Delhi High Court
Kyrie Chand Tarawati Charitable Trust vs The Director Of Income-Tax on 27 March, 1998
Equivalent citations: 1998IIAD(DELHI)988, 72(1998)DLT726, 1998(45)DRJ122, [1998]232ITR11(DELHI)
Author: R.C.Lahoti
Bench: R.C. Lahoti, Dalveer Bhandari
ORDER R.C.Lahoti, J.
1. The petitioner is aggrieved by order dated 20.2.1997, Annexure-1, passed by Director Income-tax (Exemption) New Delhi whereby the petitioner's application dated 16.9.1996 seeking renewal of the recognition of the petitioner Trust under Section 80G of the Income-tax Act, 1961 for the period commencing 1.4.1996 has been refused.
2. M/S Kirti Chand Tarawati Charitable Trust (hereinafter, 'the Trust'- for short) is the trust created and settled by Kirti Chand Aggarwal vide deed of trust dated 8.10.1981, (Annexure-2). It cannot be denied that the aims and objects of the Trust as set out in the deed dated 8.10.1981 are charitable. Construction of a religious temple is not one of the objects set out in the deed of trust. Vide order dated 29.7.1993 (Annexure-4) the Director of Income-tax ( Exemption) allowed recognition under Section 80G of the Act for the period 1.4.1993 to 31.3.1996 entitling allowability of deduction under section 80G to the donations made to the Trust. On 4.9.1996, the petitioner sought for renewal of the recognition. Vide order dated 12.12.1996 the petitioner was asked to furnish the details of the activities undertaken by the Trust for the last three years. At the same time the petitioner was asked to show cause why its recognition be not cancelled on account of religious activities carried out by it.
3. The petitioner filed a reply setting out the details of its receipts and expenses (gross and net) and the details of the activities carried out by it. The petitioner admitted having been engaged in constructing a temple of Lakshmi Narain Mandir, completed during the assessment year 1996-97,with an investment of Rs. 30.34 lakhs. While maintaining that the activities of the Trust were charitable only, one of the pleas raised by the petitioner in its reply was : " the trust is carrying on mixed activities i.e. running hospital and temple. We are unable to get to the second question of the notice, since recognition under Section 80G of the Income-tax Act, 1961 is not banned for religious Trust." (page 34 of the paperbook).
4. On 10.9.1997, the petitioner sent a letter in continuation of its earlier communication wherein it was stated that the renewal may kindly be granted only in respect of donations to be utilised for charitable purpose only. The petitioner admitted having utilised its income for the purpose of construction activities during the assessment years 1995-96, 1996-97 though it maintained that the income of the Trust from investment in securities was much more than the amount spent on construction. The petitioner maintained " no donation received on the strength of receipts issued with exemption under Section 80G was, therefore, utiised for the religious activities. There is no bar of application of incomes to the religious activities."
5. The contents of yet another communication, (Annexure-10) made by the petitioner to the respondent go to show that the amounts of donations received by the petitioner-trust on the basis of recognition under Section 80G of the Act were invested in government securities, post office savings bank and time deposits, as also with financial corporations. The income received from such investments was utilised for the purpose of constructing the temple.
6. The question arising for decision is if a trust having enjoyed recognition under Section 80G of the Act utilises the amount of donations enjoying exemption for making investments and the income from such investments is utilised for the purpose of religious activity, such as constructing a temple can it claim entitlement to renewal of such recognition ? Can it be said to be a trust 'established in India for a charitable purpose' within the meaning of sub-section (5) of Section 80G ?
7. Section 80G of the Act ( relevant part thereof) reads as under :-
Deduction in respect of donations to certain funds, charitable institutions,etc. 80G.(1) In computing the total income of an assessee, there shall be deducted, in accordance with and subject to the provisions of this section,_ xxx xxx xxx
(ii) in any other case, an amount equal to fifty per cent of the aggregate of the sums specified in sub-section (2) xxx xxx xxx (2) The sums referred to in sub-section(1) shall be the following,namely :-
(a) any sums paid by the assessee in the previous year as donations to_ xx xxx xxx xxx
(iv) any other fund or any institution to which this section applies; or xx xxx xxx xxx (5) This section applies to donations to any institution or fund referred to in sub-clause (iv) of clause (a) of sub-section (2), only if it is established in India for a charitable purpose and if it fulfills the following conditions, namely :-
(i) Where the institution or fund derives any income, such income would not be liable to inclusion in its total income under the provisions of sections 11 and 12 or clause (22) or clause 22A or clause 23 or clause 23 or clause 23C or section 10:
(a) the institution or fund maintains separate books of account in respect of such business;
(b) the donations made to the institution or fund are not used by it, directly or indirectly, for the purposes of such business; and
(c) the institution or fund issues to a person making the donation a certificate to the effect that it maintains separate books of account in respect of such business and that the donations received by it will not be used, directly or indirectly, for the purposes of such business;
(ii) the instrument under which the institution or fund is constituted does not, or the rules governing the institution or fund do not contain any provision for the transfer or application at any time of the whole or any part of the income or assets of the institution or fund for any purpose other than a charitable purpose;
(iii) the institution or fund is not expressed to be for the benefit of any particular religious community or caste;
(iv) the institution or fund maintains regular accounts of its receipts and expenditure,
(v) the institution or fund is either constituted as a public charitable trust or is registered under the Societies Registration Act, 1956 (1 of 1956), or is a University established by law, or is any other educational institution recognised by the Government or by a University established by law, or affiliated to any University established by law, or is an institution approved by the Central Government for the purposes of clause (23) of Section 10 or is an institution financed wholly or in part by the Government or a local authority
(vi) in relation to donations made after the 31st day of March, 1992, the institution or fund is for the time being approved by the Commissioner in accordance with the rules made in this behalf :
Provided that any approval shall have effect for such assessment year or years not exceeding five assessment years, as may be specified in the approval.
xxx xxx xxx xxx xxx xxx Explanation 3,_ In this section, "charitable purpose" does not include any purpose the whole or substantially the whole of which is of a religious nature." (underlining by us)
8. Under Section 80G, an assessee is entitled to deduction of an amount equal to 50% of the donations made by him to certain funds and charitable institutions etc [over and above the funds or institutions specifically listed in several clauses under Section 80G(2)(a)] from the computation of his total taxable income. The donations must be made only to such institutions or funds as satisfy the requirements of sub-section(5). As provided by sub-section (5) to be eligible under Section 80G, the institution or fund must be established in India for a charitable purpose and must fulfill several other conditions set out in sub-section (5). One of the conditions is that the institution or fund should have been approved by the Commissioner for the period of time for which the benefit therein is claimed.
9. Learned counsel for the petitioner laid emphasise on the language of clauses (ii) and (iii) of sub-section (5) of Section 80G and submitted that this provision is sufficiently suggestive of the legislative intent that the enquiry by the Commissioner touching the Trust seeking the approval by the Commissioner must be confined to the provisions and objects as set out in the instrument which constitutes the Trust. If the objects as set out are charitable and the instrument does not provide for or empower the trustees to spend the amount for any purpose other than charitable then it is the end of the matter. In other words, the actual utilisation of the fund or the actual activities of the institution are not germane to the enquiry under Section 80G(5)(vi).
10. The submission of the learned counsel for the petitioner noted in the preceding para cannot be accepted. The submission is founded on the phraseology of various clauses of sub-section (5) but it overlooks the very guiding and governing expression used in the sub-section which excels all other clauses therein. The first and foremost requirement which the institution or the fund has to satisfy is "if it is established in India for a charitable purpose". The conditions contemplated by clauses (i) to (vi) of sub-section (5) are the conditions which the institution of the fund must additionally fulfill so as to be entitled to the approval by the Commissioner. The enquiry 'if it is established for a charitable purpose' is not confined and limited only to the contents of the instrument constituting the trust.
11. With advantage we may notice the several observations made by their Lordships of the Supreme Court in Mcdowell & Co Ltd Vs. CTO, (1985) 154 ITR 148. The opinion recorded by Hon Mr Justice Chinnappa Reddy exclusively deals with the concept of tax avoidance qua tax evasion which opinion has the concurrence of other Hon'ble Judges constituting the bench.
11.1 His Lordship defines 'tax avoidance' as 'the art of dodging tax without breaking the law' as the shortest definition. At page 154, their Lordships have quoted from English decisions the following excerpts wherefrom may be made :-
"Indeed, I sometimes suspect that our normal meticulous methods of statutory construction tend to lead us astray by concentrating too much on verbal niceties and paying too little attention to the provisions read as a whole"
"Given that a document or transaction is genuine, the court cannot go behind it to some supposed underlying substance. This is the well known principle of Inland Revenue Commissioners v. Duke of Westminster [1936] AC 1. This is a cardinal principle but it must not be overstated or over extended. While obliging the court to accept documents or transactions, found to be genuine, as such, it does not compel the court to look at a document or a transaction in blinkers, isolated from any context to which it properly belongs. If it can be seen that a document or transaction was intended to have effect as part of a nexus or series of transactions, or as an ingredient of a wider transaction intended as a whole, there is nothing in the doctrine to prevent it being so regarded: to do so is not to prefer form to substance, or substance to form. It is the task of the court to ascertain the legal nature of any transaction to which it is sought to attach a tax or a tax consequence and if that emerges from a series or combination of transaction, intended to operate as such, it is that series or combination which may be regarded. For this, there is authority in the law relating to income tax and capital gains tax: see Chinn v. Hochstrasser [1981] 2 WLR 14 and Inland Revenue Commissioners v. Plummer [1980] AC 896."
11.2 The latest trend in this direction have been noted by his Lordship as under :
"The courts are now concerning themselves not merely with the genuineness of a transaction, but with the intended effect of it on fiscal purposes. No one can now get away with a tax avoidance project with the mere statement that there is nothing illegal about it."
"The proper way to construe a taxing statute, while considering a device to avoid tax, is not to ask whether the provisions should be construed literally or liberally, nor whether the transaction is not unreal and not prohibited by the statute, but whether the transaction is a device to avoid tax, and whether the transaction is such that the judicial process may accord its approval to it.
11.3 His Lordship has noted a judgment in Wood Polymer Ltd in re: Bengal Hotels Ltd in re: 1977 47 Company Cases 597 (Guj), wherein the High Court refused to accord sanction to the amalgamation of the companies as it would lead to the avoidance of tax. His Lordship has concluded by holding :-
"It is neither fair nor desirable to expect the legislature to intervene and take care of every device and scheme to avoid taxation. It is up to the court to take stock to determine the nature of the new and sophisticated legal devices to avoid tax and consider whether the situation created by the devices could be related to the existing legislation with the aid of emerging techniques of interpretation as was done in Ramsay, Burma Oil and Dawson to expose the devices for what they really are and to refuse to give judicial benediction."
11.4 Other Lordships speaking through Honble Mr Justice Ranganath Misra held :-
"Tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges."
12. It follows that while dealing with a tax law the realities, and not devices and subterfuges, have to be seen. The vision cannot be permitted to be blurred by the blinkers of colourable devices and dubious methods.
13. Shri C.S. Aggarwal, learned counsel for the petitioner, submitted that for the purpose of determining charitable purpose of the Trust, the respondents should have confined their attention and scope of scrutiny only to the purposes as set out in the deed of Trust without digressing to actual activities carried on by the Trust. It was also submitted that the scheme underlying the relevant provisions of the Income-tax Act shows that the legislative intent is to grant the donations made to a charitable trust exemption from payment of income tax and if a donor makes donations to a trust with charitable purpose as spelled out from the objects set out in the deed of trust then the donations must enjoy exemption though in the event of the donation being misused or misutilised for purposes other than charitable, the Trust may be liable to assessment under the appropriate provisions and may also face penal consequences; however, this has nothing to do with the grant of recognition under Section 80G of the Act, submitted the learned counsel. We are not impressed.
14. It is not disputed that the objects of the Trust as set out in the deed of declaration are charitable. However, on-the-spot enquiry conducted by the respondents has revealed the Trust being engaged mainly in the construction of a religious temple wherein no charitable activity was being carried on. It is also not disputed that the donations received by the Trust and enjoying exemption under Section 80G were invested by the petitioner and the income derived therefrom was utilised for a religious purpose.
15. For the purpose of construing the purpose of a Trust, one need not remain necessarily confined to the objects of the Trust as set out in the deed of declaration. The real purpose of establishment of a Trust has to be found out and spelled out. 'Purpose' means that which one sets before him to accomplish or attend, an intention or aim object, plan, project; Term is synonymous with the ends sought and an object to attain, an intention, etc. (see Black's Law Dictionary, 6th Edn, page 1236). Purpose must obviously be construed as real purpose and not a purpose as it outwardly appears to be. Any other interpretation would permit a fraud being played on the law permitting exemption from taxation. If the argument of the learned counsel for the petitioner was to be accepted then a trust may be established with a purpose as set out in the deed of declaration which appears to be highly charitable but the Trust may in fact be engaged in such activities which cannot even remotely be called charitable, and yet the donations made to the Trust would enjoy exemption. The authority conferred with power to grant exemption is not debarred from finding out the real purpose as distinguished from the ostensible purpose and if it may find that the purpose of the trust was other than charitable then nothing debars the authority from denying the approval.
16. Once a trust has approval from the Commissioner, the trust can persuade the donors into making donations. The donors would be persuaded to make such donations influenced by the approval unmindful of the fact that their donations were going to be utilised for religious purpose as distinguished from charitable purpose- the distinction which the Parliament has chosen to keep in view while framing Section 80G. Purpose of establishment- the real purpose as distinguished from the ostensible purpose- is germane to the enquiry which the Commissioner has to hold while granting approval under Section 80G(5)(vi). We are not prepared to place any such interpretation on the language implied in Section 80G so as to uphold an obligation on the part of the Commissioner to grant an approval to a trust merely by looking at the instrument creating the Trust and shutting its eyes towards the activities actually carried out by it.
17. The second contention of the learned counsel for the petitioner also deserves to be discarded. Having received donations for charitable purposes, instead of being spent on charity, are utilised for investing so as to earn the returns thereon and utilise the same for purposes other than charitable (religious in the case at hand). Obviously the donations are being utilised for purposes other than charity though indirectly.
18. We are,therefore, of the opinion that no fault can be found with the impugned order of the respondent denying renewal of recognition under Section 80G of the Income-tax Act, 1961 to the petitioner Trust for the period 1.4.1996 onwards. The petition is devoid of merit and liable to be dismissed. It is dismissed accordingly though without any order as to the costs.