Income Tax Appellate Tribunal - Ahmedabad
Dharampur Uthan Vahini, Navsari vs Department Of Income Tax on 23 October, 2007
IN THE INCOME TAX APPELLATE TRIBUNAL
'B' BENCH - AHMEDABAD
(BEFORE S/SHRI BHAVNESH SAINI, JM AND N. S. SAINI, AM)
ITA No.600/Ahd/2008
A. Y.: 2004-05
The A. C. I. T., Vs Dharampur Uthan Vahini
Navsari Circle, (DHRUVA) Vrindavan Campus,
Navsari Valsad, Dist- Navsari
PA No. AAATD 4290 P
(Appellant) (Respondent)
Appellant by Shri C. K. Mishra, DR
Respondent by Shri K. N. Bhat, AR
ORDER
PER BHAVNESH SAINI, JM: This appeal by the Revenue is
directed against the order of the learned CIT(A), Valsad dated 23-10-2007 for assessment year 2004-05 on the following grounds:
"1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the aggregate additions of Rs.3570570/- made by the AO on account of different of interest received by the trust from the beneficiaries and paid to the NABARD, as the trust is not providing free services or cost to cost services to the beneficiaries. Besides, the surplus on sale of materials viz, fertilizers, equipment etc. though the said business activities were out of preview of object of the trust.
2. On the facts and in the circumstances of the case and in law, the CIT(A) ought to have upheld the addition made by the A. O."
2. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record.
3. Briefly, the facts of the case are that the AO observed that the assessee trust carrying out programmes under the object of rural ITA No.600/Ahd/2008 2 ACIT Vs Dharampur Uthan VAhini development on account of receipt in the form of donations and grants or loans received from NABARD. The assessee trust does not have any corpus and interest and also does not own any property from which the assessee earns its income is derived. The assessee trust is financing the farmers through Gram Vikas Mandal, which is not a body formed under any legal shelter. The assessee trust earns income in the form of higher rate of interest charged to the Gram Vikas Mandal as against the interest paid to NABARD. Likewise, the assessee trust supplies fertilizers to the farmers wherein a margin of profit is earned. The AO, therefore, noted that since the assessee trust is earning income out of financing activities and trading of fertilizers, the said activity being purely a business activity, the benefit of section 11 of the IT Act was denied to the assessee. The AO further observed that registration u/s 12A of the IT Act would not ipso facto entitle the assessee to claim exemption u/s 11 of the IT Act.
4. Before the learned CIT(A), the assessee submitted that the assessee trust is a public charitable trust registered u/s 12A of the IT Act carrying out various objects inclusive of the object of rural development. The Memorandum of Association of the assessee trust furnished with the AO reveals that the assessee trust is carrying out the activities in accordance with their objects of rural development in terms of socio-economic, health, agricultural development in rural areas, which in turn provides self-employment, water resources, training and education for self- sufficiency to the people of rural area at large. The objects of the assessee trust being rural development, the same falls within the purview of section 2(15) of the IT Act, which defines the meaning of advancement of any other object of general public utility, partakes the character of charitable purpose. The assessee placed reliance on the decisions in the cases of (i) Addl. CIT Vs Surat Art Manufacturers' Association (1980) 121 ITR 01 (SC), (ii) CIT Vs Andhra Pradesh State Road Transport Association ITA No.600/Ahd/2008 3 ACIT Vs Dharampur Uthan VAhini (1986) 159 ITR 01 (SC), (iii) Victoria Technical Institute Ltd. Vs Addl. CIT (1991) 188 ITR 57 (SC), (iv) Girijan Co-operative Society Ltd. Vs CIT (1989) 76 CTR 44 (AP), (v) Mahakoshal Shaheed Smarak Trust Vs CIT (1983) 140 ITR 795 (MP), (vi) Jaipur Charitable Trust Vs CIT (1981) 127 ITR 620 (Del.) and (vii) Addl. CIT Vs Automobile Association of Southern India (1981) 127 ITR 730 (Mad.) The assessee dealt with the issue of registration u/s 12A of the IT Act, and observation of the AO with regard to non-allowability of the benefit u/s 11 ipso facto. The assessee distinguished the conclusion drawn by the AO justifying their claim u/s 11 of the IT Act defining the nature and application of income along with the accumulation of surplus funds and the beneficiaries of the assessee trust. The assessee furnished a table showing the summary and income thereof as under:
INCOME & EXPENDITUTRE ACCOUNT YEAR ENDING: 31.3.2004(Rs. IN LACS) Particulars Option -A Option-B A-INCOME (Ignoring appropriation) By receipts from Rural 32.13 32.13 Development Programmes By grants 577.09 577.09 By interest on Fixed Deposits 10.22 10.22 By donations 0.47 0.47 By surplus on materials supplied 4.34 4.34 TOTAL (A) 624.25 624.25 B-APPLICATI0N OF INCOME:-
Expenses on objects of the Trust 588.54 588.54 Appropriation of income to various 33.73 33.73 funds TOTAL (B) 622.27 622.27 C- SURPLUS FOR THE YEAR 1.98 1.98 D- % SPENT/APPLIED FOR 99.68% 94.28% It was further submitted that the assessee trust has met with the conditions stipulated u/s 11 of the IT Act with regard to the income and application thereof as well as the accumulation of surplus funds. The ITA No.600/Ahd/2008 4 ACIT Vs Dharampur Uthan VAhini assessee further submitted that the beneficiaries of the assessee trust are poor farmers of tribal areas and the entire activity of the assessee trust is carried out for attainment of the objectives of the trust. It was emphasized that there has been no diversion of income to any person or for any purpose as indicated u/s 13 of the IT Act and that thus the assessee trust deserved the benefits u/s 11 of the IT Act. The assessee dealt with the conclusion of the AO in respect of absence of property and having no corpus funds with the assessee trust. He further submitted that section 12(1) of the IT Act defines property which includes movable and immovable properties. Further meaning of property was discussed in detail and it was submitted that even the business of the assessee trust is also a property and that the term property has the widest amplitude, which includes immovable and movable properties like money, shares, securities, bank balance etc. and thereby submitted that the assessee trust owns a property relying upon the decisions such as (i) J. K. Trust Vs CIT (1957) 32 ITR 535 (SC), (ii) CIT V P. Krishnawarriar (1964) 53 ITR 176(SC), (iii) Thanti Trust Vs CBDT (1995) 213 ITR 639 (Mad), (iv) CIT Vs Radhaswami Satsang (1954) 25 ITR 472 (AH), (v) CIT Vs Breach Candy Swimming Bath Trust (1955) 27 ITR 372 (Bom) and (vi) Thiagesar Dharma Vanikam Vs CIT (1963) 50 ITR 798 (Mad). The assessee also dealt with the issue of corpus and consequential denial of exemption u/s 11 of the IT Act by the AO submitting as under:
"Trust crated with no corpus funds"
Sir, the LAO has observed that the appellant trust is created with no corpus fund. It is our humble submission that the LAO has measurably failed to appreciate the fact that he said issue is beyond his jurisdiction.
Sir, it would be worth-nothing that even while granting the registration u/s. 12A of the Act, the Hon'ble CIT is required to enquire into as to what amount should form the corpus of the trust and therefore the LAO has raised this issue simply to disregard the object of the appellant trust and to treat the appellant trust a business activity.
ITA No.600/Ahd/2008 5ACIT Vs Dharampur Uthan VAhini Sir, recently, the Hon'ble Delhi Tribunal has decided the issue in favour of the assessee in the case of :-
SAIN JI DHARMARATH TRUST V/S CIT (2006) 8 SOT 446 (DEL) Held: At the state of granting or refusing the registration to the assessee, the Commissioner is not required to examine as to what amount should form the corpus of the trust and as to what amount should appear in the balance sheet of the assessee and in what manner the accounts relating to the period prior and post constitution of the trust should be maintained and filed by the assessee".
It was further submitted that regarding the issue of business activity carried out by the assessee trust as alleged by the AO, the assessee filed details in respect of financing activity and alleged trading activity of fertilizers, which transpires that both the activities are carried out under the object of rural development for the benefit of poor farmers in accordance with the object of the assessee trust and in reality the assessee trust provided fertilizers to the farmers free of cost and that for the sake of transparency and that to report to the sponsorer the same was filed separately in the financial statements. The assessee further submitted that even under the IT Act carrying on the business activity by the charitable trust is not banned as per CBDT Circulars No.621 and 642 dated 19-02-1991 and 112-12-1992 respectively, wherein the trust is permitted to carry on business activity for attainment of the object of the trust. It was submitted that in the case of the assessee trust, the conditions stipulated u/s 11(4A) of the IT Act has been complied with and that such an activity carried out by the assessee trust for attainment of the objects of the assessee trust is eligible for deduction u/s 11 of the IT Act. In support of this contention the assessee relied upon the decisions in the cases of (i) CIT Vs Dharmodayam (2001) 165 CTR 12 ITA No.600/Ahd/2008 6 ACIT Vs Dharampur Uthan VAhini (SC ), (ii) Addl. CIT Vs Thanthi Trust (2001) 247 ITR 785 (SC) and (iii) Addl. CIT Vs Surat Art Cloth Manufacturers Association (1980) 121 ITR 01 (SC).
5. The learned CIT(A) considering the submissions of the assessee the material on record held that the assessee complied with the provisions of Section 11(4A) of the IT Act, therefore, the AO was not justified in denying the benefit to the assessee us/.11 of the IT Act. The finding of the learned CIT(A) in Para 6 and 7 are reproduced as under:
"6. I have considered the rival contentions. I found force in the arguments advanced by the AR of the appellant and I am satisfied in terms of objects of the trust, the rural development being an object falls within purview of advancement of any other object of general public utility as defined u/s. 2(15) of the Act. The trust being registered u/s. 12A carrying out various activities applying income towards the object of the trust and accumulating the surplus funds within the parameters laid down under the Act and the income of the trust being applied, benefit of the people at large deserves exemption u/s. 11 of the Act. I found force in the arguments advanced by the AR of the appellant in respect of the property, corpus and the nature of activity being carried out by the appellant trust. Since the appellant trust complies with the provisions of section 11(4A) of the Act, I found AO being not justified in drawing a conclusion that the appellant trust is carrying out purely a business activity and thereby denying the benefit u/s. 11 of the Act.
7. In the result, the appellant's appeal is allowed".
6. The learned DR relied upon the order of the AO and the statement of fact filed in the appeal papers. On the other hand, the learned Counsel for the assessee reiterated the submissions made before the authorities below and submitted that since the assessee is registered u/s 12A of the IT Act being public charitable trust and has carried out various ITA No.600/Ahd/2008 7 ACIT Vs Dharampur Uthan VAhini objectives inclusive of objective of rural development, therefore, the learned CIT(A) was justified in granting benefit of section 11 of the IT Act.
7. On consideration of the rival submissions, we do not find it to be a fit case for interference with the order of the learned CIT(A). It is undisputed fact that the assessee is a public charitable trust registered under the provisions of section 12A of the IT Act carrying out various objects inclusive of object of rural development. The assessee claimed that since the objects of the assessee trust being rural development, the same falls within the purview of section 2(15) of the IT Act which defines meaning of advancement of any other objects of general public utility which partakes the character of charitable trust. The assessee filed table of income and application of income before the learned CIT(A) for the assessment year under consideration which proved that the assessee met with the conditions stipulated in section 11 of the IT Act. Beneficiaries of the assessee trust are farmers of tribal area and the activities of the assessee trust are carried out for attainment of the objectives of the trust. Nothing is pointed out if there was diversion of any income to any person prohibited under the law. The assessee filed financial statement before the learned CIT(A) to show that the trust has provided fertilizers to the poor farmers even at free of cost. The learned CIT(A) on consideration of the materials before him and the decisions cited before him was satisfied with the objects of the assessee trust and its activities which are falling within the purview of advancement of any other object of general public utility as defined u/s 2(15) of the IT Act. We may also note here that definition of advancement of any other object of general public utility was expanded by adding the proviso to section 2(15) of the IT Act with effect from 01-04-2009 which is not applicable to the assessment year under appeal. The learned CIT(A) on consideration of the material on record specifically held that the assessee has complied with the provisions of section 11 of the IT Act, therefore, the assessee cannot be ITA No.600/Ahd/2008 8 ACIT Vs Dharampur Uthan VAhini denied the benefit u/s 11 of the IT Act. Hon'ble Delhi High Court in the case of Bharat Kalyan Pratisthan Vs Director of Income-tax (Exemption) 299 ITR 406 held "Held, allowing the appeal, that the trust deed required the trust to utilize its funds for charitable purposes which were medical relief, education and relief to the poor. In the application for accumulation the assessee had specified these three objects. It was not required for the assessee to be more specific with regard to the utilisation of the funds. The assessee was entitled to accumulate the income for the objects of the trust. Incidental income or accumulation of income for the objects of trust cannot deny benefit of section 11 of the IT Act to assessee. The learned DR has not produced any evidence or material before us to contradict the findings of the learned CIT(A). In the absence of any contrary material on record, we do not find it to be a fit case for interference. We accordingly, confirm the findings of the learned CIT(A) and dismiss the appeal of the Revenue.
8. As a result, the appeal of the Revenue is dismissed.
Order pronounced in the open Court on 04-06-2010 Sd/- Sd/-
(N. S. SAINI) (BHAVNESH SAINI)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Date : 04-06-2010
Lakshmikant/-
Copy of the order forwarded to:
1. The Appellant
2. The Respondent
3. The CIT concerned
4. The CIT(A) concerned
5. The DR, ITAT, Ahmedabad
6. Guard File
BY ORDER
Dy. Registrar, ITAT, Ahmedabad