Madras High Court
Tamil Nadu Kalvi Kapu Arakkattalai vs The Chief Commissioner Of Income Tax Iii on 6 November, 2014
Author: T.S.Sivagnanam
Bench: T.S.Sivagnanam
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 06.11.2014
CORAM
THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAM
Writ Petition No.4320 of 2011
and M.P.No.1 of 2011
Tamil Nadu Kalvi Kapu Arakkattalai,
77 Bazullah Road,
T.Nagar, Chennai 600 017 .. Petitioner
Vs.
1. The Chief Commissioner of Income Tax III,
121 Mahatma Gandhi Road, Chennai 600 034
2. The Director of Income Tax Exemptions,
121 Mahatma Gandhi Road, Chennai 600 034
3. The Additional Director of Income Tax Exemptions IV,
121 Mahatma Gandhi Road, Chennai 600 034 .. Respondents
Prayer: Writ Petition filed under Article 226 of the Constitution of India seeking for the issuance of a Writ of Certiorarified Mandamus to call for the records of the petitioner on the file of the first respondent, to quash the impugned order, dated 05.08.2010, issued in C.No.CC III/3/10/(23C)/2010-11, in refusing / rejecting the renewal of recognition sought for, in terms of Section 10 (23C) (vi) of the Income Tax ct, 1961, for the assessment year 2009-2010 and consequently, direct the respondent to grant such recognition as prayed for.
For Petitioner : Mr. J.Sridhar
For Respondents : Mr. T.Pramod Kumar Chopda &
Mr. Rajkumar Jhabakh
- - -
O R D E R
The petitioner, a Trust, registered under the provisions of the Indian Trusts Act, 1882, has filed this writ petition praying for the issuance of a writ of certiorarifed mandamus, to quash the order passed by the first respondent, dated 05.08.2010, rejecting the renewal of recognition sought for by the petitioner under Section 10 (23C) (vi) of the income Tax Act, 1961, (in short the Act) for the assessment year 2009-10 and for a consequential direction to the respondent to grant such recognition.
2. The petitioner / Trust was established on 29.10.1976 on execution and registration of a Deed of Trust, with the following objects among other things:-
a) Relief of the poor, education, medical relief and advancement of any other object of general public utility;
b) establishment of hostels, choultries, rest homes, orphanages, poor homes for the benefit of poor an destitute;
c) affording relief to the poor in distress and poverty and establishment and maintenance of educational institutions and workshops for imparting general, technical, professional, industrial and other means of education and training ensuring to the benefits of the general public;
d) making of grants by way of scholarships, financial assistance for the benefit of students, scholars and others;
e) establishment, maintenance and conduct of hospitals, clinics, dispensary for treatment, cure, rest and other relief, free of cost or at concessional rates to the general public;
f) generally to help poor and needy in all respects.
3. The petitioner is said to have established a polytechnic college at Mettupalayam, during the academic year 2010-11, and the said institution is approved by the AICTE and recognized by the Government of Tamil Nadu. The petitioner had earlier established an Industrial Training Institute in 1991, which has been recognized by the Government of India. The petitioner / Trust is registered as a Public Charitable Trust, under Section 12A(a) of the Act, by the order of the Commissioner of Income-Tax, Tamil Nadu II, Chennai, dated 04.04.1977. The Director of Income-Tax (Exemptions) Chennai, by order dated 23.09.2008, granted renewal of recognition under Section 80G of the Act, up to 31.03.2011. The first respondent, by order dated 13.08.2007, granted approval to the petitioner under Section 10 (23C) (vi) of the Act, 1961, for the assessment years 2006-07 to 2008-09. The petitioner filed an application, on 05.08.2009, for renewal of the approval and in response to such an application, the first respondent afforded an opportunity of hearing to the petitioner, by fixing the date as 05.08.2010. On the said date, the Chartered Accountant of the petitioner / Trust, duly authorized, appeared before the first respondent. Thereafter, the first respondent, by order, dated 05.08.2010, rejected the petitioner's application stating that the petitioner / Trust is not existing solely for the purpose of education. Challenging the said order, the petitioner has filed this writ petition.
4. Mr. J.Sridhar, learned counsel appearing for the petitioner, submitted that the petitioner / Trust has been approved as a Public Charitable Trust, under Section 12A of the Act, ever since 1977, which would fortify the request for renewal of approval, under Section 10 (23C) (vi) of the Act, which was granted from the assessment year 2006-07 and the order of rejection is erroneous. Further, it is submitted by the learned counsel for the petitioner that the impugned order is in violation of principles of natural justice and the petitioner was not afforded an opportunity to rebut the presumption drawn by the first respondent for rejecting the petitioner's application, for renewal, by interpreting the objects of the Trust, as culled out from the Trust Deed, and holding that the Trust is not existing solely for the purpose of education; this finding is erroneous and if, opportunity had been granted to the petitioner, it would have been able to place materials to justify its claim. It is further submitted by the learned counsel for the petitioner that there is no statutory prohibition for the approved Public Charitable Trust, with multiple charitable objects, as defined in Section 2 (15) of the Act, and therefore the impugned order is not sustainable both on facts as well as on law.
5. Further, it is submitted by the learned counsel for the petitioner that there is no other activity done by the Trust, except running two educational institutions, and if opportunity had been granted to the petitioner to substantiate its claim, without solely being guided by the objects set-out in the Trust Deed, the petitioner would have demonstrated before the first respondent that it is entitled for renewal of its registration under Section 10 (23C) (vi) of the Act. The learned counsel placed reliance on the decisions, namely, 184 ITR 284 Patna (Commissioner of Income Tax v. St. Xaviers), 329 ITR 459 Delhi (Digember Jain Society for Child Welfare v. Director General of Income Tax (Exemptions) and 213 ITR 296 Kerala (Commissioner of Income Tax v. Geetha Bhavan Trust), in support of the submission that merely because there are other objectives for the Trust, other than education, that would not dis-entitle the Trust for exemption under Section 10 (23C) (vi) of the Act. Therefore, the learned standing counsel would plead that the matter may be remanded to the respondents for fresh consideration giving opportunity to the petitioner to place materials in support of its contentions.
6. The learned Senior Standing counsel appearing for the respondents contended that before arriving at a decision, as to whether to grant approval or to reject the same, the petitioner was afforded an opportunity of being heard in the matter and to substantiate the said contention, the learned senior counsel has produced the copy of the note file to demonstrate that after the application was filed by the petitioner, a report was called for from the Director of Income-Tax (Exemptions) and the same was submitted on 08.07.2010 and thereafter, the matter was placed before the first respondent and after affording an opportunity to the petitioner, who was represented by the counsel, the order has been passed. Therefore, it is submitted that the principles of natural justice has been fully complied with and the order of rejection is neither arbitrary nor illegal.
7. Further, it is submitted by the learned standing Counsel for the respondents that, there is marked distinction between a claim for exemption under Section 10 (23C) (vi) of the Act and an approval under Section 12A of the Act and the approval under Section 12A of the Act and an eligibility under Section 80G are independent provisions to that of Section 10 (23C) (vi) of the Act, and a mere grant of approval under Section 12A or eligibility under Section 80 G of the Act does not envisage automatic grant of approval under Section 10 (23C) (vi) of the Act. Further, it is submitted that merely because the petitioner / Trust is an approved charitable trust, as defined under Section 2 (15) of the Act, that will not entitle them to automatically get exemption under Section 10 (23C) (vi) of the Act, unless the conditions prescribed therein are satisfied. It is further submitted that Section 10 (23C) (vi) of the Act stipulates a condition that the institution shall exists solely for education purpose and it does not speak about the source of income, etc., and the decisions relied on by the learned counsel for the petitioner are inapplicable to the facts and circumstances of the case on hand. By referring to clause (a) in the third proviso, under Section 10 (23C) (vi) of the Act, it is submitted that the said provision mandates that the Trust applies its income, wholly and exclusively, to the objects for which it is established and unless, such a condition is satisfied, grant of exemption does not arise. On the above grounds, the learned senior counsel for the respondents seeks to justify the impugned proceedings.
8. I have considered the submissions made by the learned counsel for both sides and carefully perused the materials available on record.
9. Section 10 of the Act falls in Chapter-III, which deals with incomes not included in total income. Section 10 of the Act contains numerous clauses, amended from time to time, exempting various kinds of income from inclusion for the purposes of tax and these exemptions stem from social, economic, political, international and other considerations. It is settled legal principle that, just as a taxing provision has to be construed strictly, provision for exemption is also to be construed strictly and if exemption is in terms of provisions of the Act, subject to certain conditions, those conditions must be strictly fulfilled by the assessee claiming exemption and the burden of proof lies on the assessee to prove that a particular income is wholly or partly exempt under the particular provision. It has been held in Sri Ranganatha Enterprises v. CIT, 1998 (232) ITR 568 (Karnataka) that in respect of any exemption claimed under any of the provisions in Chapter-III, the burden of proof that the income falls under the Sections in the said chapter is on the assessee. Section 10 (23C) (vi) of the Act reads as follows:-
"10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included--
.....
(23C) any income received by any person on behalf of--
.....
(iiiab) any university or other educational institution existing solely for educational purposes and not for purposes of profit, and which is wholly or substantially financed by the Government; or .....
(iiiad) any university or other educational institution existing solely for educational purposes and not for purposes of profit if the aggregate annual receipts of such university or educational institution do not exceed the amount of annual receipts as may be prescribed; or .....
(vi) any university or other educational institution existing solely for educational purposes and not for purposes of profit, other than those mentioned in sub-clause (iiiab) or sub-clause (iiiad) and which may be approved by the prescribed authority....."
10. In terms of the above provision, it is clear that, any income received by any person on behalf of any university or educational institution, existing solely for educational purposes, and not for the purposes of profit, other than those mentioned in sub-Clause (iiiab) (wholly or substantially financed by the Government) or sub-clause (iiiad) (aggregate annual receipts do not exceed the amount of annual receipts as may be prescribed) and which may be approved by the prescribed authority.
11. This Court is of the opinion that the third proviso would be applicable to the case on hand, more particularly, clause (a) contained in the third proviso. Thus, in terms of the above provision, the prescribed competent authority, while considering the application for approval and examining the eligibility criteria, ought to take into consideration the real purpose of the Trust. In the instant case, the petitioner submitted its application for renewal in the proper format, namely, Form 56D, and stated that the main objects of the Trust are relief to poor, education, medical relief and advancement of any other objects of public utility. It was mentioned that the Trust is running Polytechnic and Industrial Training Institute. In clause 11 of the application, it has been stated that, all the income has been used exclusively for object of the Trust, as per the income and application statement furnished along with the application.
12. It is no doubt true that the petitioner was afforded an opportunity of personal hearing by the first respondent and the petitioner was represented by its counsel. On a perusal of the note file produced by the learned Senior Standing Counsel appearing on behalf of the respondents, it is seen that a report was called for from the Director of Income-Tax (Exemptions), and the said authority, by a communication, dated 08.07.2010, addressed to the first respondent, has forwarded the report of the Assessing Officer, DDIT (E-IV), dated 20.10.2009, duly endorsed by JDIT (E) vide endorsement, dated 22.10.2009, along with a report of the DIT (E) dated 08.07.2010. Based on the observations made in the report, the DIT (E) stated that the petitioner's case is not recommended for approval under Section 10 (23C) (vi) of the Act. Admittedly, the said report was not made known to the petitioner nor a copy of the same furnished to the petitioner at the time of personal hearing, which was held on 05.08.2010 as by then, the report was available on the file of the first respondent. In fact, the impugned order appears to be solely based upon the report of the DIT (E) which has observed that the Trust does not exist solely for educational purposes.
13. In such circumstances, if the first respondent has based his decision on the report given by the DIT (E) and his officers, such report, being adverse to the interest of the petitioner, ought to have been made known to the petitioner to put forth its objections. It is pointed out that an opportunity of personal hearing means a meaningful opportunity and not for statistical purposes. The opportunity should be effective and adequate, so as to enable the assessee to place all materials before the authority prior to a decision being taken.
14. In my view, while considering the claim for exemption, the substance of the claim would be more relevant than the form. In other words, the Authority should not be solely guided by the objects set-out in various clauses in the Instrument of Trust (Deed of Trust). Rather, the authority should be guided by the activities of the Trust, as to how the funds are employed, since the exemption sought for is under Chapter-III of the Act, which deals with incomes which do not form part of the total income. Thus, under Chapter-III, more particularly, Sections 10 to 13A of the Act, the Act brings certain categories of exemption and incomes falling within those categories are completely exempt from the purview of the Act, as they are not at all to be included in the total income of the assessee. Therefore, such type of exemption/s has/have to be distinguished from certain types of income, which are included in the total income of the assessee, but in respect of which statute provides relief by way of deduction in computing the total income, by granting rebate of tax and by granting certain other reliefs from the tax-payers.
15. In the light of the above discussion, this Court is of the view that the opportunity afforded to the petitioner was inadequate, inasmuch as the impugned order appears to be solely on the basis of the report of the DIT (E), without any opportunity to the petitioner to place materials to rebut the findings contained in the report and that the tests required to be applied while examining the issue, having not been rightly applied, the matter requires reconsideration.
16. In the result, the writ petition is allowed and the impugned order is set-aside and the matter is remanded back to the first respondent for fresh consideration. The petitioner shall be furnished a copy of the report submitted by the DIT (E), dated 08.07.2010, and on receipt of the same, the petitioner is entitled to submit its reply / objections to such report, annexing the required documents and on receipt of the same, the first respondent shall afford an opportunity of personal hearing to the authorized representative of the petitioner / Trust and after hearing the parties, pass a reasoned order, on merits and in accordance with law. No costs. Consequently, the connected MP is closed.
06.11.2014 Index : Yes / No Web : Yes / No srk To
1. The Chief Commissioner of Income Tax III, 121 Mahatma Gandhi Road, Chennai 600 034
2. The Director of Income Tax Exemptions, 121 Mahatma Gandhi Road, Chennai 600 034
3. The Additional Director of Income Tax Exemptions IV, 121 Mahatma Gandhi Road, Chennai 600 034 T.S.SIVAGNANAM, J., srk Pre-Delivery Order in W.P.No.4320 of 2011 & M.P.No.1 of 2011 .11.2014 Pre-Delivery Order in W.P.No.4320 of 2011 & M.P.No.1 of 2011 To The Hon'ble Mr. Justice T.S.Sivagnanam Most Respectfully submitted:
S.Ramkumar P.A., to the Hon'ble Judges