Income Tax Appellate Tribunal - Pune
Income-Tax Officer vs Shahaji Chhatrapati General ... on 21 October, 1985
Equivalent citations: [1986]15ITD556(PUNE)
ORDER
D. S. Meenakshisundaram, Judicial Member
1. These two appeals filed by the revenue are against the orders of the AAC granting exemption under Section 11 of the Income-tax Act, 1961 ('the Act') to the income of Shahaji Chhatrapati General Charitable Trust (the assessee) for the assessment years 1979-80 and 1980-81, for which the previous year ended on 30-6-1978 and 30-6-1979, respectively. For the assessment year 1979-80 the assessee-trust filed its return of income on 19-2-1980 declaring a total deficit on Rs. 17,036 and net agricultural income at Rs. 30,117. It also claimed that it was a public charitable trust entitled to exemption under Section 11. On a scrutiny of the receipts and payments account, the ITO found that the gross receipts for the relevant accounting period amounting to Rs. 92,358 including rent from agricultural lands of Rs. 30,117. Total expenses of Rs. 89,329 were shown, out of which Rs. 79,276 was claimed against other income amounting to Rs. 62,240. The assessee's claim was that out of Rs. 79,276, expenses of Rs. 61,927 were on the objects of the trust and the balance of Rs. 17,349 was incurred for the management of the trust.
2. On verification of the relevant details the ITO found that the assessee is a public charitable trust which can claim exemption under Section 11. However, according to him, one of the essential conditions for claiming exemption under Section 11, as laid down in Section 12A of the Act, namely, registration with the Commissioner, was not fulfilled. He further found that the report in the prescribed form from the auditor in Form No. 10B was also not enclosed along with the return of income. In view of these facts, the ITO held that the assessee would not be entitled to exemption under Section 11. The ITO then examined some of the items of expenditure claimed to have been made on the objects of the trust amounting to Rs. 61,927 and was of the view that all of them could not be held to be exclusively charitable in nature. The ITO held that donations made to three institutions amounting to Rs. 24,800 could not be held to be for charitable purpose. Similarly, out of the expenses incurred on education, the ITO was of the view that there were no principles or guidelines fixed for choosing the person to whom such aid was to be given and that it was difficult to say whether such expenditure could be said to be of charitable nature. The ITO held that the trustees had given to persons of their choice and on personal consideration and not necessarily to really deserving persons. In regard to scholarships granted by the assessee-trust, the ITO held that it appeared that the scholarships were given to the children of ex-employees or the present employees of Chhatrapati and he referred to two specific instances in the assessment order for 1979-80. Referring to aid to poor, the ITO referred to three instances out of whom two were said to be the employees of the Chhatrapati. He pointed out that the third person was a renowned Marathi writer late Shri N.S. Phadke to whom a sum of Rs. 2,500 was paid. He pointed out that Shri N.S. Phadke was a wealth-tax assessee and that these three persons could not be said to be poor persons deserving any aid for medical care as a matter of charity. The ITO was of the view that the payments were not necessarily to the really poor but according to the choice and sweet will of the trustees and for personal consideration. He, therefore, rejected the claim of the assessee-trust for exemption under Section 11 and determined and assessed the total income of the trust at Rs. 75,000.
3. Following the same line of reasoning in the next assessment year 1980-81, the ITO rejected the assessee's claim for exemption under Section 11 and determined the total income at Rs. 81,710 which he brought to charge.
4. Aggrieved by these assessments the assessee-trust took up the matter in appeal and contended that the refusal of exemption under Section 11 was not justified. It was submitted that the assessee had fulfilled all the conditions laid down for registration of the trust under Section 12A(a) with the Commissioner by filing an application for registration to the Commissioner, Pune on 30-6-1973 and that the said application was pending disposal with the Commissioner. It was next argued that the Shahaji Chhatrapati Museum Trust, to which a donation of Rs. 20,000 was paid, is a public charitable trust assessed with the ITO. In support of this a copy of the assessment order was also enclosed. It was further submitted that the remaining two trusts are the boarding houses for boys and girls at Devas providing facilities to students at Devas and are, thus, engaged in public charity. It was next submitted that the educational aid given by the trust was to needy students irrespective of caste and creed after inviting applications according to their merits and need of the students and that this expenditure was not recurring expenditure. It was also pointed out that the details of educational aid given by the trust were also filed with the department. Regarding scholarships, it was argued that they were paid every academic year inviting applications from students studying in secondary schools and colleges and after considering their merits, need and financial position of the family and that after obtaining examination results of the applicants, the scholarships were continued in the next year. It was also submitted that the scholarships paid to children of ex-employees of Huzur Khajgi Department were paid as the ex-employees received very meagre amounts of pension and such amounts were paid as they deserved such help. It was also submitted that medical aid was given to persons during their sickness on their application for such help for purchase of medicines. A copy of the trust deed was also placed before the AAC to show that the assessee is a public charitable trust and that it fulfilled all the conditions laid down by the provisions of Section 11 to be entitled to exemption. Reliance was also placed on a number of decisions to show that merely because an amount of Rs. 2,000 to Rs. 3,000 had been given to person connected with the Huzur Khajgi Department would not disentitle the assessee-trust to exemption under Section 11. Regarding the objection of the ITO for not enclosing the auditors report in Form No. 10B along with the return of income in the assessment year 1979-80, the assessee relied on the fact that such report was ready and was also produced before the ITO at the time of hearing but was not taken note of by him which was not justified either on facts or in law. In support of the same reliance was placed on a passage at p. 261 of the Law and Practice of Income-tax by Kanga & Palkhivala, Vol. I, seventh edn.
5. On an examination of the above submissions, the AAC accepted the same. She held that as per the trust deed the assessee-trust is a charitable trust and the expenditure claimed to be on the objects of the trust appeared to be in the nature of charity. She further held that some financial assistance given to the employees of the settlor should not debar the trust from getting exemption under Section 11, as the trust is mainly charitable in nature and the income is applied to charitable purposes. She also pointed out that the assessee had duly applied for registration to the Commissioner under Section 12 A within the prescribed time and that non-filing of Form No. 10B along with the return of income by itself would not be a sufficient ground to refuse the exemption under Section 11. She, therefore, held that the expenditure claimed to be on the objects of the trust could not be called an application of income and the income of the trust was duly entitled to exemption under Section 11. The AAC, therefore, directed the ITO to grant exemption under Section 11 to the income of the trust as per law and allowed the assessee's appeal for 1979-80.
6. Following her order in the assessment year 1979-80, the AAC allowed the assessee's appeal for 1980-81 and directed the ITO to grant exemption under Section 11 to the income of the trust.
7. The revenue feels aggrieved by these orders of the AAC. Hence, the present appeals to the Tribunal. We have heard Shri A.P. Walvekar, the learned departmental representative, and Shri A.D. Shinde, the learned chartered accountant for the assessee, and carefully considered their submissions in the light of the materials placed before us. In our view the decision of the AAC granting exemption to the assessee-trust under Section 11 in both the assessment years 1979-80 and 1980-81 is right and has to be upheld. There is no dispute that the assessee-trust was established on 30-7-1956 by a trust deed executed on that date and registered on 24-9-1956 for various charitable objects specified in the said trust deed. There is also no dispute that the assessee-trust has applied for registration to the Commissioner as early as 26-6-1973, under Section 12A and that the said application is still pending disposal by the Commissioner. It is also an undisputed fact that from the assessment years 1973-74 to 1978-79 exemption under Section 11 has been granted to the assessee-trust by the Income-tax Department. When we examined the objects of the department in the right of the above undisputed facts, it would be clear that there is no substance in the objection of the revenue that the assessee-trust is not registered under Section 12A. Similarly, the objection of the ITO in the assessment order for 1979-80 that the audit report in Form No. 10B was not enclosed with the return of income also loses its force, when once it is accepted that such audit report was produced by the chartered accountant representing the assessee-trust before the ITO at the time of hearing in response to the notice under Section 143(2) of the Act. In fact this position was not controverted before us by the revenue. We may further mention that it is not the requirement of law that such audit report in Form No. 10B should be attached, in the sense pinned, to the return of income of the assessee in order to entitle the assessee-trust to exemption under Section 11. This position is now well settled in a number of decisions arising under Section 184 of the Act relating to registration of firms under the Act. We are, therefore, of the view that the AAC has rightly rejected this objection raised by the ITO, in the assessment year 1979-80.
8. The learned departmental representative relied on Clause 3(11) of the trust deed to contend that this is not for the benefit of the public. But since a copy of the trust deed has not been made available to us, we are unable to express any opinion on this contention put forward on behalf of the revenue.
9. It was next argued for the revenue that the amounts paid to some of the ex-employees or their families were not paid to the members of the public as mentioned in the assessment order. Here also we are unable to agree. The discussion in the assessment order for 1979-80 shows that monetary help for education to six persons amounting to Rs. 2,655 was given by the assessee-trust. There is no dispute about the genuineness of the payments or the deserving nature of the candidates to whom this help was given by the trust. Similarly, scholarships amounting to Rs. 16,925 were given to 38 persons, out of which the department's objection is to the scholarships given to one Shri Girish Dattatray Kumbhojkar amounting to Rs. 900 and another sum of Rs. 2,015 to the children of persons connected with the Huzur Khajgi Department. It is also not the case of the department that these students did not receive these scholarships nor deserve these scholarships. There is no dispute about the genuineness of the scholarships paid to them. It can hardly be disputed that all these persons to whom such scholarship amounts were given are members of the public deserving such help, aid or scholarships, even though their relationship as children of the present employees or the ex-employees of Chhatrapati may be an accident. On this ground the assessee's claim for exemption cannot be thrown out. It is not the case of the revenue that these persons fall within the categories of 'relatives', specified in Explanation 1 to Section 1 of the Act.
10. As regards the aid to poor amounting to Rs. 8,325 the department has relied on three instances. Even out of these three instances emphasis was laid only on the amount of Rs. 2,500 paid to the renowned Marathi writer late Shri N.S. Phadke, who was stated to be a wealth-tax assessee. In respect of the other two persons, they were stated to be the employees of Chhatrapati. Here also there is no dispute about the genuineness of the payments made to them as relief either as medical aid or relief of poverty. In respect of late Shri N.S. Phadke, it is admitted that he was a renowned Marathi writer and was also a wealth-tax assessee but Shri Shinde, the learned chartered accountant pointed out, that at this time this amount of Rs. 2,500 was given by the Chhatrapati, Shri N.S. Phadke was in dire circumstances having been thrown out of his house and was suffering from some serious illness. It was in those circumstances the Chhatrapati, who is the trustee, considered it fit and proper to go to the aid of a renowned Marathi writer who was suffering from illness without any help or aid from his family members. If these circumstances are taken into consideration, the objection of the revenue to this payment loses its force. Similar is the position in regard to the payments made to the two employees who were stated to be in very poor circumstances and who were in need of help and to whose rescue the assessee-trust went in their hour of need. Therefore, denial of exemption to the assessee-trust for these reasons is totally untenable.
11- This leaves us with the three donations amounting to Rs. 24,800 made by the assessee-trust. Out of these three, the learned departmental representative fairly stated before us, that the donation of Rs. 20,000 to Shahaji Chhatrapati Museum Trust has been made to a public charitable institution as the said museum trust has been held to be a public charitable trust as could be seen from the certificate dated 21-12-1971 by the Assistant Charity Commissioner, Kolhapur. The department also did not dispute the fact that this museum trust is also being assessed as a public charitable trust by the ITO, Ward C, Kolhapur as mentioned before the AAC. Therefore, the dispute reduces itself to the donations of Rs. 2,400 each, to Shree Rajaram Chhatrapati Maratha Boarding, Devas and Maharani Pramilaraje Chhatralaya, Devas. Here the objection of the revenue is that the assessee did not produce any evidence to show that they are also assessed as public charitable trust. We are unable to appreciate this line of argument taken by the revenue when once it is accepted that the assessee-trust has been granted exemption under Section 11 from 1973-74 to 1978-79. It is not as if that these two institutions had come into existence only in these years of account and that the donation was made by the assessee-trust to these two institutions in this year for the first time. The first institution, viz., Shree Rajaram Chhatrapati Maratha Boarding is stated to be a hotel for boys in Devas, while the second institution Maharani Pramilaraje Chhatrapati is a hostel for girls in Devas. Shri Shinde, the learned chartered accountant for the assessee, submitted that these two boarding hostels are recognised by the Government and that grants-in-aid are given by the Madhya Pradesh State Government. He also submitted that in these boarding hostels, boys and girls of all communities irrespective of their caste or creed are admitted including backward communities and that they are also public charitable trusts. In the light of this statement of facts made at the bar by the assessee's learned chartered accountant, we do not find any force in this objection of the revenue also. In fact, the line of enquiry pursued by the assessee to reject exemption to the assessee under Section 11 seems to be based on mere suspicion and conjectures, which is rather unfortunate. We, therefore, confirm the orders of the AAC.
12. In the result, the appeals are dismissed.