations of Khanna & Gupta, JJ., in Sole Trustee, Loka Shikshana Trust v. CIT, (1975) 101 ITR 234 (SC) and further approved the observations of Beg. J. in Sole Trustee, Loka Shikshana Trust (supra). In the case before us the dominant and primary objects of the assessee are charitable in nature, i.e., education as per Clause 4 reproduced supra and other objects like relief of poor; medical relief; relief of victims of natural calamities, another object of general public utility as per para 5 of the trust deed. We accordingly hold that the assessee is a charitable trust.
7. Now we turn to the question whether the assessee-trust was created or established or expressed for the benefit of any particular religious community or caste, i.e., Karhada Brahmin or Aiyyanagar Brahmin, A harmonious reading of Clause 4 of the trust deed reproduced supra, reveals that the trust has not been created or established or expressed only and exclusively for Karhada Brahmin or Aiyyangar Brahmin because it is clearly stated in the object clause that "other things being equal", the trustees shall give preference to students belonging to Karhada Brahmin community from Maharashtra or to Aiyyangar Brahmin community from Tamil Nadu. Thus, it is clear that "other things being equal", Karhada Brahmin or Aiyyanagar Brahmin were to be given preferences. There is no exclusive reservation for the Karhada Brahmins or Aiyyanagar Brahmins; but only the trustees have been given option to give preference to Karhada Brahmins of Aiyyangar Brahmins "other things being equal". Thus, it is only a case of preference and the students could be preferred only to the extent "other things being equal". The eminent Judge Chagla C.J. in Trustees of Govardhandas Govindmm Family Trust v. CIT, (1952) 21 ITR 231 (Bom) at p. 236 has explained the meaning of the expression "preference" in the following words :
"As I understood "preference", it means that all other things being equal you prefer a person who satisfies certain other qualifications". Thus preference is to be given "other things being equal". He is preferred amongst equals, not otherwise."
8. In the case of Trustees of Chanty Fund, Esplanade Road, Fort, Bombay (supra), the settlor, after setting out the charitable purposes, had directed in the deed of trust that in applying the income of the trust properties, the trustees shall give preference to the "poor and indigent relations or members of the family of Sir Sassoon David, including therein distant and collateral relations" and their Lordships of the Supreme Court held that the provision relating to the giving of preference to the poor and indigent relations or members of the family of Sir Sassoon David could not affect the public charitable trust constituted under sub-Clause (a) of Clause 10 of the trust deed. The above judgment of the Hon'ble Supreme Court was followed by the Bombay High Court in the case of Trustees of Sheth Meghaji Mathuradas Chanty Trust (supra). In this case, the settlor executed a deed of trust in respect of a sum of Rs. 3-1/2 lakhs, whereby he directed the trustees, after applying the income to certain purposes, to utilise the balance, in their absolute and unfettered discretion, for certain specified charitable purposes the benefits of which were to enure only to persons belonging to three upper or twice-born classes of the Hindu community. The deed further directed "that in carrying out one of the above charitable intentions, the trustees shall always prefer the members of (the settlor's) caste to the members of any other caste in the Hindu community, and shall further prefer members of (the settlor's) family and the (settlor's) relatives, to those who were not such members and relatives". Pursuant to the trust deed, the trustees entered upon the management of the trust property. The Hon'ble Bombay High Court, following the judgment of the Hon'ble Supreme Court in the case of Trustees of the Charitable Fund (supra) held that the property was held by the trustees wholly for religious or charitable purposes, and the income of the trust was exempt from income-tax under Section 4(3)(i) of the Indian IT Act, 1922. A similar view has been held by the Hon'ble Calcutta High Court in the case of Board of Mutawalis of the Wakf Estate of Ebrahim Suleman Saloji (supra), wherein the Hon'ble High Court following the judgment of the Hon'ble Supreme Court in the case of Trustees of Charity Fund (supra) held as under:
"If the dominant object of the trust is to grant relief to indigent persons by making payments or contributions towards their support and aid, the circumstance that discretion has been given in the trust deed to the trustees, to prefer the poor relatives of the settlor will not affect the validity of the trust nor in any manner be derogatory from the trust being one for purpose of a charitable nature. An overall picture ought to be taken and if the predominant object of the Wakf was to benefit the poor or other members of the public, the fact that provision was made for the support or payment or marriage expenses of poor relatives as one of the objects did not cut down the primary object to such an extent that intention itself is lost."
We have also perused the list of students/institutions who were awarded scholarships placed in the paper book and the list for the year 1998-99 reproduced supra and we find that the awardees include students of all communities, religion and Karhada Brahmins or Aiyyangar Brahmins are not the exclusive awardees. The awardees even include non-Hindus. In fact, the number of beneficiaries belonging to above class is negligible. In addition, the trust has given large donations to schools without putting any conditions regarding the caste of the beneficiaries, and further, these donations are of an on-going nature for the next five to six years.
9. In the light of above discussion, we hold that only a preference was given to the students from Karhada or Aiyyangar Brahmins "other things being equal" and the trust was not created or established or expressed for the benefit of any particular religious community or caste. We accordingly hold that the learned CIT is not justified in refusing to register the trust under Section 12A and to grant certificate under Section 80G(5). He is directed to recognise the trust under Section 12A and to grant certificate under Section 80G(5).
10. In the result, the appeal is allowed.
U.B.S. Bedi, J.M. 5th March, 2002
11. I have had an occasion to go through the proposed order of the learned AM but am unable to agree with his findings and conclusions as drawn by him and my reasons for being so are as under.
12. After hearing both the sides and going through the record as well as provisions of law and documentary evidence to which attention of the Bench was drawn, I find that in a precise note on submissions on the hearing held on 7th March, 2001, the assessee submitted at the last page as under :
"Under Section 12AA, the CIT was expected to satisfy himself about the genuineness of activities of the trust. He neither made any inquiries nor called for any details. There was no evidence whatsoever before him to doubt the genuineness of the activities of the trust. On the contrary, the conduct of the trustees proves beyond doubt that the trustees have gone strictly on merits and have not unduly favoured any caste or community. The CIT refused registration simply on an erroneous view of law as is evident from the case law cited above."
In the said submissions, at para 2.1 the assessee submitted as under:
"2.1 : A list of students/institutions who were awarded scholarships so far is enclosed. The awardees include students of all the communities; religious and the Karhada or Aiyyangar Brahmins are not the exclusive awardees. The awardees even include non-Hindus. In fact, the number of beneficiaries belonging to above class is negligible. In addition, the trust has given large donations to schools without putting any conditions regarding the castes of the beneficiaries. Further, these donations are of an ongoing nature for the next five to six years."
13. From the above, it is clear that the assessee has categorically submitted that the CIT was expecting to satisfy himself about the genuineness of the activities of the trust. He neither made any enquiries nor called for any details and as per para 2.1, assessee submitted a list of students/institutions along with amounts shown against each who were awarded the scholarship so far (by enclosing their detailed list) for the period starting from 1998-99 to 2000-2001. Since the impugned order in this case is passed on 31st July, 1998, so obviously this list could not be there before the learned CIT, being not in existence at that time. This being new evidence, for which neither any application is there nor an opportunity to the learned CIT was there with regard to these documents. Otherwise, these documents have not been verified and correctness of the same has not been proved before reliance could be placed by the Tribunal. Apart from this, necessary enquiry as contemplated in the relevant provision appears to have not been conducted prior to passing the impugned order for which assessee has taken specific objection. Neither the assessee has filed any certificate about having filed this list before the CIT nor required certification as per ITAT Rules has been furnished by the assessee. Moreover, looking into the period involved, it cannot be taken that this could otherwise be filed any time before or at the time of passing of the impugned order. Therefore, it cannot be held that the impugned order is validly passed. In view of the facts and circumstances of the case, I find that enquiry as contemplated before granting or refusing the registration as applied for by the assessee has not been conducted at all and moreover, documents furnished at Tribunal level, without looking into its genuineness and correctness of figures supplied by the assessee to the learned CIT it will not be appropriate to consider such documents. Therefore, in the interest of justice and to have a fair-play in the matter, I find it just and appropriate to set aside the order of the learned CIT-II, Pune, dt. 31st July, 1998 and restore the matter back on his file with a direction to re-decide the issue afresh after examining each and every aspect of the matter in the light of the documents furnished/to be furnished and after making necessary enquiries. Needless to mention that the learned CIT would afford reasonable opportunity of being heard to the assessee before deciding the issue de novo. I hold and direct accordingly.
14. Since the matter is being decided by setting aside the matter back on the file of the learned CIT-II, Pune, for lack of enquiry and non-consideration about authenticity and genuineness of the documents furnished, therefore, it would not be necessary to go into the merits of the case in view of the decision of the Special Bench of Nagpur Tribunal in the case of Rahulkumar Bajaj v. ITO (1999) 64 TTJ (Nag)(SB) 200,(1999) 69 ITD 1 (Nag)(SB).
15. As a result, the appeal of the assessee gets accepted for statistical purposes.
REFERENCE UNDER SECTION 255(4) OF THE IT ACT, 1961 B.L. Chhibber, A.M. March, 2002
1. As there is a difference of opinion between the AM and the JM, the matter is being referred to the President of the Tribunal with a request that the following question may be referred to a Third Member or to pass such orders as the President may desire:
"Whether, on the facts and in the circumstances of the case, the CIT-II, Pune, is justified in refusing to recognise the assessee-trust as charitable under Sections 12A and 80G of the Act, vide his order under Section 12AA of the IT Act, 1961?"
U.B.S. Bedi, J.M. March, 2002
1. As there is a difference of opinion between the Members on the Bench, following point of difference is being referred to Hon'ble President for hearing on such point or for nominating the Third Member or to pass such orders as the Hon'ble President may deem fit and proper:
"Whether, on facts and circumstances of the case, direction issued to CIT to recognise the assessee-trust under Section 12A and 80G of IT Act by AM is justified or setting aside the issue to be decided afresh by holding enquiry and considering the fresh material filed before Tribunal as held by JM is justified"
M.K. Chaturvedi, Vice President, (AS THIRD MEMBER):
1st September, 2004
1. This appeal came before me as a Third Member, to express my opinion on the following question:
"Whether, on the facts and in the circumstances of the case, the directions to recognise the trust under Section 12A and grant of certificate under Section 80G(5) as proposed by the learned AM are right or the learned JM is correct in setting aside the matter for reconsideration as per this proposed order?"
2. I have heard the rival submissions in the light of material placed before me and precedents relied upon. At the outset, Dr. Pathak invited my attention to Clause 4 of the declaration of trust. The relevant portion reads as under :
"Other things being equal, the trustees shall give preference to students belonging to Karhada Brahmin Community from Maharashtra or to Aiyyangar Brahmin Community from Tamil Nadu".
3. Reference was made to the decision of Hon'ble Bombay High Court rendered in the case of Trustees of Gordhandas Govindram Family Chanty Trust v. CIT, (1952) 21 ITR 231 (Bom). In this case the Hon'ble High Court at p. 236 has observed:-"As I understand 'preference' it means that all other things being equal, you prefer a person who satisfies certain other qualifications".
4. He further relied on the decision of the Hon'ble Supreme Court rendered in the case of Trustees of the Charity Fund v. CIT, (1959) 36 ITR 513 (SC). In this case at p. 519 the Hon'ble Supreme Court has said:-"The provision for giving preference involves the idea of selection of some persons out of a biggerclass.......". It was decided on the facts that such preference cannot affect the public charitable trust. My attention was also invited to the decision of the Bombay High Court rendered in the case of CIT v. Trustees of Seth Meghji Mathuradas Chanty Trust (1959) 37 ITR 419 (Bom), where the Hon'ble High Court took the similar view.
5. Shri Satya Prakash, learned Departmental Representative placed his reliance on the provisions of Section 13(1)(b) of the IT Act, 1961 (hereinafter called the Act). It was submitted that the charitable trusts or institutions designed to benefit a particular religious community or caste have been looked upon with disfavour in the socialistic pattern now in vogue. Under the 1922 Act, there was no ban to the exemption granted by Section 4(3)(i) of the 1922 Act against such trusts or institutions and their income enjoyed exemption like any other charitable trusts or institutions. In the 1961 Act, Section 13(b)(i) (as originally enacted) drew a line of distinction. It divided such trusts or institutions into those created or established before the commencement of that Act, i.e., 1st April, 1962, and those created or established on or after that date. It laid a ban against the latter, while the ban left out the former from its sweep. Thus, any charitable or religious trust or institution created or established on or after 1st April, 1962, could not enjoy the benefit of the exemption under Section 11 if it was meant for the benefit of any particular religious community or caste. It was submitted that the precedents relied upon by Dr. Pathak were rendered in the context of 1922 Act, as such these are not relevant. He supported the order of learned JM.
6. It is true that Section 13(1)(b) of the Act denied benefit to charitable trusts created for the benefit of particular religious community or caste. But the facts of the present case are different. This was not created for the benefit of a particular religious community or caste. It only speaks about preference to students belonging to a particular community if other things are being egual. If other things are not equal, the benefit will not go to the members of the particular community. As such, it is important to see that how the preference was exercised.
7. The appeal was preferred before the Tribunal against the order passed under Section 12AA of the Act by the CIT, refusing to recognise the assessee-trust as charitable under Section 12A and under Section 80G of the Act. The exemption was denied on the ground that the trust comes within the mischief of the provisions contained in Sections 13(1) and 80G(5)(iii) of the Act.
8. The assessee submitted a list of students/institutions who were awarded scholarships. It was submitted that the awardees even include non-Hindus. The number of beneficiaries belonging to a particular class were negligible. The learned JM, having regard to the submission, has observed that the genuineness of the activities of the trust needs to be examined. The CIT did not make any enquiry in this regard. The list of students/institutions was not available before the CIT. As such, he directed fresh enquiry to re-decide the issue afresh, in accordance with law.
9. I fully agree with the view of the learned JM in this regard. This fact needs to be examined and the benefit can be conferred subject to the compliance of the conditions contained in the Act. Mere preference to a particular class will not disentitle the assessee from the benefit of charity if discretion to exercise such preference is exercised in consonance with Clause (4) of the trust deed. It must be demonstrated beyond the shadow of doubt that other things were equal when the preference was exercised. I, therefore, agree with the view expressed by the learned JM.
10. The matter will now go before the regular Bench for deciding the appeal in accordance with the opinion of the majority.
Ahmed Fareed, A.M. 13th September, 2004
1. The learned Third Member by his opinion dt. 1st Sept., 2004 having concurred with the view of the learned JM and in accordance with the majority view, the appeal is allowed for statistical purposes.
2. In the result, the appeal is allowed for statistical purposes.