Income Tax Appellate Tribunal - Delhi
Agrawal Metal Works Charitable Trust, ... vs Assessee
_ Zkfij C7-:~¢-vd \c>\R\°°l 10' ' 90% W' I 4.19 IN THE INCOME TAX APPELLATE TRIBUNAL W ,3 : fi (DELHI BENCH "A" DELHI) » lo 1,..- W 7 B FORE SHRI G.E. VEERABI-IADRAPPA, VICE PRESIDENT AND SHRI A.D. JAIN, JUDICIAL LMEMBER ITA No. 2994(Del)2008 Assessment year: Agrawal Metal Works Charitable Trust, Commissioner of Income Tax, "ar Road, Rewari. V. Rohtak. (Appellant) (Respondent) Appellant by: Shri Ved Jain, CA, Rano Jain & Sh.Venkatesh Chaurasia WI Respondent by: Smt. Sulekha Verma, DR Pi' \iO ORDER
PER A.D. JAIN. J .M. This is assessee's appeal against the order dated 22.8.2008 passed by the 1d. CIT, rejecting renewal of approval u/s 80 G(5)(vi) of the I.T.Act to the assessee.
2. The assessee trust moved an application for renewal on 18.3.2008 u/s 8OG(5)(vi) of the I.T.Act before the 1d. CIT, appending therewith income and expenditure account and balance sheet for financial years 2004-05 to 2006-07 with form No. 10B and annexures I,II & III. Copy of filing of returns for assessment years 2005-06 to 2007-08, copy of ledger of trust, copy of order u/s 12A of the Act dated 16.7.81 and ufs 80G of the Act, dated 21.3.2006 and a note on the working of the activity of the assessee trust for the period 1.4.2005 to 31.3.2007, were also filed.
____:A'\ ITA 2994(Del)08 The ld. CIT called for a report from the AO as to whether the assessee fulfilled the requisite conditions for the grant of approval applied for. In his report, the A0 did not recommend the case for renewal. The ld. CIT observed that the assessee society had marked "no" against col. 1 1(i) of the application against the question as to if the assessee was carrying out any business. "NA" had been marked by the assessee against co1.No. 1 1(2) of the application, wherein it had been enquired if the assessee's business was incidental to the attainment of its profits. The ld. CIT observed that this meant that the assessee had verified in its application that it was neither practicing any business incidental to its aims and objects, nor was it carrying on any other business; that however, in its reply dated 22.8.2008, the assessee, at point No. 13, had stated that income from trust business was available for application for charitable purposes and in point No.18, it had been stated that the trust was running a homeopathic clinic which was incidental to its aims and objects and that depreciation had been claimed on the assets used for running of this homeopathic clinic only; that fiom this, it was evident that the trust had been practicing homeopathic business/profession; that this information given in the application was not true, full and fair and reliable and thus, the assessee was not entitled to renewal of approval ufs 80 G (5)(vi) of the I.T.Act; that the income and expenditure account pertaining to the period from 31.3.05 to 31.3.2007 revealed that the assessee trust had received consideration in the shape of token receipts and patient charges for the homeopathic < ITA 2994(Del)08 services rendered to the patients and depreciation had been debited from year to year to the income and expenditure account due to the business/professional practice of homeopathy; that though the practice of homeopathic business/profession might have been incidental to the attaimnent of the objects of the assessee, even in the case of an incidental business, a trust is required to maintain books of account separate from the books maintained for donations; that however, vide its reply dated 22.8.2008 under point No.19, the assessee had itself admitted that it had not maintained separate books for the business and for donations, respectively; that under point No.20, the assessee had also admitted that it had not issued any certificate to its donors to the effect that their donations would not be used for the purpose of business; that this meant that the assessee trust had not complied with the provisions of clauses (a),(b) and (c) of the proviso to section 80 G(5)(i) of the Act and, therefore, the trust did not qualify for renewal of approval u/s 80 G(5)(vi) of the Act; that the income and expenditure account showed income fi'om token receipts, patient charges, donations and bank investments, whereas copies of the acknowledgement slips for filing of income tax returns for F.Ys. 2004-05 to 2006-07 revealed that the assessee derived income only from other sources; that the assessee society could claim exemption u/s 11 of the Act for the application of its fiinds to the extent of voluntary contributions of Rs. 4,50,000/-- for F.Y. 2004-05 and of Rs.
50,000/- for F.Y. 2006-07, including the amount set apart to the extent of 15% 7?
[TA 2994(Del)08 thereof and thus, the balance receipts to the extent of R.3,07 ,740/-, Rs, 2,27,36lf- and Rs. 1,68,968/- for F .Ys. 2004-05 to 2006-07 respectively, were includible in the total income of the assessee under the provisions of sections 11 & 12 of the Act; that as such, the assessee had not complied with the provisions of section 80 G(5)(i) and it did not deserve approval under the said section; that the assessee had claimed to have made donations to three societies, but it had failed to show that the societies were registered u/s 12 AA of the Act, as public charitable entities, more-over, donations made to Gaushalas were not covered in the aims and objects of the assessee trust, as serving cows and animals was not covered by the aims and objects of the assessee trust; and that the principle of res judicata does not apply to income tax proceedings, so that the fact that the assessee had already received approval upto 31.3.2008 did not make any difference. In this manner, the application of the assessee was rejected by the ld. CIT. Aggrieved, the assessee is in appeal before us.
3. The learned counsel for the assessee, challenging the order under appeal, has submitted that the assessee had been in existence since 1981; that it was registered under sec.12 AA of the Act; that exemption u/s 80 G of the Act had been regularly granted to the assessee; that the Id. CIT rejected the assessee's application on wholly irrelevant grounds; that the assessee ran a small homeopathic clinic and was doing charitable work; that the assessee has not been shown to have committed any violation either u/s 11 or section 12 of the Act; that no condition of section 80 G(5) 4 ITA 2994(Del)08 has been shown to have been contravened by the assessee; and that in these -
circumstances, the assessee is surely entitled for renewal of approval ufs 80 G(5)(vi), which be granted to the assessee by cancelling the order under appeal. The learned counsel for the assessee has relied on various case laws, which we shall presently discuss.
4. The learned DR, on the other hand, has placed strong reliance on the impugned order. Attention has been drawn to Rule 11 AA(4) of the I.T. Rules, which rule, as per the id. DR, empowers the ld. CIT regarding approval u/s 80 G(5)(vi) of the Act. It has been submitted that this is also true for renewal of such approval. Referring to the proviso to section 80 G(5), it has been submitted that as per this proviso, where an institution derives any income, being profits and gains of business, the condition that such income would not be liable to inclusion in its total income under the provisions of section 11 shall not apply in relation to such income, if the institution maintains separate books of account in respect of such business, the donations made to the institution are not used by it, directly or indirectly, for the purpose of such business and the institution issues to a person making the donation a certificate to the effect that it maintains separate books of account in respect of such business and that the donations received by it will not be used directly or indirectly, for the purpose of such business. The ld. DR has contended that none of these conditions have been fulfilled by the assessee. The assessee has not maintained 73 ITA 2994(Del)08 separate books of account in respect of its business of homeopathy. The donations made to the assessee have been used by it for the purpose of the said business. The assessee has not issued to its donors certificates regarding its having maintained separate books of account concerning such business and that the donations received will not be used for the purposes of the said business. The ld. DR has further contended that as per the balance sheet, a copy whereof has been filed before us by the learned counsel for the assessee, the assessee has shown depreciation expenses. It has been argued that if the assessee has no business of homeopathy, depreciation cannot be allowed to the assessee. The ld. DR has asserted that all these show that the assessee is in fact doing the business of homeopathy. Even the assessee, as noted by the ld. CIT admits this fact. It is only that the assessee contends that this business is not a business but the activity is being carried out for charity. The ld. DR has placed reliance on "Ganjam Nagappa And Son Trust v. Director of Income Tax(Exemption)", 269 ITR 59 (Kar). The ld. DR has lastly requested for the appeal of the assessee to be dismissed.
5. We have heard the parties and have perused the material on record. The issue is as to whether the activity of homeopathic dispensary carried on by the assessee does or does not fall within the definition of "charitable purpose" as defined u/s /6
205) of the I.T.Act.
ITA 2994(Del)08 "Section 2(1S), as applicable, states that :-
"Charitable purpose includes relief to poor, education, medical relief and advancement ofany other object of general public utility. "
6. The assessee is carrying on a homeopathic dispensary. It received small token receipts and patient charges for dispensing homeopathic medicines. It also received voluntary contributions. In " Sonepat Hindu Educational & Charitable Society v. CIT&.Anr" 278 ITR 262 (P&H), considering the scope of enquiry by the CIT for the purpose of recognition to an institution, etc., u/s 80 G(5) of the I.T.Act, the Hon'ble jurisdictional High Court held that registration of an institution u/s 12A of the Act by itself is sufficient proof that the institution is created or established for charitable or religious purposes. Therein, the assessee had been enjoying approval u/s 80 G (5) of the Act from 1991 to 31.3.99, even after amendment of its objects. The ld. CIT was held not justified in holding that either fresh registration u/s 12A was required, or the Memorandum of Association should have been amended. It was held that while dealing with an application u/s 80 G(5) of the Act, the scope of enquiry by the CIT extends to eligibility of the applicant to exemption under various provisions referred to in that sub-section, but not to actual computation of income under that Act, particularly when a society or a trust is claiming exemption under sections 118512 of the Act and not under section 10 thereof. It was further held that the question ITA 2994(Del)08 whether the applicant's income would be taxable or not cannot be determined at that time and that it is not relevant. It would be appropriate to reproduce hereunder the ratio laid down by the Hon'ble High Court:-
"It is well-settled that for the purpose of construing the purpose of a trust, it is not necessary that one remains confined to the objects of the society or the trust, as set out in the memorandum of association or the trust-deed, as the case may be. What is required to be found is the real purpose of establishment of the trust. There can be no quarrel with the proposition that the CIT, conferred with the power to grant exemption, is fizlly competent to find out the real purpose, as distinguished flom the ostensible purpose of establishment of the society or the trust. If the CIT is convinced that the purpose of the society or the trust is not charitable, nothing debars him flom denying the approval but, at the same time, if he is satisfied that the objects of the trust, as set out in the deed of declaration, were charitable, then having regard to the object of the provision, the approval should not be denied on mere technicalities. As a matter of fact, the power to grant or negative the claim for approval is coupled with a duty. The CIT has not found that the objects of the petitioner-society, established in India, as set out in its memorandum of association, are not for a charitable purpose or that the society is not carrying on its activities in fizrtherance of its objects. As a matter of fact, registration of a institution under sec. 12A(a) by itself is a suflicient proof of the fact that the trust or the institution concerned is created or established for charitable or religious purposes. In view of the fact that the petitioner had enjoyed approval under sec. 80G from the year 1991 to 31"
March, 1999, i. e., even after the amendment of its objects on 17"' 5 [TA 2994(Del}08 Sept, 1 999and afler the insertion of cl. (vi) w.e. 1" October, 1991, the CIT was not justified in holding that either fresh registration u/s 12A (a) was required or the memorandum should have been amended as per the procedure laid down in s. 92 of the CPC.
The scope of enquiry by the CIT, while dealing with the application under sec. 80G(5)(vi), extends to eligibility to exemption under various provisions of the Act, referred to in that sub-section, but not to actual computation of income under the Act, particularly when a society or a trust is claiming exemptions under sections 1 I &12 and not under section 10. It needs little emphasis that the enquiry for the said purpose relates to whether the applicant is registered under sec.l2A; whether it is a trust wholly for charitable purposes and whether the income received by it is liable to be considered under sec. 11. Exemption under the provision of sec. 10(23C) would not be necessary to make the petitioner eligible for approval under sec. 80G. For the foregoing reasons, the impugned order of the CIT refusing approval to the petitioner- society under sec.80G is founded on irrelevant considerations and, therefore, cannot be sustained. Consequently, the impugned order is quashed and the CIT is directed to take a fresh decision on petitioner 's application in accordance with law. "
7. In the present case, the 1d. CIT has clearly exceeded his jurisdiction while rejecting the assessee's application for renewal of exemption u/s 80 G of the Act.
Nowhere in the order has the assessee been shown to have violated, in any manner, 10 ITA 2994(Del)O8 the provisions of either section 1 1 or 12 or 80 G(S) of the I.T.Act. Merely because the assessee was dispensing homeopathic medicines, it was not required to either maintain separate books of account for this purpose, or to issue certificates to its donors to the effect of having maintained separate books of account and to the effect that the donations received by it would not be used directly or indirectly for the purpose of homeopathic dispensary. This is so because the activity of its dispensing medicines is not a business of the assessee and income fi'om such activity cannot be termed as profits and gains of any such business. The Department has failed to prove otherwise. I
8. The onus of proving that the assessee's activity of dispensing homeopathic medicine amounts to a business carried on by the assessee, was a burden rather than an onus, which lay heavy and squarely on the shoulders of the Department. This burden has not been discharged. Business connotes the continuous exercise of an activity which occupies the time, attention and labour of a person normally with the object of making profit. No such object of the assessee has been established. That being so, the assessee's receipts from its activity of dispensing homeopathic medicine for a token consideration cannot at all be termed as the assessee's 'income being profits and gains of business' within the meaning of the proviso to section 80G(5)(i) of the I.T.Act. Rather, it amounts to an object by way of 'medical relief' as defined in Sec. 2(l5) of the Act. And therefore, the said proviso does not get 5 1 1 ITA 2994(Del)08 attracted. Now once this is so, the requirements under the proviso to section 80 G(5 )(i) do not come into play. As such, the homeopathic dispensary not being a business of the assessee, the assessee was not required to maintain separate books of account in respect thereof. It was also not debarred from using the donations made to it for the purposes of the homeopathic dispensary. Accordingly, it rightly did not issue any certificate to its donors in this regard.
9. In "N.N. Desai Charitable Trust v. CIT" 246 ITR 452 (Guj), dealing with the issue of renewal of recognition of an institution, etc. u/s 80 G of the Act, the Hon'ble Gujarat High Court has held that once a trust is registered u/s 12 A and was granted approval u/s 80 G(5) and also renewal thereafter, the id. CIT was not justified in refiising further renewal of approval on the ground that the income of the assessee trust was likely to be included in the taxable income for not complying with the requirement of section 1 1 of the Act. Herein, no requirement of section 11 of the Act has been shown to have violated at the hands of the assessee. As noted above, the assessee was not carrying on any business i11 dispensing homeopathic medicines. It got only token receipts and patient charges for the purpose, as consideration for the services rendered. The ld. CIT clearly erred in refusing fitrther renewal of the approval granted, which had been renewed earlier from time to time.
11. In "Orpat Charitable Trust v. CIT" 256 ITR 690(Guj), it has been held that mere technical breach ought not to have weighed with the authorities as a sole 6 1 2 [TA 2994(Del)08 determinative factor for the purpose of arriving at a decision as to whether certificate u/s 80 G(5) is to be granted to the appellant or not.
12. In "Shikshan Prasarak Mandali v. CIT" 10 DTR 470 (Pune) (copy fil'ed on record), it has been held that for the purpose of deciding as to whether or not approval u/s 80G of the Act is to be granted to an applicant, the CIT has to only examine whether or not the conditions set out under sec. 80 G(5) are satisfied. So in the present case, as noted above, there was no "business" of homeopathic dispensary being run by the assessee and the CIT failed to show that income there--from amounted to profits and gains of such business. Therefore, the reasons recorded for non-grant of renewal of registration .u/s 80 G(5) to the assessee, are found to be in- sufficient for the purpose.
13. Apropos the 1d. DR's reliance on Rule 11 AA(4) of the I.T.Ru1es, this Rule states that where the CIT is satisfied that all the conditions laid down in section 80 G(5) (i) to (v) are fulfilled, he shall record such satisfaction in writing and grant approval to the institution or fund specifying the assttyear or years for which the approval is valid. There is no denying the applicability of this rule to the jurisdiction of the Id. CIT for grant of approval u/s 80 G(5). But the department has itself stated that it is the proviso to section 80 G(5)(vi) which is material and that the conditions there-under have not been fulfilled by the assessee. This, however, is found to be incorrect.
13ITA 2994(Del)08 ' 14. Section 80G(5 )(i) states that where an institution or fund derives any income, such income would not be liable to inclusion in its total income under the provisions of sections 1 1 & 12 or clause (23AA) or clause (23 C) of section 10A of the Act. If the conditions laid down in the proviso to section 80G(5) are not fulfilled, however, such income is liable to be included in the total income of the institution. In the present case, as noted hereinabove, the assessee is not found to have violated the conditions laid down in the proviso to section 80 G(S). That being so, it is the main section 80 G(5) which is applicable and not the proviso to the said section. Rule 11 AA(4) of the rules thus does not act in any manner detrimental to the assessee.
15. Coming to the contention on behalf of the department that if the assessee was not carrying on a business of homeopathic dispensary, no depreciation could be allowed to it, the learned counsel for the assessee has placed reliance on "ITO v. Trustees of Marathi Mission And Vice-Versa", [1982] 1 ITD(B0m) 539. and, in our opinion, rightly so. In that case, the Tribunal held that the claim of depreciation, though not allowable in computing the total income, would still be allowable. The income of the trust is determined on commercial principles.
16. So far as regards the assertion that the assessee had itself admitted having carried on business of homeopathic dispensary, there is not found to be any such admission on the part of the assessee. To reproduce from the impugned order, the reply of the trust under point 18 was that "the trust is running a homeopathic clinic 14 ITA 2994(Del)08 which is incidental to the attainment of its aims and objects and the depreciation is claimed on the assets used for running of this homeopathic clinic only".
Under point No. 19 the trust submitted :-
"As the trust is running the homeopathic clinic, which is the object of the trust, and not carrying any other business, therefore, there is no requiremertt of maintaining the separate account for the business and donations. "
From the above averments of the assessee, it cannot at all be gathered, much less concluded, that the assessee has admitted having carried on the business of homeopathic dispensary. The drift of the reply is that the homeopathic dispensary was being run in accordance with the charitable objects of the assessee trust. Merely the use of the word "business" does not make this activity a business.
17. So the assessee's alleged admission regarding the 'business of homeopathy' is, actually, no admission. The question as to whether an activity is a business activity or not must be decided according to our ordinary notions as to what a business is. Profit making object primarily underlies a business. In the present case, no such object is found forthcoming. Rather it has not been shown that the dispensary was run counter to or beyond the assessee's objects.
18. The purpose of the assessee in dispensing homeopathic medicines is, as noted above, 'medical relief' within the definition of 'charitable purpose' , as envisaged by section 2(15) of the Act. 4 15 ITA 2994(Del)08
-19. So far as regards "Ganjam Nagappa And Son Trust v. Director of Income Tax(Exemption)" (supra), this decision is nowhere and in no way applicable to the facts of the present case. Therein, the Hon'ble Karnataka High Court held that a trust cannot be a tool for furtherance of a trade interest for another commercial organizations; and that the purpose of section 80 G of the I.T.Act is not for further promoting the commercial activities. On facts it was observed that the authority dealing with the application for renewal u/s 80 G, noticed, inter alia, withdrawal of substantial amounts and use thereof thereafter, withdrawal of Rs. 9 lakhs for purchasing the site in cash, non-availability of the signature on the sponsorship agreement and availability of programs only to a certain few persons. It was on these facts that the authority was not satisfied of any charitable activity being carried on by the applicant. The authority had been dissatisfied with the way in which the things were conducted by the trust by using musical concerts to further its business interests. The Hon'ble High Court found the order of the authority to be based as material available on record. It was observed that no contrary material had been placed to dislodge these factual findings.
20. In the present case, the facts are entirely at variance from those present in "Ganjam Nagappa And Son Trust v. Director of Income Tax(Exemption)" (supra). Here, the assessee has not been shown to have carried on any business, nor has it been shown to have done anything to further its business interests. It had not made 1 6 ITA 2994(Del)08 any withdrawal for purchase of property. Rather, the assessee has undeniably been dispensing homeopathic medicines, for which, it received token receipts and patient charges. Therefore, while there is no denying that a trust cannot be a tool for furtherance of a trade interest of another commercial organization and that the purpose of section 80 G of the Act is not for further promoting commercial activities, we hold that in the present case, neither has the assessee been a tool for furtherance of any trade interests of another commercial organization, nor has it tried to use the provisions of section 80 G for promoting commercial activities.
21. It is also seen that the 1d. CIT was entirely wrong in denying renewal of approval u/s 8OG(5)(vi) of the Act to the assessee on the basis that the donations made by the assessee to three societies were donations which were made to societies not registered u/s 12 AA of the Act. The CIT observed that the assessee failed to establish otherwise. If the assessee had failed to establish registration of its donees u/s l2AA of the Act, nothing stopped the 1d. CIT to make necessary enquiries in this regard from the donees themselves of the assessee. So far as regards the assessee, if any payment has been made to any institution which is not registered u/s l2AA of the Act, this shall be taken care of in the assessment of the assessee and it does not have any bearing on the renewal of the approval sought u/s 8OG(5)(vi) of the Act.
The observations of the CIT in this regard are, as such, 'wholly uncalled for.
5 17ITA 2994(Del)08 '22. In view of the above, finding merit in the grievance raised by the assessee before us, the same is accepted. It is held that the 1d. CIT erred in observing that the information given in the application for renewal of approval u/s 80 G of the Act was not true, fair and reliable and not competent for consideration of such renewal. It is also held that the 1d. CIT is wrong in observing that the assessee had not complied with the provisions of the proviso to section 80G(5)(i) of the Act. Too, we hold that the 1d. CIT erred in recording that since certain receipts in certain financial years were includible in the income of the assessee, the assessee was not eligible to get approval u/s 80 G of the Act. Moreover, the assessee has been undisputedly granted renewal of approval from time to time upto 31.3.08. It stands duly registered under sec. IZAA of the Act. Therefore, there having not come about any change whatsoever in the facts, the principle of consistency was wrongly given a go-by.
23. Accordingly, the id. CIT is hereby directed to grant, in the light of our above discussion, renewal of approval under section 80 G(5)(vi) of the I.T.Act to the assessee.
24. In the result, the appeal filed by the assessee is allowed.
Ot-def pronounced in the open court on .l?.06.2009.
_ /"
' A 4 4 '[1 . .. :-H (G.E. Veerabhadrappa) ' A Vice President Judicial Member Dated: l'\.o6.2oo9 *RM ' L' L1-W7» ' 18 [TA 2994(Del)08 copy forwarded to:
Agrawal Metal Works Charitable Trust, Jhajjar Road, Rewari. CIT, Rohtak. CIT CIT(A) DR E.J"I-§-LrJl\)I--- True copy By order Deputy Registrar