Income Tax Appellate Tribunal - Hyderabad
Adit(Exemption)-Ii, Hyderabad vs Gospel To The Unreached Millions,, ... on 28 February, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES "B", HYDERABAD
BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER
AND
SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER
ITA No. Asst. Year Appellant Respondent
880/Hyd/2012 2003-04 Asst. Director of Gospel to the Unreached
Income Tax Millions,
(Exemptions)-II, HYDERABAD
881/Hyd/2012 2004-05 HYDERABAD [PAN: AAATG2785N]
For Revenue : Smt U. Minichandran, DR
For Assessee : Shri C.V. Narasimham, AR
Date of Hearing : 19-01-2017
Date of Pronouncement : 28-02-2017
ORDER
PER B. RAMAKOTAIAH, A.M. :
These two are appeals by Revenue against the order of the Commissioner of Income Tax (Appeals), Guntur both dated 17-11-2011. Revenue has raised the following grounds:
Grounds of Appeal : AY. 2003-04 "1. The order of the Ld. CIT(A) is erroneous both on facts and in law.
2. The Ld. CIT(A) ought to have appreciated the fact that the assessee could not produce any supporting evidence in course of the assessment proceedings as well as in the remand proceedings that the donation amounting to Rs.7,93,45,547/- for the Asst. Year 2003-04 was received with a specific direction from the donor.
3. The Ld. CIT(A), while granting relief to the assessee, ignored the provisions of Section 11(1)(d) which lays down that in order to be eligible for exemption, the donation should be made with a specific direction from I.T.A. Nos. 880 & 881/Hyd/2012 :- 2 -:
the donor that they shall form part of the corpus of the Trust. In the absence of such specific direction, the Ld. CIT(A) is not justified in granting relief on this issue.
4. The Ld. CIT(A) erred in holding that Section 13(1)(c) cannot be invoked in the case of the assessee, when payments were made to the persons referred to in Section 13(3)(cc) and Section 13(3)(d) of the I.T Act, by the assessee.
5. While holding that Section 13(1)(c) cannot be invoked, the Ld. CIT(A) ought to have appreciated the fact that the assessee, even could not justify the payment of various amounts, with reference to the service rendered by the concerned persons to whom such payments were made.
6. The Ld. CIT(A) erred in not appreciating that having regard to the claim of the assessee as a charitable institution, as evident from the audit report in Form No.10B filed with the return and in the facts and circumstances of the case, as discussed in the assessment order, Section 13(1)(b) of the I.T Act is applicable to this case.
7. Any other ground that may be raised at the time of hearing of the case.
Grounds of Appeal : AY. 2004-05
1. The order of the Ld. CIT(A) is erroneous both on facts and in law.
2. The Ld. CIT(A) ought to have appreciated the fact that the assessee could not produce any supporting evidence in course of the assessment proceedings as well as in the remand proceedings that the donation amounting to Rs. 11,00,000/- for the Asst. Year 2004-05 was received with a specific direction from the donor.
3. The Ld. C1T(A), while granting relief to the assessee, ignored the provisions of Section 11(1)(d) which lays down that in order to be eligible for exemption, the donation should be made with a specific direction from the donor that they shall form part of the corpus of the Trust. In the absence of such specific direction, the Ld. CIT(A) is not justified in granting relief on this issue.
4. The Ld. CIT(A) erred in holding that Section 13(1)(c) cannot be invoked in the case of the assessee, when payments were made to the persons referred to in Section 13(3)(cc) and Section 13(3)(d) of the I.T Act, by the assessee.
5. While holding that Section 13(1)(c) cannot be invoked, the Ld. CIT(A) ought to have appreciated the fact that the assessee, even could not I.T.A. Nos. 880 & 881/Hyd/2012 :- 3 -:
justify the payment of various amounts, with reference to the service rendered by the concerned persons to whom such payments were made.
6. The Ld. CIT(A) erred in not appreciating that having regard to the claim of the assessee as a charitable institution, as evident from the audit report in Form No.10B filed with the return and in the facts and circumstances of the case, as discussed in the assessment order, Section 13(1)(b) of the I.T Act is applicable to this case.
7. Any other ground that may be raised at the time of hearing of the case".
2. Brief facts of the case are that assessee-society filed the original return of income for the AY. 2003-04 on 30-10-2003 declaring loss of Rs.27,25,178/- and for the AY. 2004-05 declaring surplus of Rs.75,18,986/- after claiming exemption u/s 11 and the assessments were completed for both the assessment years determining the incomes at Nil. Subsequently, both the assessments were reopened by issue of notices u/s 148 of the IT Act on 18-10-2007. While completing the assessments u/s 143(3) r.w.s. 147 on 30-12-2008, the AO has opined that assessee-society has attracted the provisions of section 13(1)(c) r.w.s. 13(3)(cc) and 13(3)(d) by paying remuneration to persons viz., Sri K. David Raju, who is the main signatory to the return of income and brother of founder President Sri KA Paul, Sri K. Barnabas, father of Dr. KA Paul, Sri R. Yesupadam, Secretary and Ms. K. Esther Rani, Vice President. Similarly, the provisions of section 13(1)(b) are also attracted as the religious denomination is mentioned as 'Christian' in Form No.FC-3 for the years ending 31-03-2003 & 31-03-2004 and the amounts were spent on such religious activities. The AO has also noticed that the advances that were given for housing projects and for conducting of crusades but were recorded as expenditure even though expenditure accounts were never I.T.A. Nos. 880 & 881/Hyd/2012 :- 4 -:
rendered as admitted by assessee, which clearly indicated that the funds of the society were kept in a mode not stipulated u/s 13(1)d) of the IT Act. It was also pointed out by the AO that there was no evidence for actual expenditure incurred for cost of construction of Mercy Children home. In view of the above lapses, the AO has opined that there was clear breach of trust exhibited by the rival warring groups within the management showing scant regard for the public trust reposed in them and rejected the claim of assessee u/s 11 of the IT Act for both the assessment years and brought the incomes to tax under the head corpus fund amounting to Rs.7,93,45,547/- and Rs.11,00,000/- and disallowed expenditure claimed as application in form No.10-B amounting to Rs.12,66,11,555/- and Rs.10,06,75,248/- respectively for the A.Y. 2003-04 & 2004-05. It is also seen from the records that there was some litigation involved in the management which split into two groups with Dr. KA Paul on one side and Dr. K. David Raju on the other side.
3. Assessee contested the issues before the CIT(A) and raised the issues not only with reference to reopening of assessment, principles of natural justice but also on merits. Ld.CIT(A) has considered the issues and decided the matter against Revenue by stating as under:
i). With regard to addition of Rs. 7,93,45,547/- and Rs.
11,00,000/- treating the corpus fund as income u/s. 2(24)(iia) in the absence of benefit u/s. 11 of the IT Act, respectively for AYs. 2003-04 & 2004-05:
I.T.A. Nos. 880 & 881/Hyd/2012 :- 5 -:
"5.2. I have considered the submissions made by the appellant, gone through the order of the AO and perused all other material placed before me. It is the contention of the appellant that every year proposals were sent to the donor of funds to meet the proposed expenses for ongoing projects and the new projects if any subject to approval. The proposals sent would be reviewed by the donor and depending upon the services rendered and also in view of the volume of the services needed, the donor may vary the quantum of funds requisitioned and send the funds to the appellant from year to year. Since these funds were meant for specific purposes and there was no finding by the AO to the contrary, in my considered opinion, the AO was not justified in treating such funds as income of the appellant. In addition, it may be noted here that it is a recurring item from year to year and in view of the fact that in other years the contention of the appellant being accepted, there is no justification in denying the same for the impugned assessment years without bringing any cogent material on record. In the circumstances, the AO is directed to delete the addition made under this head for both the assessment years under appeal".
ii). With regard to payments made to the persons referred in Section 13(3) and eligibility for exemption under section 11 of the Act in view of the provisions of Section 13(1)(b) of the Act:
"6.2. I have considered the submissions made by the appellant, gone through the order of the AO. As could be seen from the objects of the appellant, which are medical facilities for the poor and the needy, care for orphans and widows, care to all aged persons who are destitute, offer rehabilitation to those engaged in the profession of prostitution and their children, education and vocational training and medical care to the disabled are laudable. In addition to these services, the appellant is also engaged in the services of promoting faith in God and to preach the Gospel of Lord Jesus to the millions who have not received or heard its message of salvation, provide fellowships and congregations of those that come to accept the Gospel of the Lord Jesus, provide places of study for the holy bible, assist those men and women who are qualified to preach the Gospel of the Lord Jesus to the unreached millions etc. The objectives if taken as a whole indicate that the activities are both religious as well as charitable in nature. In this context, I am reminded of a Gujarat High Court decision in the case of CIT vs. Barkate Saifiyah Society, reported in [1995] 213 ITR 492 (GUJ.), wherein in a reference application by the Revenue, as per the High Court, the Tribunal has rightly held that section 13(1)(b) applies only to trusts which were purely for charitable purposes and the appellant-trust was charitable as well as religious in nature and hence was entitled to exemption under section 11 and thus answered the question in favour of I.T.A. Nos. 880 & 881/Hyd/2012 :- 6 -:
the appellant and against the Revenue. Thus, taking a clue from this decision, it has to be held that the income of the appellant were applied only for the objects of the society and that there being no finding by the AO to the contrary, it has to be held that the appellant is eligible for exemption under section 11 of the IT Act, 1961. In addition, it may be noted here that the appellant was not denied exemption under section 11 for earlier assessment years and later assessment years except these two assessment years, that too in a reopened impugned assessment years under consideration. It may however be noted here that in the original assessments exemption under section 11 was allowed. Holding these assessments as not eligible for exemption under section 11 without bringing any cogent material on record, that too, in reopened proceedings is all the more condemnable. For these reasons, it is held that the appellant is eligible for exemption under section 11 of the IT Act, 1961 for the assessment years under challenge and the AO is directed accordingly.
7. The AO in course of the assessment proceedings has called for details, basis and services rendered for the payments to persons referred to under section 13(3) in Form No. 10B for both the assessment years like Shri K. David Raju, remuneration of Rs.6,00,000/- and Rs.7,80,000/-; Shri K. Barnabas, remuneration of Rs.1,20,000/- and Rs.2,20,000/-; Shri R. Yesupadam, remuneration of Rs.1,20,000/- and Rs.3,74,000/-
respectively for the assessment years 2003-04 and 2004-05. Since there was no response from the appellant, whatever the reasons may be, not considered by the AO. In course of the present appellate proceedings, the undersigned has called for the same on various occasions, but there was no improvement in the situation. Even, the undersigned has called for the expenditure for the last three years to justify the payments, whether such payments are reasonable in light of the total receipts of the appellant in such years. Here also there was no response, in the sense that no details were filed on the ground that Shri K. David Raju is no more, which cannot be called a justifiable reason. Since, the appellant is under an obligation to justify the legitimate needs of the expenditure, the claim of expenditure is susceptible, but nonetheless such expenditure is needed in running an organisation like the impugned appellant. The claim was never tried to be justified with facts and figures either before the AO or before the undersigned. In the circumstances, in my considered opinion, the appellant has inflated this expenditure and what is the inflation is a matter of details known to the appellant alone, which he is not disclosing. To meet the ends of justice, in my considered opinion, 2/3rds of the above claim is considered legitimate and the other one third portion is treated as inflated and the AO is directed to add such portion to the total income for both the assessment years under consideration while giving effect to this appellate order for both the assessment years.
8. It may be noted here that the appellant has filed appeals for these impugned assessment years belatedly. In written submissions as well as I.T.A. Nos. 880 & 881/Hyd/2012 :- 7 -:
in hearing before the undersigned, such delay was explained. The factors are briefly death of the president of the society, tussles for power within the management; naming the vice president as president, change of address etc and etc. Since the reasons given were convincing and have a bearing on the affairs of the appellant, the delay is condoned".
Revenue is aggrieved on the above issues.
4. Ld.DR submitted that the so called voluntary contributions are not voluntary at all as assessee was demanding its monthly budget from the parent organization in USA. Therefore, the contributions received cannot be taken as voluntary. With reference to the related party payments, it was submitted that assessee has violated the undertaking given to Ministry of Home Affairs that it has not paid any money to related parties. It was further submitted that assessee was not registered as trust, but registered as a body under the Societies Act. It is a registered society mainly for the purpose of religious activity and hence the case law relied by assessee does not apply.
5. Ld. Counsel submitted that the issues are covered by various decisions of the ITAT, Hon'ble High Courts and Hon'ble Supreme Court. With reference to contribution to specific purposes Ld counsel relied on DIT Vs. V. Ramakrishna Seva Ashrama [357 ITR 731] (Kar). With reference to payments made to office bearers /interested parties he relied on M/s. Chirec Education Society Vs. ADIT(E) 354 ITR 605 (AP). With reference to religious and charitable activities, ld counsel relied on the decision of Hon'ble Supreme Court in the case of CIT Vs. Dawoodi Bohara Jamat [364 ITR 31] (SC). It was further submitted that there was a remand report called from the AO before deciding the issue and it was I.T.A. Nos. 880 & 881/Hyd/2012 :- 8 -:
submitted that the benefits are not restricted to a particular community and so the burden is on the Revenue to prove that assessee benefited a particular religious community. He referred to the objects in assessee's case and particularly objects 3 to 7 where there is no reference to any religion, but only for women and children of the society and aged and destitute. The activities of trust are basically meant for poor and needy people in the society. Since the objects are general in nature, it cannot be considered that the objects are mixed having both religious and charitable in nature. Ld. counsel relied on the coordinate Bench decision in the case of ADIT vs Kalinga Cultural Trust in ITA nos 894 & 895/H/2012 and other dt. 06.06.2014.
6. We have considered the rival contentions and perused the orders on record. We do not see any reason to interfere with the order of the CIT(A), who has considered all the issues in its perspective and gave relief. It is to be noted that the trust is registered much earlier and issues are taken up only in these two years. Most of the issues contested by the Revenue are more or less covered by the judgments on the issue by the higher judicial forums.
6.1. Hon'ble Supreme Court in the case of CIT Vs. Dawoodi Bohra Jamat [364 ITR 31] (SC) has held as under:
" 26. In our considered view, determination of nature of trust as wholly religious or wholly charitable or both charitable and religious under the Act is not a question of fact. It is but a question which requires examination of legal effects of the proven facts and documents, that is, the legal implication of the objects of the respondent-
trust as contained in the trust deed. It is only the objects of a trust as declared in the trust deed which would govern its right of exemption under Section 11 or 12. It is the analysis of these objects in the backdrop of fiscal jurisprudence which would I.T.A. Nos. 880 & 881/Hyd/2012 :- 9 -:
illuminate the purpose behind creation or establishment of the trust for either religious or charitable or both religious and charitable purpose.
Therefore, the High Court has erred in refusing to interfere with the observations of the Tribunal in respect of the character of the trust.
27. Having said so, we would now examine the question, whether the Courts below were justified in coming to the conclusion that the respondent-trust is a public religious trust and therefore, outside the purview of Section 13(1)(b) and eligible for exemption under Section 11 of the Act.
28. The objects of the respondent-trust are not indicative of a wholly religious purpose but are collectively indicative of both charitable and religious purposes. It is expedient to comprehend the objects of the respondent-trust with reference to the construction of the expressions "charitable purpose" and "religious purpose."
29. The phrase charitable purpose is expansive and inclusive. The expression "charitable purpose" is defined in the dictionary clause of the Act under Section 2(15) as follows:
""charitable purpose" includes relief of the poor, education , medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility:
Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity:
Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is twenty-five lakh rupees or less in the previous year;"
30. According to Section 2(15), the expression "charitable purpose" has been defined by way of an inclusive definition so as to include relief to the poor, education, medical relief and advancement of any other object of general public utility. A catena of decisions of this Court which have interpreted the said provision and especially the expression "any other object of general public utility" have observed that the said expression is of the widest connotation. The word "general" in the said expression means pertaining to a whole class. (CIT v. Gujarat Maritime Board, (2007) 14 SCC 704). Therefore, advancement of any object of benefit to the public or a section of the public as distinguished from benefit to an individual or a group of individuals would be a charitable purpose. (CIT v. Ahmedabad Rana Caste Assn.) The said expression would prima facie include all objects which promote the wellbeing of the general public. It cannot be said that a purpose would cease to be charitable even when public welfare is intended to be served.
31. The Constitution Bench of this Court in CIT v. Surat Art Silk Cloth Manufacturers' Assn. has held that if the primary purpose and the predominant object of a trust are to promote the welfare of the general public the purpose would be charitable purpose. If the primary or predominant object of an institution is charitable, any other object which might not be charitable but which is ancillary or incidental to the I.T.A. Nos. 880 & 881/Hyd/2012 :- 10 -:
dominant purpose, would not prevent the institution from being a valid charitable trust. (Thiagarajar Charities v. CIT, (1997) 4 SCC 724).
32. This Court in several decisions has reiterated the aforesaid test of predominant purpose and held that the purposes which would yield to profit or not in general public interest could be separated and the trust would only be exigible to tax to the extent of the charitable purposes under its objects. In CIT v. Kamla Town Trust, (1996) 7 SCC 349, the object of the trust included construction of houses for workmen in general and in particular for the workmen, staff and other employees of the settler company. It was held that while the provisions relating to workmen in general did constitute a charitable object, the words "in particular for workmen of the company" negative the charitable purpose and therefore, the entire trust could not be considered to have been established wholly for charitable purpose.
33. In Abdul Sathar Haji Moosa Sait Dharmastapanam v. Commr. of Agri. Income Tax, (1974) 3 SCC 257, at page 259, this Court considered the question whether the appellant therein was a public charitable trust within the meaning of Section 4(b) of the Kerala Agricultural Income Tax Act, 1950. The 3/4th of the income of the bequest was primarily earmarked for the benefit of near relations of the testator only, it cannot be considered as a public charitable trust. While the rest one-fourth was concluded to form the valid charitable trust. (Trustees of Gordhandas Govindram Family- Trust v. CIT). In CIT v. Andhra Chamber of Commerce; Ahmedabad Rana Caste Assn. v. CIT; Sole Trustee, Loka Shikshana Trust v. CIT and Yogiraj Charity Trust v. CIT and CIT v. Andhra Chamber of Commerce,(1965) 55 ITR 722 (SC), it was observed that objects for service and benefit to the general masses would indicate that they are meant for public purpose and thus, would create a public charitable trust.
34. Indubitably, the word 'charity' connotes altruism in thought and action and involves an idea of benefiting others rather than oneself. (Andhra Chamber of Commerce (supra)). It also cannot be lost sight of that the supreme goal of all religions is philanthropy which could be manifested in various forms. It is held that gifts for religious purposes are prima facie gifts for charitable purposes. (Schoales v. Schoales (1930) 2 Ch. 75 (CA); White v. White (1893) 2 Ch. 41 (CA))
35. Unlike the phrase "charitable purpose", "religious purpose" is not defined under the Act. According to lexicographers, the term religious would mean "of or relating to religion." (Merriam Webster Dictionary, Macmillan English Dictionary). The Shorter Oxford English Dictionary defines the term as follows:
"Devoted to religion; exhibiting the spiritual or practical effects of religion, following the requirements of religion; pious, godly, devout."
In Kanga, Palkhivala and Vyas, Law and Practice of Income Tax, Vol. 1, Ed. 9th (at p. 544) religious purposes are indicated to include the advancement, support or propagation of a religion and tenets. Thus, a religious purpose would be one relating to a particular religion and broadly would encompass objects relating to observance of rituals and ceremonies, propagation of tenets of the religion and other allied activities of the religious community. An example of such would entail activities such as the dance performances (Garba) or distribution of food specifically for people on fast during the Hindu festivities of Navratri.
36. In certain cases, the activities of the trust may contain elements of both:
religious and charitable and thus, both the purposes may be over lapping. More so when the religious activity carried on by a particular section of people would be a I.T.A. Nos. 880 & 881/Hyd/2012 :- 11 -:
charitable activity for or towards other members of the community and also public at large. For example, the practice of optional charity in the form of Khairat or Sadaquah under Mohammadan Law would be covered under both charitable as well as religious purpose. Further, while providing food and fodder to animals especially cow is religious activity for Hindus, it would be charitable in respect to non-Hindus as well. Similarly, service of water to the thirsty would find mention as religious activity in sacred texts and at the same time would qualify as a charitable activity.
37. The Tribunal has analysed the objects of the trust in the light of the holy scriptures and Quran and recorded its satisfaction as follows:
"16...The objects of the assessee-trust reproduced above clearly refer to the religion and are supported by reference made to different pages of Holy Quran. The learned Counsel for the assessee referred to the true copies of several pages of Holy Quran written by two of the authors referred to above in which giving of food in days of hunger or orphan is considered as highly religious ceremony. Reference is also made that who will give to the people or poor then Allah will give them in return and, i.e., who will give loan then Allah will give double to them. Likewise, for helping the needy people for religious activities and to carry out religious activities or spend for good, spending wealth in the way of Allah, bestowing mercy, teaching were considered to be highly religious activities. On going through several true pages of Holy Quran written by the authors referred to above, we are satisfied that the learned Counsel for the assessee was justified in contending that all the objects of the assessee-trust are solely religious in nature because each of them refers either to religious occasions, religious education or to religious activities. The learned Counsel for the assessee also explained that the words 'Shariat-e-Mohammadiyah' means the path shown by prophet Mohammed. Therefore, the objects of Shariat-e- Mohammadiyah are identical with those of "Dawat-e-Hadiyah". For Dawoodi Bohras, true path shown by the prophet is the one indicated and shown by their living guide Dai-al-Mutlaq of the time who is the living and visible guide for Dawoodi Bohras. It is an undisputed fact that for the people believing in Islam, writings in Quran are words of Allah for them. The directions given in the Holy Quran are considered by the people of Islamic faith as orders from Allah and the people of Islamic faith obey such orders as holy and religious. The learned Counsel for the assessee has been able to demonstrate that all the objects of the assessee- trust, as noted above, came out from the writings in Quran and as such these are the orders for them while observing Islamic faith."
(emphasis supplied)
38. Unquestionably, objects (c) and (f) which provide for the activities completely religious in nature and restricted to the specific community of the respondent-trust are objects with religious purpose only. However, in respect to the other objects, in our view the fact that the said objects trace their source to the Holy Quran and resolve to abide by the path of godliness shown by Allah would not be sufficient to conclude that the entire purpose and activities of the trust would be purely religious in color. The objects reflect the intent of the trust as observance of the tenets of Islam, but do not restrict the activities of the trust to religious obligations only and for the benefit of the members of the community. The Privy Council in Re The Tribune, 7 ITR 415 has held that in judging whether a certain purpose is of public benefit or not, the Courts must in general apply the standards of customary law and common opinion amongst the community to which the parties interested belong to.
I.T.A. Nos. 880 & 881/Hyd/2012 :- 12 -:
Therefore, it is pertinent to analyse whether the customary law would restrict the charitable disposition of the intended activities in the objects.
39. The provision of food to the public on religious days of the community as per object (a) and (b), the establishment of Madarsa and organizations for dissemination of religious education under object (d) and rendering assistance to the needy and poor for religious activities under object (e) would reflect the essence of charity. The objects (a) and (b) provide for arrangement for nyaz and majlis (lunch and dinner) on the religious occasion of the birth anniversary and Urs Mubarak of Awliya-e- Quiram (SA) and the Saints of the Dawoodji Bohra community and for arrangement of lunch and dinner on religious occasions and auspicious days of the Dawoodi Bohra community, respectively. Nyaz refers to the food a person makes and offers to others on any particular occasion on the occasion of the death of a saint and Majhlis implies a place of gathering or meeting. The activity of providing for food on certain specific occasions and other religious and auspicious events of the Dawoodi Bohra community do not restrict the benefit to the members of the community. Neither the religious tenets nor the objects as expressed limit the service of food on the said occasions only to the members of the specific community. Thus, the activity of Nyaz performed by the respondent-trust does not delineate a separate class but extends the benefit of free service of food to public at large irrespective of their religion, caste or sect and thereby qualifies as a charitable purpose which would entail general public utility.
40. Further, establishment of Madarsa or institutions to impart religious education to the masses would qualify as a charitable purpose qualifying under the head of education under the provisions of Section 2(15) of the Act. The institutions established to spread religious awareness by means of education though established to promote and further religious thought could not be restricted to religious purposes. The House of Lords in Barralet v. IRf 54 TC 446, has observed that "the study and dissemination of ethical principles and the cultivation of rational religious sentiment" would fall in the category of educational purposes. The Madarsa as a Mohommedan institution of teaching does not confine instruction to only dissipation of religious teachings but also contributes to the holistic education of an individual. Therefore, it cannot be said that the object (d) would embody a restrictive purpose of religious activities only. Similarly, assistance by the respondent-trust to the needy and poor for religious activities would not divest the trust of its altruist character.
41. Therefore, the objects of the trust exhibit the dual tenor of religious and charitable purposes and activities. Section 11 of the Act shelters such trust with composite objects to claim exemption from tax as a religious and charitable trust subject to provisions of Section 13. The activities of the trust under such objects would therefore be entitled to exemption accordingly.
42. We would now proceed to examine the objects under the provisions of Section 13(1)(b) of the Act. It becomes amply clear from the language employed in the provisions that Section 13 is in the nature of an exemption from applicability of Sections 11 or 12 and the examination of its applicability would only arise at the stage of claim under Sections 11 or 12. Thus, where the income of a trust is eligible for exemption under section 11, the eligibility for claiming exemption ought to be tested on the touchstone of the provisions of section 13. In the instant case, it being established that the respondent-trust is a public charitable and religious trust eligible for claiming exemption under Section 11, it becomes relevant to test it on the anvil of Section 13.
I.T.A. Nos. 880 & 881/Hyd/2012 :- 13 -:
43. Thus, the second issue which arises for our consideration and decision is, whether the respondent-trust is a charitable and religious trust only for the purposes of a particular community and therefore, not eligible for exemption under Section 11 of the Act in view of provisions of Section 13(1)(b) of the Act.
44. In the instant case, the Tribunal has found on facts after analysing the objects of the trust that the respondent- trust is a public religious trust and its objects are solely religious in nature and being of the opinion that Section 13(1)(b) is solely meant for charitable trust for particular community, negated the possibility of applicability of Section 13(1)(b) of the Act at the outset. The High Court has also confirmed the aforesaid view in appeal and observed that Section 13(1)(b) would only be applicable in case of income of the trust for charitable purpose established for benefit of a particular religious community. In our considered view, the said view may not be the correct interpretation of the provision.
45. From the phraseology in clause (b) of section 13(1), it could be inferred that the Legislature intended to include only the trusts established for charitable purposes. That however does not mean that if a trust is a composite one, that is one for both religious and charitable purposes, then it would not be covered by clause (b). What is intended to be excluded from being eligible for exemption under Section 11 is a trust for charitable purpose which is established for the benefit of any particular religious community or caste.
46. Such trusts with composite objects would not be expelled out of the purview of Section 13(1)(b) per se. The Section requires it to be established that such charitable purpose is not for the benefit of a particular religious community or caste. That is to say, it needs to be examined whether such religious-charitable activity carried on by the trust only benefits a certain particular religious community or class or serves across the communities and for society at large. (Sole Trustee, Loka Shikshana Trust v. CIT, (1975) 101 ITR 234 (SC)). The section of community sought to be benefited must be either sufficiently defined or identifiable by a common quality of a public or impersonal nature. (CIT v. Andhra Chamber of Commerce, 55 ITR 722).
47. This Court in CIT v. Palghat Shadi Mahal Trust, (2002) 9 SCC 685 the muslim residents of Kerala constituted a trust "for the purpose of constructing and establishing at Palghat-a-Shadi Mahal and other institutions for the educational, social and economic advancement of the Muslims and for religious and charitable objects recognised by Muslim law ..." and later clarified that the proceeds would be utilized for the benefit for public at large and upon this basis, the trust made a claim for exemption from tax under Section 11. This Court held that the resolution clarifying the object would not validly amend the object of the trust-deed and since the object confined the benefit to only muslim community, it would be covered by the restriction under Section 13(1)(b) of the Act even though it functioned for public benefit. Thus, therein the object sufficiently defined or expressly stated beneficiary class and restricted the activities of the trust to a specific community.
48. Further, in State of Kerala v. M.P. Shanti Verma Jain, (1998) 5 SCC 63 this Court has held that propagation of religion and restriction of benefits of activities of trust in its objects to the said community would render the trust as ineligible for claiming exemption under similar provisions of Kerala Agricultural Income Tax Act, 1950. The Court observed as follows:
I.T.A. Nos. 880 & 881/Hyd/2012 :- 14 -:
"...The Deed of Trust and the rules run into more than thirty pages out of which six pages of the Trust Deed narrate the philosophy of Jain Dharma. The objects of the Trust clearly show that the Trust is meant for propagation of Jain religion and rendering help to the followers of Jain religion. Even medical aid and similar facilities are to be rendered to persons devoted to Jain religion and to non-Jains if suffering from ailments but the medical aid could be given to them only if any member of the families managing the Trust, shows sympathy and is interested in their treatment. The Tribunal, in our opinion, was right in its conclusion that the dominant purpose of the Trust in the present case was propagation of Jain religion and to serve its followers and any part of agricultural income of the Trust spent in the State of Kerala also could not be treated as allowable item of the expenses."
49. In the present case, the objects of the respondent-trust are based on religious tenets under Quran according to religious faith of Islam. We have already noticed that the perusal of the objects and purposes of the respondent-trust would clearly demonstrate that the activities of the trust though both charitable and religious are not exclusively meant for a particular religious community. The objects, as explained in the preceding paragraphs, do not channel the benefits to any community if not the Dawoodi Bohra Community and thus, would not fall under the provisions of Section 13(1)(b) of the Act.
50. In that view of the matter, we are of the considered opinion that the respondent-trust is a charitable and religious trust which does not benefit any specific religious community and therefore, it cannot be held that Section 13(1)(b) of the Act would be attracted to the respondent-trust and thereby, it would be eligible to claim exemption under Section 11 of the Act". (emphasis supplied) 6.2. The Hon'ble Karnataka High Court in the case of DIT Vs. V. Ramakrishna Seva Ashrama [357 ITR 731] (Kar) has held as under:
"Held :
Insofar as the argument that the persons who made these contributions does not specifically direct that they shall form part of the corpus of the trust is concerned, it has no substance. In view of the language employed in Clause (b) of sub-section (a) of Section 11, the requirement is that the voluntary contributions have to be made with a specific direction. The law does not require that the said direction should be in writing. In the absence of the direction in writing, the only way that one can find out whether there was a specific direction and to find out how the money so paid it is utilized. if the money so received by way of voluntary contributions, it is meant to use for the Leprosy patients and is credited to a particular account and from the income from the said capital, the said activity is carried on the requirement of Clause (b) of sub-section (1) of I.T.A. Nos. 880 & 881/Hyd/2012 :- 15 -:
Section 11 is complied with. In the instant case, on record, we see that those people who have paid amounts by way of donation that includes the cheque with a letter with a specific direction, which is in compliance with Section (1) (b) of the Act. But, in case if the contributions are made without cheques i.e., by cash, and oral direction has been issued to the trust to utilise the said fund for the purpose of treating the leprosy patients and if such amounts arc credited to the account meant for it, even then the requirement of clause (b) of sub-section (1) of Section 11 is complied with. Therefore, we do not see any substance in the said contention.
(Para 17) Conclusion :
'Corpus' in the context of Income Tax Act means intention of the donor to give his money to a trust for carrying on a particular activity".
6.3. The Hon'ble AP High Court in the case of M/s. Chirec Education Society Vs. Asst. Director of Income Tax(E) [354 ITR 605] (AP) Held as under:
"Held:
Section 13 is an adjunct to Section 11 and exemption of income from property held for charitable purposes under Section 11 cannot be granted where the activity of a charitable institution comes within the purview of Section 13.But the sub- sections (1) (c) and (2) have to be read not in exclusion to each other but harmoniously. If sub section (1) (c) of Section 13 is considered in isolation ignoring sub-section (2) thereof, then parting of any part of the income of a Trust to a person referred to in sub section (3) of Section 13 would be impermissible. But the rigor of Section 13 (1) (c) is mitigated by sub section (2) of Section 13 and it would view only those transactions of the type mentioned therein (such as grant of loan/lease/payments by way of salary, allowance or otherwise) where the benefit conferred on the persons specified in sub section (3) by the Trust is in excess of what is considered adequate or reasonable which would warrant denial of exemption under Section 11.It is a settled principle of interpretation of statutes that the Court should avoid a construction which would render a part of the statute devoid of any meaning or application. Therefore it is not possible to ignore the provisions of sub section (2) of Section 13 as contended by the Revenue while deciding the question whether the assessee was entitled to the exemption under Section 11 of the Act. It is true that the words "Without prejudice to the generality of the provisions of clause (c) and clause (d) of sub- section (1)" occurring in sub-section (2) of Section 13 suggest that the provisions of I.T.A. Nos. 880 & 881/Hyd/2012 :- 16 -:
sub-section (2) should not be understood as cutting down the provisions of clause © and clause (d) of sub-section (1) of section 13 but this does not mean that in a situation like the present where sub-section (2) can apply, it should be ignored.
(Para 18) The act of the assessee in paying royalty does not amounts to diversion of the funds of the assessee attracting clause (g) of sub section (2) Section 13, since royalty is being paid by the assessee to SSSPL for using the name "Chirec" which belongs to SSSPL and towards part reimbursement of various amounts spent by SSSPL for huge infrastructure and for services and facilities rendered by SSSPL. At the time of agreement for payment of royalty, the SSSPL has transferred students from classes I to VI numbering over 400 and also teaching staff. It is not disputed that CBSE had imposed a condition that it would grant recognition only to a society specifically incorporated for the purpose of running a school as a non-profit organization and therefore members of SSSPL had no option but to register the assessee society under the Public Societies Registration Act, 1350 and then to transfer its entire paraphernalia, infrastructure etc. to it for its use. If the assessee had taken the infrastructure and the trade name of somebody (other than SSSPL), it cannot be disputed that the assessee would incur similar expenditure ( like the one being paid to SSSPL towards royalty) as no reasonable man would transfer user rights of name and other benefits without charging adequate consideration. Therefore merely because such facility was provided by SSSPL and royalty was being paid to it by the assessee in that behalf, Revenue cannot contend that it is impermissible.
(Para 19) Revenue was not able to establish that the royalty paid by the assessee to SSSPL was unreasonable, it had to be inferred that it is adequate and reasonable. If this is so, then royalty paid by the assessee to SSSPL ought to be considered as coming within clause © of sub section (2) of Section 13 under the category amount paid "otherwise" during the previous year to SSSPL out of resources of the Trust for services rendered by it (which is not excessive or unreasonable).
(Para 20) Thus Revenue's contention that this amounts to diversion of funds by the assessee to SSSPL and clause (g) of sub section (2) of Section 13 is attracted is misconceived since payment of royalty is necessary to secure the use of the trade name and infrastructure of SSSPL. Therefore the view of the CIT (Appeals) that the assessee was entitled to the benefit of Section 11 was valid.
I.T.A. Nos. 880 & 881/Hyd/2012 :- 17 -:
(Para 21) The observations of the Tribunal that income of the assessee is given to SSSPL, a company whose activity is commercial and not charitable; that payment of royalty by the assessee is not incurred for purpose of the assessee's business; that the students or staff of SSSPL were not bound to join the assessee once it was formed by SSSPL; and the payment was intended to benefit the members of assessee society; that it is a collusive transaction to transfer the profit of the assessee society to interested persons; are wholly irrelevant and perverse. Tribunal appears to have misdirected itself and considered totally irrelevant issues.
(Para 22) The assessing officer and the Tribunal have failed to consider sub section (2) of Section 13 and have simply concentrated on clause (c) of sub section (1) of Section 13. Merely because the assessee was registered by SSSPL to run the school after SSSPL's application for approval was rejected by CBSE, it cannot be said that assessee's payment by way of royalty to SSSPL is prohibited and consequently the assessee deprived of exemption u/s 11. Rao Shiv Bahadur Singh Vs. State of U.P, AIR 1953 S.C. 394; New Noble Education Society vs. Chief Commissioner of Income Tax, Order dt.11-11-2010 in W.P.Nos.21248 of 2010; CIT vs. Polisetty Somasundaram Charities, (1990) 183 ITR 377 (A.P.); Shree Poongalia Jain SwetamberMandir vs. CIT, (1987) 168 ITR 516 (Raj); Director of Income Tax vs. Span Foundation, (2009) 178 TAXMAN 436 (Delhi); CIT vs. J.K.Charitable Trust, (1992) 196 ITR 31 (All), relied on. CIT vs. Rattan Trust, (1997) 227 ITR 356 (S.C.); CIT vs. Muthoottu Charitable Trust, (1997) 227 ITR 203 (Kerala); KanahyaLalPunj Charitable Trust vs. Directorate of Income Tax (Exemption), (2008) 297 ITR 66 (Delhi); AWARE vs. Deputy Commissioner of Income Tax, (2003) 263 ITR 13 (A.P.);
distinguished.
(Para 23, 30) Conclusion :
Merely because the assessee was registered by SSSPL to run the school after SSSPL's application for approval was rejected by CBSE, it cannot be said that assessee's payment by way of royalty to SSSPL for use of SSSPL infrastructure and trade name is prohibited".
6.4. The Co-ordinate Bench of ITAT in the case of Asst. Director of Income Tax(Exemptions)-II Vs. Kalinga Cultural Trust, has held as under:
I.T.A. Nos. 880 & 881/Hyd/2012 :- 18 -:
"7. We have heard both the parties, perused the material on record and gone through the orders of the revenue authorities. In this case the AO completed the assessment denying exemption u/s 11 by making several additions/disallowances. On appeal, the CIT(A) allowed the exemption u/s 11 of the Act. We find no infirmity in the order of the CIT(A) relying on the decision of Cochin Bench (TM) in the case of Society of Presentation Sisters Vs. ITO, [2009] 121 ITD 422 (Cochin) (TM) wherein it has been held as follows:
"So for as the provision of s. 11(1)(a) is concerned, no distinction is made between charitable and religious purposes. A charitable institution can have religious purposes; whereas a religious institution may be partly charitable. Even otherwise relief and help to the poor, medical help to the needy, looking after of deity and temples (mosque, church included) are no doubt religious purposes but these are also considered as charitable in India. Therefore, the view taken that exemption under s. 11(1)(a) cannot be allowed to a charitable trust as it is also carrying on some purposes which are termed as 'religious' is totally unwarranted.--Pt. Ram Chandra Shukla vs. Mahadeoji Mahabiriji & Hazrat All Kanpur & Ors. AIR 1970 SC 450 applied; CIT vs. Social Service Centre (2001) 169 CTR (AP) 130 : (2001) 250 ITR 39 (AP), Addl. CIT vs. A.A. Bibijiwala Trust (1975) 100 ITR 516 (Guj) and CIT vs. Barkate Saifiyah Society (1995) 213 ITR 492 (Guj) relied on; Calicut Islamic Cultural Society (ITA Nos. 729/Coch/2006 and 641/Coch/ 2006, dt. 31st July, 2008) impliedly approved.
(Para 19) Although there is no distinction between religious or charitable institution as far as s. 11(1)(a) is concerned, such distinction is recognised under s. 13 which is an exception to ss. 11 and 12. Cases which are covered under cls. (a), (b), (c) and (d) of s. 13 would not be entitled to exemption under s. 11 or 12. Clause (a) of above section relates to income from property under a trust for private religious purposes which does not enure for the benefit of the public. Clause (b) deals with cases of charitable institution created or established after the commencement of the Act. It is required to be seen whether such charitable trust or institution is established for the benefit of a particular religious community or caste. If it is so established, then provisions of s. 11 will not be attracted. But for application of above clause, it is to be shown that income of the trust enures and used or applied directly or indirectly for the benefit of the persons referred to in sub-s. (3). Clauses (c) and (d) are applicable to both type of trusts i.e. trust for charitable or religious purposes, unlike in cls. (a) and (b) which were applicable to private religious trust or to charitable trust. The legislature has specifically used in cl. (c) the words "trust for charitable or religious purposes". Clauses (c) and (d) would be applicable to trust which is either for charitable purposes or for religious purposes or partly charitable and partly religious. In other words, if such trust is established only for the benefit of a particular religious community or caste, then the provision of s. 11 would not be applicable. But the position I.T.A. Nos. 880 & 881/Hyd/2012 :- 19 -:
would be different and in case of a trust or institution for religious purposes, wherein certain activities termed as charitable activities are also carried for the benefit of a religious community or caste, cl. (b) would have no application in such a case. In these cases, the Revenue authorities did not make out any case under s. 13(1)(b) or any other clause of the section. There is no finding that trusts in question are charitable institutions created or established for the benefit of any particular religious community or caste. Provision of cl. (b) of s. 13(1) is applicable only to a charitable institution and not to any institution which is created both for charitable and religious purposes. There is no elaboration as to how any particular religious community or caste is to be benefited from the trust in question. No violation of provision of s. 13 has been stated or established. The finding or basis for denial of exemption under s. 11(1)(a) is that trusts are partly religious and partly charitable, whereas exemption is permissible to wholly charitable or wholly religious trusts. Such basis is not legally tenable.
(Paras 20 & 21) According to the AO, erection of chapels and convents were religious in nature. Accordingly purpose of the trust was held to be partly religious and partly charitable and exemption denied to the assessee. It is difficult to appreciate or agree with aforesaid conclusion. Erection of chapels and convents cannot be treated purely religious in nature and not charitable. No relevant facts have been brought on record to make out a case justifying denial of exemption under s. 11(1)(a). There is no finding that chapels and convents are to serve a particular community and the purpose would be hit by provisions of s. 13(1)(b). Besides as already recorded a religious purpose can be a charitable purpose and vice versa in India. Therefore, exemption could not be denied to a trust which is partly charitable and partly religious. Maintenance of mosque and church must be treated as charitable purpose. Even if they are treated as religious, there is no justification for denying exemption to the assessee in the light of above discussion. It is nobody's case that purposes are partly charitable and partly non-charitable and, therefore, exemption under s. 11(1)(a) is not available as trusts were created after 1st April, 1962. No adverse inference can be drawn from what is stated by the assessee in letter dt. 27th March, 2006 wherein assessee claimed that its trust is wholly charitable. Facts and circumstances of the case are required to be considered in the light of statutory provisions to decide the case. On consideration of the relevant facts, the assessee is entitled to exemption under s. 11(1)(a).--Ghulam Mohidin Trust vs. CIT (2001) 168 CTR (J&K) 367 : (2001) 248 ITR 587 (J&K), State of Kerala vs. M.P. Shanti Verma Jain (1998) 149 CTR (SC) 279 : (1998) 231 ITR 787 (SC) and East India Industries (Madras) (P) Ltd. vs. CIT (1967) 65 ITR 611 (SC) distinguished.
(Paras 22, 24, & 26.3) I.T.A. Nos. 880 & 881/Hyd/2012 :- 20 -:
Conclusion :
No distinction is made between charitable and religious purposes in s. 11(1)(a) and, therefore, a trust which is partly religious and partly charitable, is entitled to exemption under s. 11(1)(a); even otherwise, maintenance of mosque and church is to be treated as charitable purpose and not purely religious purpose and, therefore, exemption under s. 11(1)(a) could not be denied to the assessee trusts which exist for various charitable purposes besides maintenance of chapels and mosques, on the ground that they are partly charitable and partly religious trusts, once no case is made out for application of provisions of s. 13."
In view of the above decision, we are of the opinion that AO was not correct in denying exemption u/s 11 in assessee's case and registration granted to assessee u/s 12A is intact. The learned CIT(A) has rightly appreciated the facts and held that the assessee is entitled to exemption u/s 11. We uphold the order of the CIT(A) on this issue and grounds raised by the revenue on this issue in AY 2008-09 (Ground Nos. 2 to 7), in 2006-07 and 2007-08 (Ground Nos. 2 to 5 are dismissed".
7. Since all the issues raised by Revenue are covered against it and since the order of the CIT(A) is in tune with the legal principles established, we do not see any reason to interfere with the order.
Accordingly, both the Revenue appeals are dismissed.
Order pronounced in the open court on 28th February, 2017 Sd/- Sd/-
(P. MADHAVI DEVI) (B. RAMAKOTAIAH)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, Dated 28th February, 2017
TNMM
I.T.A. Nos. 880 & 881/Hyd/2012
:- 21 -:
Copy to :
1. Asst. Director of Income-tax (Exemptions)-II, Hyderabad.
2. Gospel to The Unreached Millions, Plot No. 382, # 6-3-852/2/2/B, Aparjita Colony, Ameerpet, Hyderabad.
3. CIT (Appeals)-Guntur.
4. The DIT(Exemptions), Hyderabad.
5. D.R. ITAT, Hyderabad.
6. Guard File.