Income Tax Appellate Tribunal - Chennai
Saidapet Varthagar Trust, Chennai vs Assessee on 5 December, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
'D' Bench Chennai
Before Shri A. Mohan Alankamony, Accountant Member &
Shri V. Durga Rao, Judicial Member
I.T.A. No.371/Mds/2012
Saidapet Varthagar Trust, Vs. The Director of Income Tax
No.46, Bazaar Road, (Exemptions),
Saidapet, Chennai 600 015. Chennai.
[PAN : AABTS0164S]
(Appellant) (Respondent)
Appellant by : Shri D. Anand, Advocate &
Shri Kamal Chordia, CA
Respondent by : Shri B. Jena, CIT
Date of Hearing : 05.12.2013
Date of Pronouncement : 31.01.2014
ORDER
PER V. DURGA RAO, JUDICIAL MEMBER:
This appeal filed by the assessee is directed against the order of the ld. Director of Income Tax (Exemptions), Chennai dated 29.12.2011 under section 12AA(3) of the Income Tax Act.
2. Brief facts of the case are that the assessee is a Trust registered under section 12A(a) of the Act vide order of the DIT(E) in C. No.2(7)/1995-96 dated 28.04.1995. The objects of the assessee trust are reproduced as under:
(1) To work for and promote unity among business community.
(2) To maintain, develop, improve, expand the properties, movable and immovable created, gifted, transferred by the members, public or Government or any other institution or body.2 I.T.A. No.371
No.371/Mds/ 371/Mds/12 /Mds/12 (3) To provide fees, books, equipments, freeships, and/or scholarships to deserving students.
(4) To make donations to other public charitable trusts/Institutions recognized under Section 80-G of the Income Tax Act, 1961. (5) To help and assist other charitable causes of a similar nature as aforesaid as the Trustees may from time to time choose. (6) To render assistance, financial or otherwise, to all institutions or organisations (or even to individual cases of children) which help the progress of children directly or indirectly.
(7) To create centre of mutual understanding beyond national religious, linguistic or other barriers.
(8) To promote education, medical relief, running of the Kalyana Mandap, for the benefit of the weaker sections of public, a hope for physically handicapped and any other objects of general public utility.
(9) To hold conferences based on experiential knowledge and workshops in order to project the achievements in the practice of individual and collectively as a group to exchange experiences and wisdom.
(10) To store memory centres with an aim of character building, personality development and orientation to a social service. (11) To establish, maintain, run, develop, improve, extend, grant, donate for and to aid in the establishment, maintenance improvement and extension of schools, collages, polytechnics and other educational institutions including vocational training centres, research centres and audio educational centres, and hostels for students pursuing their studies.
(12) To institute studentships, scholarships, stipends, medals, prizes, etc. to help and encourage deserving students and to provide monetary aid to students, scholars and teachers for pursuing their education. (13) To establish, maintain, run, develop, improve, extend, grant, donate for and to aid in the establishment, maintenance, running, development, improvement and extension of hospitals, clinics, 3 I.T.A. No.371 No.371/Mds/ 371/Mds/12 /Mds/12 dispensaries, medical laboratories, research units, with special emphasis on Medical laboratories, Indian systems of medicine like Ayurveda and similar institutions affording treatment, cure, rest, recuperation and other medical relief to the public including relief to the aged, the physically handicapped and the mentally retarded. (14) To organise, run and assist in the organising and running of medical camps in rural areas.
(15) To assist and provide for the pour by constructing Halls, Rest houses etc. to conduct feeding of the poor and to provide food, clothing and cash grants to the poor, and to grant donations for the support of the inmates of orphanages, rescue and rehabilitation centres and similar institutions. The poor may also be assisted by way of teaching of crafts, engineering and similar skills and industrial training, including on the job training.
(16) To provide relief by giving cash grants in time of natural calamities like earthquakes, floods, famines, etc. (17) Any other lawful activities that the Trustees may decide to do unanimously.
(18) To take over the other trustee or Associations having similar object.
It is further declared that the Trust shall not carry on any business, trading activity or activities or with the intention of earning a profit. The aforesaid objects of charity shall be provided to the beneficiaries without distinction of caste, creed, colour, sex or religion. It is further declared that no activities of the trust will be carried out outside India.
3. The ld. DIT(Exemptions) issued a show-cause notice to the assessee dated 21.10.2011 on the basis of the proposal from ADIT(E)(III) and called for explanation of the assessee as to why proceedings under section 12AA(3) should not be initiated. In response to the above notice, the assessee has submitted a detailed reply on 02.12.2011 and is reproduced hereunder:
We would like to submit briefly the background of the SAIDAPET VARTHAGAR TRUST and its formation in the year 1939, saidapet merchant association was 4 I.T.A. No.371 No.371/Mds/ 371/Mds/12 /Mds/12 started in saidapet by saidapet bazaar business community to protect their interest and to fight against british soldiers who were creating problem in their business activities then and there. The saidapet merchants formed an association and complained against the atrocities of the soldiers who were creating problem to the VICEROY who redressed their grievance thus the association was formed and it was taking care of the interest of business community. After lot of hurdle, the association was able to purchase a property which was given to the association for a very reasonable sale consideration by one of its members. They were also able to start a kalyana mandapam with great difficulty in a thatched shed which was subsequently converted in to asbestos roofing and front and back wall portion with regular building.
All these exercise took nearly 30 years and the kalyana mandapam was running smoothly. During 1994-1995 we were threatened by politicians to join as members of the association by having one or two shops in saidapet and capture the association which had a property. The association called for a meeting and decided to convert the association as a trust and it was registered by trust deed (Regn No.345/95) dated 31/03/1995. In this way the trust was established and we have already celebrated the completion of 60 YEARS DIAMOND JUBILEE CELEBRATION IN THE YEAR 1999.
After conversion of Trust we have started doing philanthropic activities in the Turst as under:
RELIEF TO POOR We would like to submit that our aim is to offer relief to poor and down trodden, by way of offering quality food items at minimum margin price. Our aim is to offer relief to poor and downtrodden by offering books from book bank for Higher education, Post Graduation, law, Medicine and note books for students of std. II to plus two. Our aim is to offer relief to poor and downtrodden by conducting Medical Camps on Dental, Eye Camp. General medicine and gynecology, Ayurveda Camp, etc. EDUCATION
1. Every year the TRUST is distributing free note books to children of poor who are studying Std II to Plus two. The value of notebooks every year approximately will be Rs. 1, 50,000/-.
2. We are running a book bank where we distribute books to poor students who are doing Engineering, Medical and post Graduation.
3. We distribute prizes for children studying in elementary school, Higher secondary school Corporation of Chennai for rank holders. Ist rank Gold 5 I.T.A. No.371 No.371/Mds/ 371/Mds/12 /Mds/12 Coin and for IInd and IIIrd ranks prizes as chosen by school authorities like Dictionary, Thesaurus, world Map, etc. we distribute prizes to students of elementary and higher secondary Schools. Who have won in various sports activities conducted in the corporation Schools.
4. We have distributed dresses and books to spastic children.
5. For deaf and dumb school children, at adayar we have donated brailey items and tape recorders for dumb to promote educational activities.
6. We have constructed toilets to govt. girls higher school, at kanyakumari for poor school children.
RELIEF TO POOR - MEDICAL We have been regularly conducting medical camps for poor and economically weaker section. We have conducted general medicine camps and gynecology medical camps, Dental medical camps, Eye camps, Ayurveda Medicine Camps, Acupuncture. For poor students yoga demonstration was shown to preserve health. Exclusive medical camp was conducted to the family of Police Personnel. As a relief to poor women who were treated in corporation Maternity Hospital saidapet. We have provided benches for women who were carrying child and also fans as these are not available there. As a relief to poor who are undergoing operation in corporation General Hospital, saidapet. A.C .Machine was donated at their request.
RELIEF TO POOR - GENERAL
1. Donations were given to victims of KARGIL WAR, flood relief, earth quake, and Tsunami victims. Food packets were freely distributed to poor people during flood.
2. Narikuravar children were provided in the kalyana mandapam with food and clothing.
3. Vessels were provided for midday meals to poor children in corporation school.
4. After Obtaining permission of the I.G of prison we have visited the saidapet prison to feed the prisoners with sweets and food.
5. In saidapet MERCY HOME, little mount, aged persons who are about to die, are taken as inmates along with nearly 60 to 70 inmates regularly. We have provided them blankets and mats.
6. To protect the environment, we have planted trees in several places near saidapet.
INCOME TAX DEPARTMENT AWARENESS CAMP. At the time of introduction of PAN Card, awareness camp was conducted by the Income Tax Department in our kalayana Mandapam where the commissioner of 6 I.T.A. No.371 No.371/Mds/ 371/Mds/12 /Mds/12 income tax and offer dignitaries have taken part. We won their appreciation during the meeting.
Justice of Chennai High court: in disposing off family court cases a camp was organized and conducted in our mandapam by saidapet magistrate court. Chief justice of high court along with other justice attended the meeting and they were able to compromise majority of the cases out of 350 to 375 cases. Reserve Bank of India: During coin shortage, twice Reserve Bank of India have distributed coins through saidapet varthagar Trust. Nearly 20 lakhs worth of coins were distributed and soiled notes exchanged.
RELIEF TO POOR - PROVIDING FOOD ITEMS Our aim is to offer relief to poor and downtrodden by way of providing food items at minimum margin price. We buy the ingredients for the preparation of food items like Pulses, cereals, vegetables, oil, from the wholesale market to prepare quality items.
The majority of labourers employed by the TRUST belongs to backward and most back ward classes. We provide them food and shelter apart, from wages. They have come from for south and they permanently stay here to do the job. Thus, by way of food items preparation and distribution more than 30 persons are employed who belong to the backward and most backward community. We prepare quality food items and distribute to poor and downtrodden. 50% less than the hotel prices, For your information we are giving hereunder the price chart of different hot with our prices:
FOOD SAIDAPET SARAVANA BALAJI
ITEMS VARTHAGAR BHAVAN BHAVAN
TRUST
Idli 3.50 11.00 7.00
Vada 5.00 22.00 16.00
Pongal 12.00 32.00 28.00
Dosa 12.00 36.00 28.00
Coffee 5.00 22.00 20.00
Sambar Rice 12.00 36.00 26.00
Curd Rice 12.00 36.00 26.00
Veg. Briyani 12.00 45.00 28.00
The comparative study of prices shall be the proof that poor persons and downtrodden are taken care of. sometime, we notice that we are supplying the 7 I.T.A. No.371 No.371/Mds/ 371/Mds/12 /Mds/12 food items below the cost price as all the prices ingredients, along with the cost of labour have increased considerably owing to steep increase of prices of cereals, pulses, oil, gas, vegetables, etc., we don't increase the price of food items immediately and we wait for sometime and then only increase the price of food items reluctantly as we always feel that the poor, downtrodden and economically weaker section should not suffer.
In fixing and adjusting price sometime we lose and sometime there in excess than the cost which was utilized in future for medical relief for poor. We also provide this medical relief to our employees who seek medical assistance and relief.
Therefore, from the above that the sale of food items in minimum margin price and the little extra money we receive in spent towards relief to poor for medical and towards medical expenses of our employees who prepare and distribute the food items and who belong to the backward and most backward community.
More over a lot of out station students from far away villages are regularly consuming food from our Trust. Without which it will be difficult for them to stay and study in saidapet.
KALYANA MANDAPAM As a relief to poor, down trodden, and economically weaker section we charge lowest rate than other madapam in this part of the city. Our mandapam in quite a big one and the dining hall will accommodate 125 persons. We have provided Ac in rooms for the bride and bride groom. There is another hall available in the second floor for the person to stay. Inspite of this facility we charge the lowest rate. You will agree that this money is not a profit and we have to maintain this building by regular colour washing, plumbing, false ceiling work and maintaining lightings.
You had stated, that we had collected a sum of Rs. 93,00,706/- towards canteen sales and Rs. 8,75,203/- towards order sales. We would like to submit that out of the above receipts we had spend 90% towards ingredients for the manufacture of food items and we have spent towards wages for labourers employed who belong to backward and most backward classes. You will notice, that only the surplus left after all the expenses in an endeavour to provide relief to poor by supplying food items. Even this amount we spend subsequently towards medical relief to poor and to our employees. 8 I.T.A. No.371
No.371/Mds/ 371/Mds/12 /Mds/12 TESTIMONY Justice of High Court have visited, commissioner of police and other top officials of income tax department have visited, Reserve Bank officials have taken part in distribution of coins. All these persons have appreciated our efforts and lauded our services in providing relief to poor along with great public figures, Top Musicians, Top cine artists etc. In the final conclusion, we would like to submit that we, as a charitable institution out and out to serve towards providing relief to poor families by supplying food items, providing medical and education relief to poor families.
In the light of the above circumstances, we humbly request you not to take any action U/s 12AA(3), and allow us to continue our charitable activities so that we will be able to offer more services towards relief to poor by taking your guidance.
4. In continuation to the above submissions and to substantiate that the assessee trust has been carrying on the objectives of giving relief to the poor by supporting them on giving food at subsidised rate with high quality, providing note books to the poor and needy children from 2nd standard to plus two, etc. the assessee trust, vide letter dated 09.12.2011, furnished financial year-wise charitable expenses, education expenses, medical expenses with supporting invoices/vouchers/bills etc. have been filed before the ld. DIT(E) along with balance sheet, profit and loss account statements. The relevant financial year- wise i.e. 2007-08 to 2010-11 are given below:
Financial year 2007-08 Educational expenses : Rs.1,91,676.10 (providing free note books to poor students) Charitable expenses : Rs.26,931.00 Sponsorship expenses : Rs.16,000.00 (sponsoring study expenses of poor corporation school) 9 I.T.A. No.371 No.371/Mds/ 371/Mds/12 /Mds/12 Financial year 2008-09 Educational expenses : Rs.2,14,779.80 (providing free note books to poor students) Charitable expenses : Rs.1,87,206.00 Free food distribution : Rs.15,200.00 Medical camp expenses : Rs.21,212.00 (providing medicines and consultation) Prize - Gold coins : Rs.14,000.00 (gold coins distributed to corporation school boys) Financial year 2009-10 Medical camp expenses : Rs.12,431.50 (providing medicines and consultation) Book bank expenses : Rs.11,312.50 Educational expenses : Rs.2,72,777.90 (providing free note books to poor students) Financial year 2010-11 Educational expenses : Rs.2,77,349.10 (providing free note books to poor students) Medical camp expenses : Rs.10,922.800 (providing medicines and consultation) Prizes to students : Rs. 39,479.00(gold coins distributed to corporation school boys) It was also submitted that apart from the above, the assessee trust has offered donations to Kargil war relief, Tsunami relief, flood relief, etc. at the most needy hours.
5. However, the ld. DIT(Exemptions), cancelled the registration under section 12AA(3) of the Act and relevant portion of the order is extracted hereunder:
"10. I have examined the contention of the assessee. My views on the various issues are given as under:10 I.T.A. No.371
No.371/Mds/ 371/Mds/12 /Mds/12 (1) The assessee claims that it is running a canteen for the relief of the poor is difficult to accept. The canteen is running on commercial basis, may be at lesser margin. The comparison of the costing with Saravana Bhavan and Hotel Balaji Bhavan in no way proves that canteen is not run on commercial lines. I hold that these hotels, viz. Saravana Bhavan and Hotel Balaji Bhavan have various infrastructures such as A/C restaurant, service facility during dining, etc. The present trust is running a canteen and serving the food to the customer at the counter itself. There is hardly any place to sit and take the food. Therefore the facility also is not comparable with these regular restaurants or hotels. What I find definitely is that the customers of the trust in the canteen will not be of higher income group but the fact remains that the relationship between the trust and the customers is of business relationship.
There are numerous such low cost canteen available in the city of Chennai itself on the street and smaller places wherein food at very low margin rates are available. The food at canteen maintained by the assessee trust is given on the basis of a status of a customer. Therefore, it is difficult to accept the argument of the assessee that it is doing service to the poor by running such canteen. The major activity of the trust is to run the canteen which in my view is a business activity.
I have perused all the other activities other than running of canteen. Its activities are wide ranging as narrated above. It appears that the activities of the trust will fall under object of general public utility. (2) Running of mandapam as claimed by the assessee is in the nature of relief to the poor only is also not acceptable because the mandapam is given on charge, may be at lesser rate, to attract the customers having capable of spending less. It does not mean that it is relief to the poor.
11. In view of the above, I hold that the activities of the trust are general public utility and the assessee is deriving business income as discussed above from the canteen activity, order sales and the Mandapam receipts far exceeds the threshold limit of Rs.10 lakhs for the F.Y.2008-09. Therefore the assessee's objects and activities are hit by first and second proviso to Sec. 2(15) of the I.T.Act and with effect from 1.4.2009 the institution has lost its character as a charitable institution. This view has been taken by the undersigned earlier while deciding the application in Form 10G filed by the assessee for renewal of approval u/s 80G of the I.T. Act, as mentioned earlier.
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12. In view of the above, I hold that the objects and activities are in the nature of "General public utility" and the trust is receiving commercial receipts to provide service to particular:, services. The total such receipts are much more than the threshold limit of Rs.10 lacs for the asst. year 2009-
10. Accordingly, the objects and activities of the Trust is no longer charitable in nature. Once the character of the institution is no longer charitable in nature the institution cannot be said to pursue charitable activity and u/s. 12AA(3), the registration can be cancelled if the activity is not genuine. It is pertinent to note that genuineness has to be examined with regard to charitable purpose. Otherwise the interpretation of the word 'genuine' will be very vague. If the activities are not charitable the activities of the institution cannot be said genuinely charitable. Once the object of the institution is no longer charitable in nature, they are not eligible for any exemption u/ s.11 & 12 of the I.T. Act.
13. Accordingly, I hereby cancel the registration granted to the organization u/s 12A(a) with effect from 1.4.2009 i.e. introduction of proviso to Sec.2(15) of the Act as from that date the organization has not remained charitable as discussed supra in Para No. 1l."
6. On being aggrieved, the assessee is in appeal before the Tribunal.
7. The ld. Counsel for the assessee has submitted that the main objects of the assessee trust are to give relief to poor, education and medical care. He also pointed out that from the paper book page 57 that the assessee trust had incurred educational expenses, medical camp expenses, charitable expenses, in the financial years 2008-09, 2009-10 and 2010-11. In so far as kalyana mandapam is concerned, it was submitted that the trust has built a kalyana mandapam to provide shelter to the economically weaker section of the peoples who are not able to bear huge expenses to perform marriage and the trust is charging very low rate and whatever earned were used for the purpose of the objects of the assessee trust. So far as canteen is concerned, the ld. Counsel for 12 I.T.A. No.371 No.371/Mds/ 371/Mds/12 /Mds/12 the assessee has submitted that the trust provides food at very low cost since its inception to needy, downtrodden, underprivileged, low income and economically weaker sections particularly, slum dwellers, rag pickers, small platform vendors in Saidapet market, auto drivers, students coming from villages and old people. He has also pointed out from page 52 of paper book and submitted that the assessee trust was charging very low rates of food items without any profit motive.
8. On the other hand, the ld. DR supported the order passed by the ld. DIT(Exemptions).
9. We have heard both sides, perused the materials on record and gone through order of the ld. DIT(Exemptions). We find from assessee's paper book that in the year 1939, Saidapet merchant association was started in Saidapet by Saidapet bazaar business community to protect their interest and to fight against British soldiers who were creating problem in their business activities then and there. The association purchased a property which was given to the association for a very reasonable sale consideration by one of its members and also started a kalyana mandapam in a thatched shed which was subsequently converted in to asbestos roofing and front and back wall portion with regular building. All these exercise took nearly 30 years and the kalyana mandapam was running smoothly. The association decided to convert the association as a trust and it was registered by trust deed (Regn No.345/95) dated 31/03/1995. The assessee trust 13 I.T.A. No.371 No.371/Mds/ 371/Mds/12 /Mds/12 was granted registration under section 12A(a) of the Income Tax Act vide order of the DIT(Exemptions) in C.No. 2(7)/1995-96 DATED 28.04.1995. After conversion of Trust and granted registration as Trust, the trust started doing philanthropic activities and the objects as narrated in the trust deed were reproduced herein above. The trust has celebrated the completion of 60 years as Diamond Jubilee celebration in the year 1999. Consequent upon introduction of proviso to section 2(15) of the Act with effect from 01.04.2009, the ADIT(E) selected the trust for scrutiny for the assessment year 2009-10 and called for various details and vide letter dated 05.09.2011 has submitted proposal for initiating the proceedings under section 12AA(3) of the Act for cancellation of registration. The assessee trust has filed a detailed reply dated 02.12.2011 to the notice, which were reproduced hereinabove. It is the case of the assessee that the assessee is incurring various expenses of education, medical camps, books to the poor and prizes to students and other charitable expenses. It is not the case of the Revenue that the explanation given by the assessee is not correct and apart from that the DIT(E) himself admitted that the assessee is running a canteen with lesser margin. So far as kalyana mandapam is concerned, the ld. DIT(E) was of the opinion that simply because the trust is charging lower rate, it cannot be said that it is relief to the poor. The ld. DIT(E) has not considered the detailed explanation given by the assessee properly. The ld. DIT(E) has not denied various charitable activities carried by the assessee. It is not the case of the DIT(E) that the activities of the trust or institution are not genuine. It is also 14 I.T.A. No.371 No.371/Mds/ 371/Mds/12 /Mds/12 not the case of the DIT(E) that the activities of the assessee trust are not being carried out in accordance with the objects of the trust or institution for which the assessee trust was granted registration under section 12A in 1995.
10. A perusal of section 12AA(3) of the Act would indicate that a registration granted under section 12AA can only be withdrawn when the Commissioner/ Director of Income Tax (Exemption) is satisfied that (a) the activities of the trust or the institution are not 'genuine' or (b) the activities of the assessee are not being carried out in accordance with the objects of the trust or the institution. There cannot be any other legally sustainable reasons for cancelling or withdrawing the registration granted under section 12AA. By no stretch of logic, the activities of the assessee can be said to be not genuine and the assessee is admittedly pursing the objects for which it was established. When the assessee is engaged in bonafide activities, with the frame work of law, to pursue its objectives, it cannot be said that the activities of the assessee trust are not genuine.
11. In this case, the ld. DIT(E) has not given any finding that the assessee has violated these two conditions. As no specific violation had been pointed out by the ld. DIT(E), keeping in view of the facts and circumstances of the case, we are of the opinion that invoking section 12AA(3) of the Act is not warranted in this case.
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12. After going through the provisions of section 12AA(3) and section 2(15), we find that to withdraw the registration granted under section 12AA has been provided in such clause (3) of section 12AA of the Act. The provisions of section 2(15) are totally different. By the amended provisions of section 2(15), it has been provided that if any year the gross receipts of an institution exceeds `.10 lakhs [now `. 25 lakhs w.e.f. 01.04.2012], then in that case, the Assessing Officer is empowered to examine the allowability of exemption under section 11 of the Act on yearly basis but the same has no effect in continuation of registration already granted by the ld. DIT(E) during 1995.
13. In the case of CIT v. Sarvodaya Illakkiya Pannai [2012] 343 ITR 300 (Mad), the Hon'ble Jurisdictional High Court has held that the registration granted to a charitable trust cannot be cancelled until or unless the conditions as laid down under section 12AA of the Act are violated. In this case, no such violation has been pointed by the ld. DIT(E) except stating that the activities of the assessee trust are in general public utility and the activities of the trust is no longer charitable in nature because the threshold limit of `.10 lakhs has been crossed. Therefore, keeping in view of the facts and circumstances of the case, we are of the opinion that the assessee trust is entitled to the continuation of registration under section 12AA of the Act and we quash the order passed by the ld. DIT(Exemptions) and the appeal filed by the assessee is allowed. 16 I.T.A. No.371
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14. In the result, the appeal of the assessee is allowed.
Order pronounced on Friday, the 31st of January, 2014 at Chennai.
Sd/- Sd/- (A. MOHAN ALANKAMONY) (V.DURGA RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER Chennai, Dated, the 31.01.2014 Vm/- To: The assessee//A.O./CIT(A)/CIT/D.R.