Income Tax Appellate Tribunal - Chennai
Shanmuga Arts Science Technology And ... vs Department Of Income Tax on 29 June, 2010
IN THE INCOME TAX APPELLATE TRIBUNAL
CHENNAI BENCH 'B' : CHENNAI
[BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER
AND SHRI N.S. SAINI, ACCOUNTANT MEMBER]
I.T.A.No.1531/Mds/2010
Assessment year : 2007-08
The Income-tax Officer (OSD) vs M/s Shanmuga Arts,
Exemptions-III Science, Technology &
Chennai Research Academy
(SASTRA)
No.5., Main Road
Dr. Subbaraya Nagar
Kodambakkam
Chennai - 24
[PAN - AAAAN0187C]
(Appellant) (Respondent)
Appellant by : Shri P.B.Sekaran, CIT/DR
Respondent by : Shri G.Narayanaswmy
ORDER
PER HARI OM MARATHA, JUDICIAL MEMBER:
This appeal of the Revenue, for assessment year 2007-08, is directed against the order of the ld. CIT(A), Chennai, dated 29.6.2010.
2. Briefly stated, the facts of the case are that the assessee is a Public Charitable Trust registered u/s 12A(a) of the Act. The Trust :- 2 -: ITA 1531/2010 owns and runs an educational institution by the name 'SASTRA UNIVERSITY'. It filed its return of income on 6.1.22006 showing 'NIL' income for the assessment year 2007-08 which was accepted u/s 141. Subsequently, scrutiny assessment was completed u/s 143(1) on 31.3.2009 determining the total income of the assessee at ` 12,19,15,648/-. While doing so, the exemption u/s 11 of the Act was denied on the ground that the assessee-trust had made certain donations which were not in conformity with its objects as contained in the Trust Deed. Being aggrieved, the assessee preferred first appeal. The ld. CIT(A), following the decision of Hon'ble A.P High Court rendered in the case of Trustees of H.E.H. the Nizam's Pilgrimage Money Trust vs CWT/IT (171 ITR 323), which was later approved by the Apex court, in which it was held that the donation made by the assessee are primarily for charitable activities recognized in law and also within the objects of the Trust, directed the Assessing Officer to allow the donation made by the assessee as claimed and to further allow the exemption u/s 11 of the Act. Now, the Revenue is aggrieved and has raised the following grounds before us:
:- 3 -: ITA 1531/2010"1) The order of the learned CIT(A) is contrary to the law and facts of the case.
2) Learned CIT(A) has erred to hold in para 9 of the appeal order that" it is immaterial whether the charitable or religious purposes for which the trust is created are confined to the objects of the Trust Deed. What is required is that the income must be applied or accumulated for application or set apart for application as per the provisions of the Income Tax Act, 1961" If the above findings is accepted then any trustee will be at liberty to act beyond the mandate of the trust deed. In that case, the activities not In consonance with the desire of the settlor will be permissible. Therefore the above view of Learned CIT is against the provisions of law.
2.1) The learned CIT(A) has erred in holding that all the donations made by the assessee were in conformity with the objects of the trust though the donations made by the assessee to various donees were towards non-
educational purpose also and some of them were neither having registration u/s.12A nor having exemptions u/s.80G of the 1.T.Act. It is submitted that the major amount of donations (` 6.5 crores) were made to the trusts wherein the trustees in the assessee trust or their relatives are also the trustees.
2.2) The learned CIT(A) has erred by stating that the assessee trust is a normal public charitable trust and is governed by the provisions of Sec.11 of the Act and its activities are restricted not only to the educational activities but to all public charitable activities. It is submitted that the assessee had failed to inform the learned CIT(A) that it had subsequently made a declaration on 6.52000 and an amendment on 19-01- 2001 restricting its objects solely to educational purposes from general public charitable objects / activities.
2.3 It is submitted that the amendment to the Trust Deed dated 19-04-1984, was made on 19-01-2001.and as per the amendment deed produced during the assessment proceedings, the assessee has restricted the objects of the Trust to only educational purposes. It is submitted that where the amendment is relevant to the Assessment Year 2007-08, the act of the assessee giving donation as described in para 2 above for other than educational :- 4 -: ITA 1531/2010 purposes amounts to violation of the objects of the Trust.
2.4. The learned CIT(A) ought to have seen that in order to get deemed university status, the assessee trust had made the changes in the trust deed It is submitted that relying on this amendment only the assessee trust has been notified for claiming exemption u/s. 10(23C)(vi) of the Act It is submitted here that in case. the institution (deemed-to-be-University) fails to comply with the direction(s) of the Central Government/UGC and I or fails to perform as per expectations of the Central GovernmentIUGC the deemed to be University status conferred on the institution can be withdrawn by the Central Government on the recommendations of the UGC.
2.5. The learned CIT(A) ought to have seen that as per the records the objects are only educational in nature and do not include giving donations to religious institutions or political parties. The assessee-trust, at the time of filing Form 35, has stated in the grounds of appeal that "no part of the funds of the Trust had been used for non- charitable purposes It is submitted that on verification records, it was found that the assessee had made donations to political parties / others which were not in line with their objects It was stated before the learned CIT(A) vide SI. NO.6 of the grounds of appeal that "without prejudice to the above, the appellant submits that the gross revenue of the appellant was in excess of ` 60 crores and the amount involved is less than 0.4% of the gross revenue". It is submitted that the assessee considers only the amount involved neglecting the objects of the trust.
2.6. The learned CIT(A) ought to have seen that five major donations amounting to ` 6.5 crores were made to the trusts wherein the trustees in SASTRA or their relatives are also the trustees in the donee trusts The objects / activities of the donee trusts include not only the educational purposes but also the other charitable purposes. It is submitted that the assessee trust had not provided any evidence that the amounts donated were applied only towards educational purposes and hence violated the objects.
:- 5 -: ITA 1531/20102.7. The learned CIT(A) ought to have seen that the amount of ` 5 lakhs had been remitted by the founder of the institution to the assessee trust during the year itself but no evidence in support of the same had been submitted before the assessing officer either at the time of assessment proceedings or at the time of remand report called for.
2.8 The learned CIT(A) ought to have seen that on examination of records, it was found that the donations made by Indian People Youth Federation. MMTC Ltd., Delhi Gurucharan Singh's marriage, Tsunami activities carried out, Chanmuga Desika Gnana Sambandha Paramachari Swamigal Sadhabisheka Committee, Thangamuthu, Ramkumar, Ramanathan, Shri.NanjiKVaradaraJar\ Grama Kovil Poojaris Peravai, Sivananda Orphanage, neither any evidence produced nor was the evidence produced found to be adequate.
2.9 The learned CIT(A) has erred in holding that exemption u/s 11 can be denied only if the registration u/s.12A or 12M is not granted or is withdrawn or when the trust has contravened the section 13 of the Act Having regard to the findings in the case of Aditanar Educational Institution Vs. Addl. CIT (224 ITR 310)(SC), wherein it was held that the availability of exemption is to be evaluated each year in each case, the learned CIT(A) ought to have upheld the findings of the assessing officer that on violation the trust was not eligible for exemption u/s 11 for the relevant assessment year.
3. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) be set aside and that of the assessing officer restored. "
3. We have considered the rival submissions and have carefully perused the entire record. In effect, only one issue has been raised in this appeal. The ld. CIT/ DR, Shri P.B.Sekaran, argued that the income of the trust must be applied for or set apart :- 6 -: ITA 1531/2010 for application as per the provisions of the Income-tax Act, 1961.
According to him, donations were made in violation of the objects of the trust. The assessee was asked to furnish the details of donations made during the year. On 27.10.2009, the assessee filed details of investments, addition to fixed assets, donations received during the year, donations paid during the year etc. alongwith a covering letter before the Assessing Officer. On perusal of the details so furnished, in box files, it was noticed that the assessee had paid donations through SASTRA an amount of ` 6,70,21,273/- which included donations paid to the donees as per Annexure 'A' including donations made to some political parties, individuals and others. The assessee has claimed donations paid as ` 6,65,60,886/-in its return of income under the head 'donations and charities'. The difference has been explained as additional donation of ` 39,613/- towards charities for Tsunami and donation of ` 5,00,000/- received from S.Ramachandra Iyer which has been deducted from the total amount paid as per Annexure A. The details of donations paid and money spent towards charitable activities were also given. The Assessing Officer found the details given in the list and the covering letter to be contrary to each other, so, he asked the assessee to explain whether such donations were towards the activities laid down as per the objects of the trust :- 7 -: ITA 1531/2010 or not. The assessee again filed the requisite explanation but the Assessing Officer was not satisfied. He held that the trust had carried on activities not allowed by the objects of the trust, so the trust is not eligible for exemption u/s 11 and therefore, he brought to tax the entire in the status of 'AOP'. Having found as above, an amount of ` 22,00,56,146/- claimed as capital expenditure being application of income, was not considered by the Assessing Officer because the assessee was treated in the status of 'AOP'. Since the assessee was assessed as 'AOP', depreciation of ` 10,09,67,711/-, although not claimed by the assessee, was allowed by the Assessing Officer. The Assessing Officer has finalized the assessment with the following reasoning:
"Among all other details called for, the assessee was asked to furnish the details of donations made during the year. The Assessee's representative has filed details on 27.10.09 enclosing box files with details of investments, addition to fixed assets, donation received during the year, donations paid during the year etc. along with a covering letter. On perusal of the details furnished, in the box file No.6, it is seen that the assessee had 'paid donations through SASTRA' an amount of ` 8, 70,21,273/- which include donations paid to the donees as per Annexure-A including donations made to some political parties, individuals and others. The assessee has claimed donations paid as ` 6,65,60,886/- in its return of income under the head 'Donations and Charities'. The difference has explained as additional donation of ` 39,613/- - Charities for Tsunami and donation of `5,00, 000/- received from S. Ramachandra Iyer which has been :- 8 -: ITA 1531/2010 deducted from the total amount paid as per Annexure A. As per Point No.8 of the letter filed on 27.10.09, the details of donations paid and money spent towards charitable activities were given (Annexure -B), wherein some of the donations listed in Annexure A were clubbed under sundries.
Annexure -A
Name of the Donee Amount(in `)
1 Charities for Tsunami ) 39,613
2 Sivanand Saraswathi Sevashram, Chennai. 10,000
3 Senthalai Villa Shri Muthumariamman Temple 5,000
4 Shri Tindivanam Ramamurthy 2,00,000
5 Shri Rama Ramanathan 1,00,000
6 Shri Kosi Mani 1,00,000
7 Shri Thangamuthy 2,00,000
8 Shri Ramkumar 50,000
9 Communist Party .. 50,000
1,75,000
10 Shanmugha Desiga Gnana Sambanda
Swamiqal Sathabisheka Committee, Mayuram 11 Jawaharlal Nehru Centre 48,000 12 Station Commander, Air Force Station 18,000 13 Shri Java Bhamini Trust 25,000 Shri Nanjil K. Varadarajan - GKMoopanar 14 15,000 Memorial Celebration 15 Grama Kovil Poojaris Peravai 2,00,000 16 Shiv Mandir Trust, Lucknow. 50,001 17 Indian Youth People Federation 2,000 18 Sri Vishnu Sahasranama Satsanqam 12,500 19 Sri Sri Mahalakshmi Mathrubutheswarar Trust 5,00,000 Security Systems installed at Guruvayur 20 1,00,000 Temple 21 MMTC Limited (Gift Items) 60,772 22 Delhi Guru Charan Singh's marriage 25,000 :- 9 -: ITA 1531/2010 23 Thanjavur Ewari Nagar Prithvinga Temple 25,000 24 Congress party 50,000
-
25 Shri V Raghava Iyer Foundation 1,25,00,000 26 S. Ramachandra Iyer & Rajalakshmi Ramachandra 1,25,00,000 Iyer Sathabisheka Trust 27 Nemmeli Subramaniya Ramachandra Iyer 1,50,00,000
-- Foundation 28 N. R. Subramania Iyer Foundation 1,25,00,000 Shri R. Sethuraman & Chandra Sethuraman Silver 29 1,25,00,000 Jubilee Trust Total 6,70,60,886 As the details given in the list and the covering letter are contrary, assessee was asked to explain whether such donations were towards the activities laid down as per the objects of the trust. Letter filed by the representative on 30.12.2009 also covers only the major parties to whom the donations were given along with their PAN numbers as listed below, which are the same as those listed by the assessee in Annexure A, serial nos. 25 to 29.
S.No Name of the Donee PAN Amount (in
`)
1. Shri V. Raghava Iyer AAAIV0469L 1,25,00,000
Foundation
2. S. Ramachandra Iyer & AAATS2952S 1,25,00,000
Rajalakshmi Ramachandra
Iyer Sathabisheka Trust
3. Nemmeli Subramaniya AAATN7677G 1,50,00,000
Ramachandra Iyer
Foundation
4. N.R. Subramania Iyer AAATN0573B 1,25,00,000
Foundation
5. Shri R.Sethuraman & AAATS2951G 1,25,00,000
Chandra Sethuraman Silver
Jubilee Trust
No explanation has been offered in respect of the other donations, as called for. In the absence of any satisfactory explanation, it is concluded that the other donations like donations made to political :- 10 -: ITA 1531/2010 parties, individuals and towards other purposes are not towards any charitable purpose and not in order to carry out the activities in conformity with the objects of the trust. As the trust has carried out activities not enabled by the objects of the trust, the trust is not eligible for exemption u/s 11 and the income is brought to tax in the status of AOP.
The assessee has claimed capital expenditure of ` 22,00,56,146/- as application of income. The same is not considered as the assessee is being faxed in the status of AOP. The Depreciation of ` 10,09,67,711/- though not claimed by the assessee is allowed for the reason that the assessee is being taxed in the status of AOP."
4. At the time of hearing of appeal before the ld. CIT(A) , following written submission, alongwith evidence in respect of claim made therein, were filed by the assessee :
"This appeal is against the order of the Assessing Officer wherein the exemption claimed u/s 11 of the IT Act, 1961 has been denied on the ground that the appellant had made certain donations which in the opinion of the Assessing Officer were not intended for charitable purposes and also not in order to carry on the activities in conformity with its objects of the appellant.
A total of ` 6, 70,60,886/- has been incurred towards 'Charity and Donations' during the year 2006-07 ( Asst. Year 2007-08) out of which the Assessing Officer has accepted a sum of ` 6,50,00,000/- as donations made in pursuant to the objects of the appellant and the balance of ` 20,60,886/- according to the Assessing Officer are not for charitable purposes and also not in pursuant to the objects of the appellant.
The details of the donations paid by the appellant and not accepted by the Assessing Officer are as under:
(A). Donations to various trusts having the benefit of 80G granted by the Income-tax Department in respect of donations received by them::- 11 -: ITA 1531/2010
SNo. Name of the trust 80G No. Amount
(in ` )
1 Sri Sri Mahalakshmi DIE(E)No.231/91- 5,00,000
Mathurbutheswarar 92 dated 27.6.05
Temple
2 Grama Koil Poojari DIT(E) 2,00,000
Peravai No.2(525)/95-96
dated 22.2.06
3 Jayabhamini Trust C.1752 25,000
E(34)/CIT/II/Pry
4 Vishnu Sahasranama DIT(E)2004-05 S- 10,000
Sathsangham New 3257/02/147 dated
Delhi 27.4.05
5 Sivananda D 1802939(88)/86- 10,000
Saraswathi 87 dated 17.7.03
Sevashram
Total 7,47,500
(B) Other donations - ` 68,000/-
1. Donation of ` 48,000/- has been made to Jawaharlal Nehru Centre for advanced Scientific Research, a Deemed University administered by the Department of Science & Technology, at Bangalore for purchase of copies of the Book 'Learning Sciences' written by Prof. C.N.R. Rao. These books were purchased and distributed to all Higher Secondary and High Schools in Thanjavur District for dissemination of knowledge. In the earlier years 200 books were purchased and distributed to local high schools.
2. Donation of ` 18,000/- has been made to Station Commander, Air Force Station, Thanjavur. The Air Force Station conducted an outdoor programme at Thanjavur on 23.06.06 and an indoor programme on 25.06.06 to create awareness among the students of various colleges and schools and to make the people understand the existence of Air Force and its purpose. A request from Group Captain Shri R. Nagarajan was made in this regard and SASTRSA was willingly participated in that event by sponsoring hiring of projector and screen for the event.
3. Donation of ` 2000/- has been made to Indian People Youth Federation for their conducting a camp against religious, communal and linguistic chauvinism.:- 12 -: ITA 1531/2010
(C) Staff Welfare Activities - ` 85,772/-
1. ` 60,772/- represents gift items purchased from MMTC for presentation at the time of marriage and other important occasions relating to staff members. The appellant believes in keeping its staff happy. There is no arguing about the fact that the giving of gifts on special occasions (such as marriages etc.) has become a very big part of staff welfare activities because the employees perceive gesture of thanks and as an expression of gratitude to the employees.
2. ` 25,000/- Gift made at the time of marriage of the daughter of Shri Guru Charan Singh, former Joint Secretary of University Grants Commissioner He was also the Honorary Consultant to the Appellant at Delhi.
(D) Other Welfare Activities : ` 39,613/-
1. ` 39, 613/- was incurred towards Tsunami activities carried on by the appellant. The Department of Science & Technology, Govt. of India, has sanctioned a sum of ` 40. 00 lakhs for construction of community halls and catamaran boats etc. at two places in TSUNAMI affected area. The appellant was associated with the work and after settlement of the bills and submission of accounts, a few masons represented for wages belatedly and it was settled by SASTRA.
The first death anniversary of late Shri G. K. Moopanar was organised at Kumbalwnam with poor feeding and distribution of clothes to school children's. A sum of ` 50000/- was incurred in this regard.
(E) Advertisement Charges - ` 1,75,000/-
One of the objects of the appellant is to promote other charitable institutions by way of grants engaged in welfare activities of the general public like propagating philosophy that sustains human life harmony with nature and with the law that sustains the universe and 'to truths/institutions that propagate the natural laws associated with the physical phenomenon of the universe, such as the laws of matter, science, and planetary motions and human actions which maintain the individual, social and environmental order. In this regard the appellant has paid a sum of ` 1, 75,000/- to Shanmugha Desika Gnanasambandar Paramacharaya Swamigal Committee who are engaged in the above activities.
:- 13 -: ITA 1531/2010(F) Annadanam (Poor Feeding) - ` 3,50,000/-
Scriptures of every religion affirm that of all the charities like giving money, clothes, land to poor and downtrodden; Annadhan (offer of food) is the best. Food given to the hungry unifies the community. No other charity can make a man feel satisfied as food served when a person is hungry. The appellant does annadhanam to the poor and needy in villages/towns around its campuses to develop communal harmony. Such occasions are followed by a mass awareness programs to help the participants to gain insight into the nature of reality where· discussions happens on philosophy. Eminent spiritual personalities are also invited to address and participate on such occasions.
During the year, the appellant had conducted annadanam (poor feeding) on various occasions either under the supervision of the following individuals viz
1. Mr.Thangamuthu ` 2,00,000
2. Mr.Ramkumar ` 50,000
3. Mr Ramanathan ` 1,00,000 (G) Donations given for religious activities : ` 80,001/-
The appellant has incurred a sum of ` 80,001/- towards partial renovation of various temples near the campus and far off places. The expenditure is within the limits of 5% allowed under the Income Tax Act, 1961.
1. Shiva Mandir Trust, ` 50,001 Lucknow
2. Thanjavur Eswari Nagar ` 25,000 Pratyinga Temple
3. Muthumariamman ` 5,000 Temple (H) Others: Nil A sum of ` 5, 00, 000/- represents payments made during the year to the following Temples/Persons/Institutions at the request of the Founder of this Institution and the amount has been remitted by him to the institution in the relevant financial year itself:
:- 14 -: ITA 1531/20101. Guruvayur Temple ` 1,00,000
2. Mr.Tindivanam ` 2,00,000 Ramamurthy
3. Communist Party ` 50,000
4. Congress Party ` 50,000
5. Mr. Ko. Si Mani ` 1,00,000 As the founder of the institution remitted the money back to the appellant in the relevant financial year itself, there is no outflow by the appellant with regard to the above payments.
By stating the above in its written submissions, the appellant had summed, up that the 'above mentioned donations made by the appellant are primarily charitable activities recognised in law and also within the objects of the Trust' and that it was prayed by the appellant that the donations paid be allowed as claimed and the exemption u/s 11 of the Income-tax Act, 1961 be restored.
5. The above written submission was sent to the Assessing Officer for his comments/remand report. The Assessing Officer, vide her letter dated 25.5.2010, submitted remand report called for which has been extracted by the ld. CIT(A) in para 5 of order and we are also reproducing the same, for ready reference:
"2. The assessee during the course of scrutiny hearings, had filed details of donations paid by it. These details had been filed under the caption "paid donations through SASTRA" for an amount of ` 6,70,21,273/-. These are enumerated as per Annexure-A These details include donations made to political parties, individuals etc. Annexure A, of the assessee is reproduced here for easy and ready comprehension.
:- 15 -: ITA 1531/2010
Annexure A
Sl No. Name of the donee Amount
1. Charities for Tsunami 39,613
2. Sivanand Saraswathi Sevashram, Chennai 10,000
3. Senthalai Villa Shri Muthumariamman Temple 5,000
4. Shri Tindivanam Ramamurthy 2,00,000
5 Shri Rama Ramanathan 1,00,000
6 Shri Kosi Mani 1,00,000
7 Shri Thangamuthu 2,00,000
8 Shri Ram Kumar 50,000
9 Communist Party 50,000
10 Shanmugha Desiga Gnana Sambatda Paramachariya 1,75,000
Swa~igal
Sathabisheka Committee, Mayuram
11 Jawaharlal Nehru Centre 48,000
12 Station Commander, Air Force Station 18,000
13 Shri Jaya Bhamini Trust 25,000
14 Shri Nanji K Varadarajan - G.K. Moopanar Memorial 15,000
Celebration
15 Grama Kovil Pooiaris Peravai 2,00,000
16 Shiv Mandir Trust, Lucknow 50,001
17 Indian People Youth Federation 2,000
18 Sri Vishnu Sahasranama Satsangam 12,500
19 Sri Sri Mahalakshmi Mathrubutheswarar Trust 5,00,000
20 Security Systems installed at Guruvayur Temple 1,00,000
21 MMTC Ltd.(Gift Items) 60,772
22 Delhi Guru Charan Sinqh's Marriaqe 25,000
23 Thanjavur Eswari Naqar Prithyinga Temple 25,000
24 Congress Party 50,000
25 Shri V. Raghava Iyer Foundation 1,25,00,000
26 S. Ramachandra Iyer & Rajalakshmi Ramachandra Iyer 1,25,00,000
Sathabisheka Trust
27 Nemmeli Subramaniya Ramachandra Iyer Foundation 1,50,00,000
28 N.R. Subramania Iyer Foundation 1,25,00,000
Shri R. Sethuraman & Chandra Sethuraman Silver Jubilee 29 1,25,00,000 Trust Total 6,70,60,886
3. On perusal of the return of income and the annexure A discussed above, it is noticed that the assessee had claimed to have paid donations of ` 6,65,60,886 /- in its return of income under the head "donations and charities". Whereas as per the annexure, the donations made by SASTRA are shown as ` 6,70,21 ,273/-. The difference, as explained by the assessee is on account of the following. .:- 16 -: ITA 1531/2010
a) Additional donation of ` 39,613/- towards charities for tsunami.
b) Donation of ` 5,00,000/- received from S. Ramachandra Iyer, which has been deducted from the total amount paid as per annexure A and reconciled and filed in the return of income.
4. The assessee had filed letter dated 27-10-2009 in which the detaiis of donation paid and moneys spent towards charitable activities were furnished. The same was furnished (Annexure B) vide that letter. It is noticed that some of the donations listed in Annexure A above filed by the assessee vide the same letter dt 27-10-2009 were also clubbed under the head "sundries" of Annexure B. It would be pertinent to note here that the assessee has clubbed donations not covered by Sec. 80G under the umbrella of " sundries ".
5. It is noticed that as per para H of the written submissions of the assessee made before CIT (A) -XII, the assessee has claimed that the following donations made by the trust have been recovered from the founder trustee Shri, S, Ramachandra Iyer within the same financial year. However, during the course of these proceedings at no point of time did the assessee provide any evidence for such recoveries being effected form the founder trustee. In light of the same this contention of the assessee is uncorroborated. The list of the donations claimed to be recovered is as under:
1 Charities for Tsunami 39,613 4 Shri Thindivanam Ramamurhty 2,00,000 .
6 Shri Kosi Mani 1,00,000 9 Communitst Party 50,000 20 Security Systems installed at Guruvayur Temple 1,00,000 24 Congress party 50,000
6. On perusal of the submissions of the assessee and the paper book forwarded by the learned CIT (A) - XII, it is verified and found that the following donations were made towards educational activities and are in conformity with the objects of the trust. They are listed as under:
11 Jawaharlal Nehru Centre 48,000 12 Station Commander, Air Force Station 18,000 25 Shri V. Raghava Iyer Foundation 1,25,00,000 :- 17 -: ITA 1531/2010 26 S. Ramachandra Iyer & Rajalakshmi Ramachandra 1,25,00,000 Iyer Sathabisheka Trust 27 Nemmeli Subramaniya Ramachandra Iyer Foundation 1,50,00,000 28 N.R. Subramania Iyer Foundation 1,25,00,000 Shri R. Sethuraman & Chandra Sethuraman Silver 29 1,25,00,000 Jubilee Trust
6. In respect of the following donations, though the donees have exemption u/s 80G, the assessee during the course of these proceedings, could not produce any evidence that I! these particular donations were towards educational activities. The list of such donees is as under:
15 Grama Kovil Poojari's Peravai 2,00,000 18 Sri Vishnu Sahasranama Satsangam 12,500 19 Sri Sri Mahalakshmi Mathrubutheswarar Trust 5,00,000
7. In regard to the following donees, it is noticed that neither exemption u/s 80G is available to these donees nor has the assessee been able to furnish any evidence that the following donations were made for solely educational activities. The assessee vide his written submissions before the CIT(A)-XII in para G has accepted the fact that donations in S. Nos. 3,16 and 23 listed below were towards religious activities and not towards educational activities.
S.No. Name of the Donee Amount(Rs.)
2 Sivananda Saraswathi Se.vashram, Chennai 10,000
3 Senthalai Villa Shri Muthumariamman Temple 5,000
5 Shri Rama Ramanathan 1,00,000
7 Shri Thangamuthu 2,00,000
8 Shri Ram Kumar 50,000
10 Shanmugha Desiga Gnana Sambatda 1,75,000
Paramachariya Swamigal
Sathabisheka Committee, Mayuram
13 Shri Jaya Bhamini Trust 25,000
Shri Nanji K. Varadarajan - G.K. Moopanar Memorial 14 15,000 Celebration 16 Shiv Mandir Trust, Lucknow 50,001 17 Indian People Youth Federation 2,000 21 MMTC Ltd.(Gift Items) 60,772 22 Delhi Guru Charan Singh's Marriage 25,000 23 Thanjavur Eswari Nagar Prithyinga Temple 25,000 :- 18 -: ITA 1531/2010
8. Needless to say that the objects of the trust deed are binding on the trustees. The registration u/s 12AA is granted by the DIT(Exemption) based on the objects in the trust deed. In the instant case, the assessee is a deemed university & has objects solely educational in nature. As it has already been held in the case of Aditanar Educational Institution Vs. Addl.CIT (224 ITR 310)(SC), the availability of exemption has to be evaluated each year in each case. Likewise, the benefit of exemption is to be evaluated each year even in this case. The assessee's contention vide his additional written submissions before CIT(A)-XII dated 19-4-2010 that exemption u/s 11 can be denied only if the registration u/s Sec 12A or 12AA is not granted or when the trust has contravened Sec. 13 of the Act, is not correct because withdrawal of registration u/s 12AA is not a pre- requisite for withdrawal of exemption u/s 11.
9. As per the list of donations filed by the assessee, it was noticed that it had deviated from the objects stated in the trust deed by making the above donations, especially out of the fees received from the students, which is the main resource for the trust to carry out the objectives laid down in the trust deed. It had carried out activities not enabled by the objects of the trust. Hence, the trust was not eligible for exemption u/s 11 for the said . asst.year. The activity should be covered by the ambit of the document i.e., the trust deed as enumerated in Rukmani Kannan Vidyalaya Trust vs CIT (2001) 249 ITR 111(Mad).
In light of the above discussions, it is abundantly clear that the assessee trust has made donations in violation of the objects of the trust. The natural follow-up of this would be denial of exemption u/s 11. "
6. To the above remand report, the assessee furnished a rejoinder dated 15.6.2010 which reads as under:
"Of the total sum of ` 6,70,60,886/-, disbursed by the appellant towards 'Charity and Donations' during the year 2006-07 (Asst. Year 2007-08, the Assessing Officer has accepted a sum of ` 6,50, 66,000 as donations made in pursuant of the objects of the appellant and the balance of ` 19,94,886/- (constituting 0.36% of the total expenditure of the appellant) according to the Assessing Officer are held not in accordance with the objects of the trust (even though the :- 19 -: ITA 1531/2010 donation made is for charitable purposes) hence exemption u/s 11 of the Incometax Act, 1961 needs to be denied.
In this regard, the appellant would like to highlight the following inconsistencies in the remand report of the Assessing Officer.
1. At the outset, the appellant submits that all the donations made by it are primarily charitable activities recognized in law and also within the objects of the Trust of the appellant;
2. In para 8,9 & 10 of the remand report, the Assessing Officer has stated that (a) the assessee trust has made donations in violation of the objects of the trust. The natural follow-up of this would be denial of exemption u/s 11 of the Income-tax Act, 1961; (b) The registration u/s 12AA is granted by the DIT(Exemption) based on the objects in the trust deed; (c) the assessee is a deemed university and has objects solely education in nature; and (d) withdrawal of registration u/s 12AA is not a prerequisite for withdrawal of exemption u/s 11.
3. To support her contentions, the Assessing Officer has relied on the decision of the Rukmani Kannnan Vidya/aya Trust vs. CIT (2009) 249 ITR 111 (Mad.);
4. The appellant herewith encloses a copy of its Trust Deed dt. 19.04.1984 and also an annexure wherein the details of the donations (that are alleged by the Assessing Officer are not in accordance with the objects of the Trust) with the relevant clauses of the Trust Deed under which the donations have been made. It may be noted as per Trust Deed the trustees are given absolute discretion to apply the trust funds to anyone or more of the specified objects of the trust, the trustees having done so the same does not call for interference from the Assessing Officer;
5. The Assessing Officer has not even accepted a sum of ` 715000 being donations paid to public charitable trusts which also enjoy exemption u/s 80G of Income Tax Act, 1961 as the assessee could not produce evidence .that these particular donations were towards educational activities. The appellant submits that its trust deed allows for giving of donations to trusts which are generally carrying on charitable activities (clause 14 of the Incidental objects clause of the Trust Deed). A trust which is registered u/s 12A/12AA and also has the benefit of exemption u/s 8OG in respect of donations :- 20 -: ITA 1531/2010 received by it is certainly a trust which carries on charitable activity and therefore there is no violation of the Trust Deed.
6. In view of the above, the fact that all of the donations are covered by the object clauses of the Trust Deed of the appellant, it cannot be considered as not a proper charge to the income and expenditure account of the appellant i.e. one which would not qualify as falling within its 'objects' and once it is so, there cannot be any question of its disallowance and/or considered as not a proper application (of income). Further, income under the Act, has to be considered not in a technical sense, but as a man of business/commerce would understand, so that all expenses that go in the conduct of the business would warrant a deduction, as per the settled law. Thus, there is an error on the part of the Assessing Officer, in construing certain sums as an application of income, so as to merit examination u/s 11 (1)(a), being only an expense incurred in the running of the Trust by its management, and over the affairs of which it has complete charge, and no interference from any quarter can be called for, least of all from the tax authorities.
7. The case relied by the Assessing Officer Rukmani Kannan Vidyalaya Trust vs. CIT (2001) 249 ITR 111 (Mad.) was on the following issues : (a) Whether on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the income of the trust from Kindergarten Section is not entitled to exemption as running of a Kindergarten Schools is not within the ambit of the trust's objects? (b) whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the entire income of the trust has not been utilized for education activities and as such, the income from Kindergarten School and the ladies hostel is not exempt? (c) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the income from the ladies hostel as it is not entitled for exemption as it is not a charitable object and involves an activity for profit? (d) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in rendering such a finding without adverting to the evidence and findings recorded by the CIT(A)? (e) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the rectification made to the objects of the trust cannot have any retrospective operation?"
8. The decision of the Madras High Court (referred by the Assessing Officer) is only a direction to the Income Tax :- 21 -: ITA 1531/2010 Appellate Tribunal to frame aforesaid questions that require consideration by the Court and not a judgement on the questions referred therein. Hence, the Assessing Officer's view that the appellant is not eligible for exemption u/s 11 based on the directions in the judgement of Rukmani Kannan Vidyalaya Trust vs. CIT (249 ITR 111) is an incorrect application of a direction. .
9. The assessee's reliance of the judgement of Aditanar Educational Institution vs. Add!. CIT (224 ITR 310) (SC) is totally out of place for that judgement dealt with the provisions of Sec. 10(22) of the Income Tax Act, 1961 whereas this is a case of exemption u/s 11 of the Income Tax Act, 1961.
10. The appellant also submits the following well accepted propositions of law for your kind consideration:
(a) It has been held in the case of Baroda Cricket Association vs ITO 8 SOT 735 that an association, as a running concern, does not require the continuous support of its members. By appreciating their services, therefore, it was not only celebrating its long history, a sense of which was necessary for an Institution to remain on course, but also encouraging them by generating some self-esteem, and thus, targeting its needs. There was thus, a live link between the 'object' of the association and the impugned layout. Therefore, the assessee's claim of deduction was sustainable.
(b) It has been held in the case of Shrimad Vallabh Vishwa Dharma Sanstha vs. Addl. CIT 102 TT J 653, that particularly when genuineness of payments incurred by assessee was not doubted, the Assessing Officer should not make any disallowance.
11. In para 5 of the remand report, the Assessing Officer has stated that the appellant did not provide any evidence for recoveries being effected from the founder trustee Shri S. Ramachandra Iyer of a sum of ` 5, 00, 000 in respect of certain donations paid on his behalf and hence the contention of the assessee is uncorroborated. The Assessing Officer in para 3 of her remand report, has stated that the donations paid were ` 665,60,886 only. The very fact that the total amount of donations disbursed by the appellant is lower than the donations actually claimed by the appellant (both in her assessment order and in her remand report) clearly proves that there has been a recovery of ` 5. 00 lakhs from Shri S. Ramachandra Iyer.
:- 22 -: ITA 1531/2010In view of the above submissions on facts, the appellant hereby prays that the appeal be allowed on the facts of the case.
In addition to the above, the appellant had submitted in the said written submissions as under:
"In addition to the above submissions on facts, the appellant submits following submissions on law for your kind consideration:
1. The appellant submits that the Assessing Officer's view that 'withdrawal of registration u/s 12AA is not a prerequisite for withdrawal of exemption u/s 11 is not correct. Sec. 12A of the Income Tax Act, 1961 (under which the appellant Trust is registered) states 'the provisions of Sec. 11 and Sec. 12 shall not apply in relation to the income of any trust of institution unless the following conditions are fulfilled ..... '. Thus the legislature itself provides the procedure for withdrawal of exemption u/s 11 viz: ' a. When the provisions of Sec. 13 are applied by the Assessing Officer which not in appellant's case b. The registration granted to a trust is withdrawn by the Commissioner of Income Tax u/s 12AA(3) of the Income Tax Act, 1961 - which is not done in appellant's case.
Therefore, applicability of the provisions of Sec. 11 of the Income Tax Act, 1961 (save sec. 13 of the IT Act, 1961) is governed by Sec. 12A. Sec. 12AA(3) of the Income Tax Act, 1961 provides for withdrawal of registration granted u/s 12A under certain circumstances. Therefore, if the Assessing Officer wanted to deny exemption u/s 11, she would have first referred the matter to the Commissioner of Income Tax for withdrawal of registration u/s 12AA(3) of the Act and upon receipt of the Order of the Commissioner cancelling the registration u/s 12, proceeded to deny the exemption u/s 11 of the Act. The appellant therefore submits that since the Assessing Officer has not followed the procedure laid down under the Income Tax Act, 1961. In this regard the appellant would like to bring to your kind attention the observations of the Bombay High Court in the case of S. C. Prashar VS. Vasantsen Dwarkadas (29 ITR 857) 'Therefore, these authorities clearly establish that a patent want of jurisdiction entitles the petitioner to obtain immediate relief from the High Court, even though he could :- 23 -: ITA 1531/2010 raise the plea of want of jurisdiction in a higher tribunal even though, as the English cases point out, he may have acquiesced in the want of jurisdiction must be a patent one. In our opinion, the want of jurisdiction pleaded by the petitioner in the case before us is undoubtedly a patent one, and if it is a patent want of jurisdiction, not only would be rightly exercising our discretion in interfering, but according to the English Courts it would be our duty and our obligation to prevent an authority from assuming jurisdiction which it patently does not possess".
2. Even assuming, but not conceding the contention of the Assessing Officer that the donations mentioned in the assessment order as not covered by the objects of the trust it would by itself disentitle the assessee the exemption u/s 11 as long as the amount spent is for charitable purposes, for Sec. 11 of the Income Tax Act, 1961 states that:
"Subject to the provisions of Sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income;
(a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of fifteen per cent of the income from such property;
..... "
The substantive part of clause (a) is in two parts: the first part relates to the income derived from property held under trust wholly for religious or charitable purposes and the second part, to income derived from property so held in part only for such purposes. But the necessary condition for attracting the first part of the clause is that he said income is applied or accumulated for application to such religious or charitable purposes, and to attract the second part, the income from the property so held in part shall have been applied or finally set apart for application to the said purposes. A comparative study of the two parts clarifies the scope of the provision. The expression used in the first part is "applied or accumulated for application" and the expression used in the second part is "applied :- 24 -: ITA 1531/2010 or finally set apart for application". The words "applied or finally set apart for application" in the second part indicate that unless the income from the said property is applied or finally set apart for the purposes, the said income does not earn the exemption. There cannot be any reason why a different meaning should be given to the expression "applied or accumulated for application" in the first part of the clause, for on principle, there cannot be any possible distinction between such income from the property wholly held under trust or a part of the property held in trust. The words "applied" and "accumulated", therefore, must mean "applied or finally set apart". "Applied" means that the income is actually applied for the said purposes. It is, therefore, manifest that under clause (i), only income from the property wholly or in part held in trust actually applied or set apart for application for future spending on charitable purposes is exempted from inclusion in the total income.
Further, Under the Income Tax Act, it is immaterial whether the charitable or religious purposes for which the trust is created are confined to the objects of the Trust Deed, what is required is that the income must be applied or accumulated for application or set apart for application as per the provisions of the Income Tax Act, 1961. For what is relevant under the Income Tax Act is the 'application of income'. Thus even though the objects of the trust do not empower the trustees to spend any part of the income of the trust property for a particular purpose, still, if they do spend any part of the income, or accumulate or set it apart for application, for charitable or religious purposes in India, it would be entitled to exemption u/s 11(1)(a) for that year. It may be that the trustees would be acting contrary to the terms of the trust deed, but that may not be a relevant circumstance u/s 11 (1 )(a), since under this provision what is relevant is the application of the income and not the objects. A similar view has been taken by the Andhra Pradesh High Court in the case of Trustees of H.E.H. the Nizam's Pilgrimage Money Trus vz. CWT/IT (171 ITR 323) wherein the Hon'ble Court has held that "If any part of the income of the trust has been applied to charitable or religios purposes in India in the assessment year 1974-75 or is accumulated or is set apart for application to such purposes in India, the income to that extent is entitled to be dealt with under section 11(1)(a) and exemption granted in accordance with the said section. It may be noted that the Hon'ble Supreme Court Court had upheld the aforesaid order of the Andhra Pradesh High Court, reported in 243 ITR 676.:- 25 -: ITA 1531/2010
3. It may not be out of context to quote the judgement of the Andhra Pradesh High Court in the case of Commissioner of the Wealth- Tax vs. Trustees of H.E.H the Nizam's Religious Endowment Trust (108 ITR 229) "courts should lean in favour of charity and prevent its extinction by the onslaughts of the revenue. He relied on the following passage from Tudor on Charities (6th edition, page 188): "In regard to the construction of charitable gifts the rule of widest application is that the court leans in favour charity.
" There is no better rule ' said Lord Lorebum, 'than that a benignant construction will be placed upon charitable bequests'. 'Where a bequest is capable of two constructions, one of which would it void, and the other would make it effectual, that latter will be adopted. It is better to effectuate than to destroy the intention". The passage quoted from Tudor is about the construction of Trusts and not about the construction of taxing statutes. In regard to taxing statutes, we have not doubt that in a welfare State dedicated to the securing of social, economic and political justice to all its citizens, several of the old and narrow rules of construction must yield to new and objection rules of construction. "
7. From the above it becomes manifestly clear that out of total sum of ` 6,65,60,886/- disbursed by the assessee-trust towards 'charities and donations' during the previous year relevant to the assessment year under consideration, the Assessing Officer has accepted an amount of `6,50,66,000/- as donation made in pursuance of the objects of the assessee-trust. The balance amount of ` 14,94,886/- constituting 0.34% of the total expenditure are found not in accordance with the objects of the trust though the donations were made for the charitable purposes. The trust deed contains main objects, secondary objects and other incidental objects to achieve the main objects. The Assessing Officer has accepted the major share of donations but has not accepted the paltry amount of :- 26 -: ITA 1531/2010 donations. Most of the donations denied by the Assessing Officer are in relation to trust having exemption u/s 80G of the Act. The other donations were in relation to Tsunami relief, staff welfare activities, advertisement to promote environment/nature, disbursement of cloth and feeding of the poor and small donation given to youth organization. The assessee has also spent a small amount towards renovation of various temples falling within the limit of 5% permitted in the Act. Some donations were made during the year to various persons/institutions at the request of the founder of the assessee-
trust. Since the money was remitted back by the founder in the same financial year, the assessee-trust has not claimed it as expenditure. It cannot be disputed now that such donations are not permitted by the objects of the Trust and the trustees are given absolute discretion to apply the trust funds to any one or the other specific objects of the Trust. The Assessing Officer, in his remand report, has accepted almost all the donations.
8. In his remand report, the Assessing Officer has not found the application of funds of the Trust to be contrary to the objects of the Trust. Needless to say that the objects of the Trust Deed are binding on the trustees. What is required by the Trust is that the income :- 27 -: ITA 1531/2010 must be applied or accumulated for application or set apart for application, to achieve the objects of the Trust, as per the provisions of the Income-tax Act, 1961. The application of income is relevant.
Even if the objects of the Trust do not empower the trustees to spend a part of the income of the trust property for a particular purpose and still they spend any part of the income or accumulate or set it apart for application, for charitable or religious purposes in India, it would be entitled to exemption u/s 11(1)(a) of that year as has been held by the Hon'ble A.P. High Court in the case of Trustees of H.E.H. the Nizam's Pilgrimage Money Trust vs CWT/IT (supra) which has been confirmed by the Hon'ble Apex Court.
9. In the remand report, the Assessing Officer has not applied provisions of section 13 to the facts of the case nor he has proposed to withdraw the registration u/s 12AA(3) of the Act. Without doing so, the Assessing Officer cannot deny exemption u/s 11 of the Act.
From the records placed before us, we find that the respondent, a Public Charitable Trust, is constituted by a Deed of Trust dated 19.4.1984 with Supplementary Deeds dated 6.5.2000 and 19.1.2001 [pages 11 to 38 of the paper book]. The Trust is registered u/s 12A of the Act and its income is exempt u/s 11 of the Act. However, the :- 28 -: ITA 1531/2010 Assessing Officer has held that the Trust is not eligible for exemption u/s 11 because it has given certain donations in contravention of the objects of the Trust. The Remand Report, which is a detailed report, speaks otherwise. The ld. CIT(A) has mainly relied on this report. The Assessing Officer has not detailed any valid reason(s) based on which exemption u/s 11 can be refused to the Trust. The ld. CIT(A) has verily made the remand report, which is extracted in the earlier part of the order, as a basis to arrive at his conclusion that the Trust was entitled to exemption u/s 11 of the Act. Although, prima-facie, there seems to be no fallacy in this finding of the ld.
CIT(A) yet we would like to further discuss this controversy.
10. The main issue for our consideration is whether the donations/expenses referred to in paragraphs 5,6 & 7 of the Remand Report are within the objects of the Trust or not. We have already detailed such expenditure/ donations in the earlier part of the order.
We may mention even at the cost of repetition that very small amount compared to the donations accepted by the Assessing Officer, is disputed by him. The major portion of the amount disallowed by the Assessing Officer pertains to the donations made to various Trusts having exempt u/s 80G of the Act and other :- 29 -: ITA 1531/2010 donations are very small amounts related to expenses towards various welfare activities as discussed above. In our opinion, the decision of Hon'ble Supreme Court in the case of Aditanar Educational Institution vs Addl. CIT (224 ITR 310) is not applicable to the facts of the given case because that judgment deals with the provisions of section 10(22) of the Act whereas this case is regarding exemption u/s 11 of the Act. Section 10(22) deals with total exemption from income-tax of a University or other Educational Institutions, existing solely for educational purposes and not for the purpose of profit, whereas the assessee in this case is a normal Public Charitable Trust which is governed by the provisions of section 11 of the Act and its activities are not restricted only to the educational activities but all public charitable activities. It is a well settled proposition of law that minor discrepancies found in any Trust's case have to be ignored. To be more specific, minor discrepancies cannot terminate into denial of benefit of exemption u/s 11 of the Act. In this regard, decisions of J.K.Trust vs CWT, 205 ITR 524 (Cal), and Dy. CIT vs Cosmopolitan Education Society, 244 ITR 494(Raj), are relevant. The ratio decidendi of the Hon'ble Calcutta and Rajasthan High Courts, inter alia, support our above conclusion. Obviously, non-withdrawal of registration, already :- 30 -: ITA 1531/2010 granted u/s 12AA of the Act, is a factum which colossal overtures because the 'Act' itself provides that exemption can be withdrawn only and only when either the provisions of section 13 are successfully invoked by the Assessing Officer, or the registration already granted is withdrawn u/s 12AA(3) of the Act. As is evident from the Remand Report, the Assessing Officer has not invoked section 13 of the Act and undeniably the assessee-trust continues to be registered u/s 12AA of the Act. Thus, we are of the considered view that in the given facts and circumstances of the case, it is not correct and would rather be unjust to deny exemption u/s 11. The assessee has not in effect carried on any activity which is not charitable in nature and not covered under its main objects, or in any other case ancillary objects and other incidental objects necessary to achieve the main object. Therefore, the cumulative effect of our foregoing discussion is that the ld. CIT(A) has taken a correct view as per law. The reasoning given in the grounds as well as through oral submissions by the ld. CIT/DR, do not drive us to interfere in his finding. Hence, we confirm the view taken by the ld.
CIT(A) and dismiss the appeal of the Revenue.
:- 31 -: ITA 1531/201011. In the result, the appeal of the Revenue stands dismissed.
The order pronounced in the open court on 20.7.2011.
Sd/- Sd/-
(N.S. SAINI) ( HARI OM MARATHA )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 20th July, 2011
RD
Copy to:
1. Appellant
2. Respondent
3. CIT(A)
4. CIT
5. DR