Income Tax Appellate Tribunal - Bangalore
Bangalore Urban & Rural District ... vs Assessee on 13 February, 2009
IN THE INCOME TAX APPELLATE TRIBUNAL
"A" BENCH : BANGALORE
BEFORE SHRI K.P.T. THANGAL, VICE PRESIDENT
AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER
ITA Nos.301 & 302/Bang/2009
Assessment years : N.A.
M/s. Bangalore Urban & Rural
District Co-operative Milk
Producers Societies Members and
Employees Welfare Trust,
Bangalore Milk Union Ltd.,
Dr. M.H. Marigowda Road,
D.R. College Post,
Bangalore - 560 029. : APPELLANT
Vs.
The Director of Income Tax
(Exemptions),
Bangalore. : RESPONDENT
Appellant by : Ms. Sheetal
Respondent by : Smt. Preethi Garg
ORDER
Per A. Mohan Alankamony, Accountant Member
These two appeals are directed against the orders of the DIT (Exemption) - (i) in rejecting the application for registration u/s 12A of the Act; and (ii) the application for recognition u/s 80G of the Act.
ITA No.301 & 302/B/09 Page 2 of 17
2. The assessee has raised five grounds [in ITA No: 301], out of which, ground Nos: 1 and 5 are general and not specific and, therefore, do not survive for adjudication. The remaining three grounds are reformulated as
-
(1) the DIT(E) erred in holding that the assessee trust does not exists for the benefit of general public or a section of general public;
(2) Following the Hon'ble Supreme Court's judgment, the DIT(E) ought to have held the assessee as a charitable trust and consequently allowed the registration u/s 12A of the Act; & (3) the DIT(E) ought to have allowed recognition u/s 80G(5)(vi) of the Act.
3. Similarly, [in ITA No: 302], the assessee has raised three grounds. However, on a perusal, it is emerged that the essence and crux of the grievance of the assessee is revolved around the 'DIT (E)'s refusal to grant registration u/s 12A of the Act and recognition for exemption u/s 80G of the Act.'
4. As the issues raised are inter-linked, for the sake of convenience, both of these appeals are considered together and adjudicated in this common order.
5. On receipt of application for registration u/s 12A of the Act, the Ld. DIT (E) had examined the activities of the assessee with reference to objects and made the following observations:
"It is evident from the activities and accounts of the trust that the trust works for the welfare of members who subscribe to the trust. Any trust wherein the benefits do not enure (sic) ensure for the general public cannot be considered as a 'Public Charitable Trust'.
ITA No.301 & 302/B/09 Page 3 of 17 The trust exists not for the benefit of the general public or a section of the general public but for the benefit of its members. There is no element of altruism or philanthropy but benefit to the contributor- members. The applicant is thus ineligible for registration u/s 12A of the I.T. Act."
5.1. With regard to rejection of assessee's application u/s 80G of the Act, the DIT(E) had observed, precisely, in a nut-shell, thus -
"In this case the appellant had applied for grant of recognition u/s 80G of the Income-tax Act of 1961 on 5/8/2008. The trust was registered on 25.01.2007. The applicant's application for registration u/s 12A was rejected vide order dated: 13.02.2009.
2. In the circumstances, there is no option but to reject the applicant's application u/s 80G (5) (vi) of the Income-tax Act, 1961, as not eligible."
6. Aggrieved by the treatment of the Ld. DIT (E), the assessee has come up with present appeals. The Ld. A R reiterated more or less what has been urged before the Ld. DIT (E). During the course of hearing, the ld. A R had furnished a paper-book containing 1 - 31 pages which consists of, inter-alia, copy of trust deed, copies of balance-sheet, Income and Expenditure statement etc. To buttress her argument, the Ld. A R had placed strong reliance on the jurisdictional High Court's finding in the case of DIT v. M/s. Garden City Educational Trust [in ITA No: 57 of 2004 dated:
15/7/2009]. However, in the judgment of Hon'ble Apex Court, no citation was given on which the assessee has placed its reliance.
6.1. On the other hand, the Ld. D R was very specific in her urge that the DIT (E) had made out a case that the assessee was ineligible for registration u/s 12A of the Act and, consequently, rejected the application ITA No.301 & 302/B/09 Page 4 of 17 for recognition u/s 80G of the Act too in a judicious manner which requires no interference at this stage.
7. We have carefully considered the thoughtful arguments of the rival parties. We have cautiously perused the relevant records and also the paper-book furnished by the Ld.A.R.
7.1. The main objectives of the trust as enumerated in the trust deed of the assessee are that -
I) The benefit of the project or scheme shall flow to the public in general or to individuals belong to the economically weaker sections of the society; II) The applicant has the necessary expertise, personnel and other facilities for efficient implementation of the project or scheme;
a) Construction and maintenance of drinking water projects in rural areas and in urban slums, including installation of pump-sets, digging of wells, tube-wells and laying of pipes for supply of drinking water;
b) Construction of dwelling units for the economically weaker sections;
c) Construction of school buildings primarily for children belonging to the economically weaker sections of the society;
d) Establishment and running of non-conventional and renewal sources of energy systems;
e) Any other programme for uplift of the rural poor or the urban slum dwellers, as the National Committee may consider fit for support;
f) Promotion of sports; g) Establishment and running of educational institutions in rural areas,
exclusively for and children up to 12 years of age;
h) Establishment and running of hospitals and medical facilities in rural areas, exclusives women and children up to 12 years of age;
i) Encouraging the production of bacteria induced fertilizers;
j) Construction of hostel accommodation for woman or handicapped individuals or individual who are of the age of 65 years or more;
k) Establishment and running of Institutions imparting education in the field of engineering, medicine in rural areas or towns which consists of population of less than 5 lakhs; etc. ITA No.301 & 302/B/09 Page 5 of 17
l) Plantation of softwood on degraded non-forest land;
m) Any programme of conservation of natural resources or of afforestation;
n) Relief and rehabilitation of handicapped individuals. III. The other objectives of the Trust:
To provide educational facilities and medical services (prevention decease including immunization) to the members of the Milk Producers societies and their family members as also to the employees of the societies.
(3) To establish educational institutions and hospitals, to promote education and safeguard the health of the milk producers and their families and also the employees of the societies.
(4) To open shops to sell stationary items and from the income derived out of the business will be utilized for the activities of the trust.
(5) To take up the work for the benefit of the producers and their families and also the employees of the societies through the trust and to decide the other matters relating to the mutual interest of the members.
(6) To run the hospitals having inpatient, out-patient, pharmacy, laboratory and medical store facilities;
(7) to organize rural development programmes apart from all other activities supporting the aforesaid objectives.
(8) To render financial assistance from the Trust to the family (husband/wife) of the deceased in the event of death of any milk producer/member.
(9) in the event of death of the cattle of the milk producers/members by consuming poison/accident/thunder/fire to provide appropriate financial compensation through trust by treating the same as a special circumstance.
7.2. For claiming exemption under section 11, in case of assessee claiming both to be charitable institutions as well as mutual organizations, section 2(15) of the Income Tax Act, 1961 (Act) defines charitable purpose to include (i) Relief of the poor, (ii) Education (iii) Medical ITA No.301 & 302/B/09 Page 6 of 17 relief, and (iv) the advancement of any other object of general public utility. An entity with a charitable object of the above nature is eligible for exemption from tax under section 11 or alternatively under section 10(23C) of the Act. However, section 2(15) was amended vide Finance Act, 2008 by adding a proviso which states that the advancement of any other object of general public utility shall not be a charitable purpose if it involves the carrying on of (a) any activity in the nature of trade, commerce or business; or (b) any activity of rendering any service in relation to any trade, commerce or business.
7.2.1. The newly inserted proviso to section 2(15) will not apply in respect of the first three limbs of section 2(15), i.e., relief of the poor, education or medical relief. The newly inserted proviso to section 2(15) will apply only to entities whose purpose is advancement of any other object of general public utility i.e. the fourth limb of the definition of charitable purpose contained in section 2(15). Hence, such entities will not be eligible for exemption under section 11 or under section 10(23C) of the Act if they carry on commercial activities.
8. On a careful reading of the main objectives of the assessee, we find that no thrust was given for the relief of the poor, education or medical relief to the general public. The sole purpose of the trust was intended to for mutual interests of its members [milk producers' societies] who are the subscribers of the assessee and their family members under the guise of pretending to serve the general public. Even the proposed establishment and running of educational institutions and hospitals have ITA No.301 & 302/B/09 Page 7 of 17 been relegated to the backward while formulating the main objects of the trust.
8.1. Even the other objectives of the Trust, as culled out from the trust deed, clearly emphasis the modus operandi of the trust which read as under:
"To provide educational facilities and medical services (prevention decease including immunization) to the members of the Milk Producers societies and their family members as also to the employees of the societies;
(3) To establish educational institutions and hospitals, to promote education and safeguard the health of the milk producers and their families and also the employees of the societies;
(5) To take up the work for the benefit of the producers and their families and also the employees of the societies through the trust and to decide the other matters relating to the mutual interest of the members.
(6) To run the hospitals having inpatient, out-patient, pharmacy, laboratory and medical store facilities;
(7) to organize rural development programmes apart from all other activities supporting the aforesaid objectives.
(8) To render financial assistance from the Trust to the family (husband/wife) of the deceased in the event of death of any milk producer/member.
(9) in the event of death of the cattle of the milk producers/members by consuming poison/accident/thunder/fire to provide appropriate financial compensation through trust by treating the same as a special circumstance".
8.2. Thus, the modus operandi of the assessee was to seek registration under section 12AA of the Act in the guise of relief to the poor, education or medical relief to the general public, but, in reality the ultimate ITA No.301 & 302/B/09 Page 8 of 17 beneficiaries are its (assessee's) members [milk producers' societies] who are the subscribers of the assessee and their family members. 8.2.1 The intention of the Settlor/Executor points out to the fact that the trust is created predominantly for the benefit of the milk producers and employees of the milk producers co-operative society of the district. The first four paras of the trust deed are reproduced herebelow for reference:
"WITNESSETH AS FOLLOWS:
WHEREAS, the SETTLOR / EXECUTOR with an intention to safeguard the interests of the Milk Producers and the employees of the Milk Producers Co-operative Societies of the District and to help the Milk Producers, has come forward to constitute this Trust to safeguard, the interests and to promote the health and education of the Member Milk Producers, their families/dependant children and the employees working in the Milk Producers Co-operative and their families/dependant children.
Societies within the limits of Bangalore Urban and Rural Districts;
AND WHEREAS, in the meeting of the Executive Committee of the Bangalore Urban and Rural Districts Co- operative Milk Producers Union held on 8.12.2006, it has been unanimously resolved to form a Trust for the upliftment and prosperity and to safe guard the interests of the Members of the Milk Producers Societies and their family members as also, the employees of the Societies of both the Districts of the Union;
AND WHEREAS, the EXECUTOR has decided to donate the Trust Rs.1,001/- as per the funds available under law and this amount would continue to be the corpus of Trust Fund and the Trustees have agreed and joined their hands with the EXECUTOR to formulate the following regulations for the better administration of the Trust."
The letter filed by the assessee dated 7.7.2008 addressed to the Assistant Commissioner of Income Tax (Trust), also fall in the same line. The ITA No.301 & 302/B/09 Page 9 of 17 second Para of the letter (page 22 of the paper book) is reproduced herebelow :
"Our Trust is a charitable Trust registered in Karnataka. To establish, maintain, run, develop, improve, extent, grant donate for and to aid and assist in the establishment, maintenance, running, development, improvement and extension to safeguard the interests of the Milk Producers and the employees of the Milk Producers Co-operative Societies of the District and to help the Milk Producers, has come forward to constitute this Trust to safeguard the interest and to promote the health and education of the Member Milk Producers, their families/dependant children."
An extract of the letter dated 10.12.2008 found in paper book page No.28 also lead to the fact of the assessee trust's main intention is to promote the welfare of the members of the primary Milk producers, their families/dependants and the employees of the primary Milk Co-Operative Societies. The relevant portions are extracted herebelow :
"The Assessee acknowledges the receipt of the above letter, received on 16-10-2008 the case was posted for 3-11-2008. However due to pre occupancy of the Assessee representative we could not attend the case.
The BURDMPS - Members and Employees Welfare Trust was incorporated to promote health and education of the members of the Primary Milk Producers, their families/dependents and the employees of the Primary Milk Co-Operative Societies, as a public charitable Trust. The Trust is managed by the Trustees who are elected representatives of the Bangalore Milk Union Ltd., and the executives of the Bangalore Milk Union Ltd., and activities of the Trust is restricted to Bangalore Union and Rural District to undertake the objects of the Trust.
We are submitting the details sought for.
1. ............
2. ............
.......
ITA No.301 & 302/B/09 Page 10 of 17
6. The BURDMPS - Members and Employees Welfare Trust was incorporated as a public charitable trust. The trust is presently engaged in activities like a. Providing Scholarship for students of the Primary Milk Co-Operative Society Members for undertaking Graduates and post Graduates education.
b. Providing Death compensation for Primary Milk Co- operative Society Members.
c. Providing Scholarship to Physically handicap students of the Members of the Primary Milk Co-Operative Societies.
d. Providing compensation to the members of the Primary Milk Co-Operative Society on accidental death of local cows and buffalos, which is their sole bread earner apart from this Trust is also planning to set up medical relief centers.
We shall be glad to furnish any further details sought for."
8.2.2. Moreover the funds (applied) utilized by the assessee hitherto will also give credence to the above view as the assessee has not given any substantial evidence for spending the trust's funds for general public cause:
(i) Members' death relief Rs.3,75,000
(ii) Cattle death relief Rs.2,20,000
8.3. It is also worth-mentioning the Hon'ble Finance Minister's Budget speech which was delivered on 29.02.2008 during the course of Budget 2008-2009 presentation which is extracted here-below:
"Charitable purpose includes relief of the poor, education, medical relief and any other object of general public utility. These activities are tax exempt, as they should be. However, some entities carrying on regular trade, commerce or business and earning incomes have sought to claim that their purposes would also fall under "charitable purpose". Obviously, this was not the ITA No.301 & 302/B/09 Page 11 of 17 intention of Parliament and, hence, I propose to amend the law to exclude the aforesaid cases. Genuine charitable organizations will not in any way be affected."
8.4. With due respects, we have perused the finding of the Jurisdictional Hon'ble High Court referred supra on which the assessee has placed a strong reliance. The prime issue before the Hon'ble Court was that, whether the Hon'ble Tribunal was right to opine that, notwithstanding the various discrepancies and misapplication of the funds of the trust as noticed by the Commissioner, the trust nevertheless having the object of running educational institutions, would qualify as a trust having a charitable purpose as one of its objects and after referring to the various authorities on the subject, following the decision of Allahabad High Court in the case of CIT v. Red Rose School reported in (2007) 212 CTR (All) 394 and which in turn had followed several other like decisions of other High Courts, allowed the appeal being of the view that the scrutiny as to the application of funds is an exercise required to be undertaken by the assessing officer and not necessarily by the Commissioner while granting registration under section 12A in an application filed under section 12AA and accordingly allowed the appeal..... ."
8.4.1. After considering the issue in depth, the Hon'ble High Court was pleased to observe thus -
"17. It is not the finding of the Commissioner that the applicant- assessee had not complied with any of the procedural requirements. The Tribunal is fully justified in observing that the manner of application of funds and as to whether the applicant- assessee can claim the benefit of exemption in terms of sections 11 ITA No.301 & 302/B/09 Page 12 of 17 and 12 is a question which has to be examined by the assessing officer at the stage when such question is not before the Commissioner. It is hereby clarified and emphasized that while registration in accordance with the provisions of section 12-A of the Act is a condition precedent for claiming the benefits under sections 11 and 12 of the Act a registration as per section 12-A by itself , will not automatically confer the benefits of sections 11 and 12 on a trust, but the trust will get the benefit only complying with the requirements of sections 11 and 12 of the Act, which compliance can be examined by the assessing authority, while processing the return filed by the trust......"
8.4.2. With due regards, we would like to enlighten further that the issue before the Hon'ble High Court was that the manner of application of funds and as to whether the applicant-assessee can claim the benefit of exemption in terms of s.11 and 12 is a question which has to be examined by the assessing officer and not by the Commissioner and that the case (M/s. Garden City Educational Trust) before the Hon'ble High Court was running educational institutions whereas the present assessee - Co-operative Milk Producers Societies - is NOT running any educational institution as such. 8.4.3. In the case of Sanjeevamma Hanumanthe Gowda Charitable Trust v. DIT (E) reported in (2006) 285 ITR 327, the Hon'ble High Court of Karnataka had an occasion to deal with a similar issue. After deliberating the issue at length, the Hon'ble Court was pleased to observe thus -
"Section 11 of the Act deal with exemptions available to income from property held for charitable or religious purposes. Exemption from tax will be allowed only in respect of the income actually applied to the purposes of the trust. Income derived for trust property must be determined on commercial principles. In order to be eligible for the aforesaid exemption the assessee has to get the trust registered under section 12A of the Act. The assessee has to make an application in the prescribed form and comply with the other legal requirements mentioned ITA No.301 & 302/B/09 Page 13 of 17 in the aforesaid section. On receipt of such application for registration the Commissioner is under an obligation to follow the procedure prescribed under section 12AA before he grants or refuses registration. What he is expected to do on receipt of such an application is, he shall call for such documents or information from the trust in order to satisfy himself about the genuineness of the activities of the trust or institution. In addition to securing information in the aforesaid manner, it is open to the commissioner to make such enquiries as he deems necessary in this behalf. Having regard to the scheme of sections 11,12 and 13 ultimately what the Commissioner has to look into is not the source of income to the trust but whether such income is applied for charitable or religious purposes. The satisfaction of the Commissioner should be regarding the application of the income of the trust for the aforesaid purposes which only entitle the assessee to claim exemption. For arriving at such satisfaction primarily he has to look at the object of the trust, when the game is reduced into writing in form of the trust deed. If on the date of application the trust has received income from its property, then find out how the said income has been expended, and whether it can be said that the income is utilized towards charitable and religious purposes, i.e., towards the object of the trust. Therefore, for the purpose of registration under section 12AA of the Act, what the authorities have to satisfy is the genuineness of the activities of the trust or institution and how the income derived from the trust property is applied to charitable or religious purpose and not the nature of the activity by which the income was derived to the trust."
8.4.4. The essence of the Hon'ble High Court's observation, in our considered view, is that "for the purpose of registration under section 12AA of the Act, what the authorities have to satisfy is the genuineness of the activities of the trust or institution and how the income derived from the trust property is applied to charitable or religious purpose and not the nature of the activity by which the income was derived to the trust."
8.4.5. In conformity with the findings of the Hon'ble High Court referred supra, the Ld. DIT(E) had indeed verified to get himself satisfied as to the genuineness of the activities of the trust and how the income derived from the trust property was applied to charitable or religious ITA No.301 & 302/B/09 Page 14 of 17 purpose and not the nature of the activity by which the income was derived to the trust and found that the present trust was formed with an intention for the up-liftment and to safeguard the interests of the members of the Milk Producers Societies and their family members and also the employees of the Societies. Thus, he had come to a conclusion that the trust had worked for the welfare of its members by way of utilizing the funds for members' death relief, cattle death relief etc. which do not fall within the ambit of relief to the poor, education or medical relief to the general public. 8.4.6. On a careful reading of the main objectives of the trust deed of the assessee, it emerges that this trust was formed for the up-liftment and to safeguard the interests of the members of the Milk producers' societies and their family members, besides the employees of the societies/union. The sole object of the assessee was that the welfare of members of milk producers' society and employees of Bangalore Milk Union Limited.
8.4.7. In the case of Garden City Educational Trust, considered by the Hon'ble High Court referred supra, the main object of the trust was running educational institutions whereas in the present assessee's case it is NOT as such. As rightly pointed out by the ld. DIT (E), the assessee had not brought on record any cohesive evidence to prove that the trust was formed with an intention to serve the general public in a charitable way in the field of education, instead, it is evident from its activities that its very existence is for the benefit of its members only and not to service the general public. The assessee had shown an expenditure of Rs.16.12 lakhs ITA No.301 & 302/B/09 Page 15 of 17 [page 21 of PB] towards merit scholarships with no details to substantiate its claim that whether these amounts have been contributed to general public [students] or otherwise.
8.4.8. With due respects to the findings of the Hon'ble High Court referred supra wherein it has laid down the procedures/guidelines to be adopted in processing the applications for registration u/s 12A of the Act and also ultimately what the Commissioner has to look into is not the source of income to the trust but whether such income is applied for charitable or religious purposes, we are of the considered view that the activities of the assessee- trust was for the benefit and welfare of its members who subscribe to it and as such, it cannot be categorized that the trust was created for the benefit of general public and, thus, as rightly concluded by the DIT(E), the assessee-trust is ineligible for registration u/s 12A of the Act.
8.4.9 The Ld. AR's reliance in the case of Ahmedabad Rana Caste Association v. CIT 82 ITR 704 (SC) is also of no help since the facts of both the cases are distinguishable. In the above cited case, the assessee was an Association of Persons belonging to Rana caste/community of the city of Ahmedabad providing education, medical help to the members of their community who are natives of Ahmedabad and other members of the community accepted by their caste according to its age old custom and usage and resident of the city. It was held in this case that to serve a charitable purpose it is not necessary that the objects should be to benefit ITA No.301 & 302/B/09 Page 16 of 17 the whole of mankind or all persons in a country or state, but it is sufficient if the intention is to benefit a section of the public. 8.4.10 While as in the present case (Bangalore Urban and Rural District Co-operative Milk Producers Societies Members and Employees Welfare Trust) is a trust formed for the upliftment and prosperity of the members of the milk producers societies and their family members and in order to safeguard the interest of the members of such societies. Therefore it goes without saying that the assessee trust emerges out from the members involved in a particular commercial activity and exists mainly for the purpose of the well being of the members of a particular trade/occupation on a mutuality concept.
9. In overall facts and circumstances of the issue, we are of the unanimous view that -
(i) The Legislature's main intent was to provide succours to the poor in the filed of education, health relief and not to circumvent such a legislation to the benefit of the affluent in the name of poor;
(ii) The intention of the present assessee was to avail such benefits as provided under the provisions of s.12 of the Act in the guise of extending relief to the economically weaker section;
(iii) the assessee also cannot take shelter under "the advancement of any other object of general public utility". As could be seen from the intention of the assessee to compensate only its members by way of "members death relief", "cattle death relief' etc., and not to the general public, the 'advancement of any other object of general public utility' has been pushed to a back seat;
(iv) To put it in a nut-shell, the sole intention of forming this trust was to protect and safe guard the interests of the members of the Milk producers' Societies and its family members/employees in the guise of "general public utility".
ITA No.301 & 302/B/09 Page 17 of 17 8.4.9. In conclusion, we unanimously hold that the DIT (E) was justified in rejecting the assessee's application for registration u/s 12A of the Act. It is ordered accordingly.
9. We have since ordered that the assessee-trust is ineligible for registration u/s 12A of the Act, its application for grant of recognition u/s 80G of the Act rejected by the DIT (E) is upheld.
10. In the result, assessee's both the appeals are dismissed.
Pronounced in the open court on this 30th day of September 2009.
Sd/- Sd/-
( K.P.T. THANGAL ) (A. MOHAN ALANKAMONY )
Vice President Accountant Member
Bangalore,
Dated, the 30th September, 2009.
Ds/-
Copy to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT, Bangalore.
6. Guard file (1+1)
By order
Assistant Registrar
ITAT, Bangalore.