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8.2 Before proceeding with the determination of the controversy at hand, we may also summarize the findings of the Hon'ble ITAT in the order for assessment year 1988-
89. The question before the Tribunal was whether, the assessee was entitled to exemption u/s 11(1)(a) of the Income-tax Act? The Tribunal noted the fact regarding the search and seizure operation on 23.2.1988, falling in assessment year 1989-90. It was further noted that the income and expenditure account showed surplus of Rs. 1,941/-. The main expenditure was in respect of interest and rent of Rs. 60,000/- and Rs. 1,08,000/-. A sum of Rs. 22,260/- was also spent towards salary and wages and other administrative expenses. The objects of the trust were also taken note of by the Hon'ble Tribunal. On going through the objects, it was mentioned in paragraph 11 that the trust was created wholly for religious and charitable purposes. One of the objects was to distribute food, rugs, blankets and clothes to the poor, which gets some support from the statement of Shri Vallabh Vyas when it was deposed that 15 to 20 persons used to dine and food was served to them by spending the offerings made to the God in room No. 6. In this connection, it was noted that the value of offering and the expenditure on food were not recorded in the books. It was the view of the Tribunal that this may be an irregularity in the accounts maintained by the trust, but it does not militate against the quality of evidence about the user of trust money according to the aims and objects of the trust. The Hon'ble Tribunal also took note of the fact that the trust has been registered u/s 12-A by the Commissioner. It had also been granted recognition u/s 80-G and the renewal application for the period 1.7.1987 to 31.12.1991 was pending with the Commissioner. The Hon'ble Tribunal also took note of the fact that while profit & loss account, balance-sheet, auditor's report were filed, the books of account were not produced on the ground that they were not traceable and the books might have been seized by the department during the course of search. It was held that such non-production need not create any serious doubt about the genuineness of the expenditure incurred by the assessee. Having considered various cases cited by the rival parties, it was held in paragraph 27 that the expenditure by way of rent, interest, salary and wages paid to employees and other administrative expenses were to be considered as application of income for charitable and religious purposes. This finding seems to be somewhat at variance with decision of Hon'ble Gujarat High Court, extracted on pages 24 and 25 to the effect that firstly the commercial income has to be determined after deducting outgoings including income-tax and such income will be the income available for application towards objects or accumulation etc. In view thereof, expenses on interest, rent, salaries will be outgoings and not application of income u/s 11(1)(a). For the sake of ready reference, the portion of the decision extracted by the Tribunal is reproduced below:-
9. Ground No. 1 is that the learned CIT(Appeals) failed to appreciate the facts of the case and mis-directed himself in over-looking and ignoring the findings recorded by the ITAT in the order for assessment year 1988-89. It is further mentioned that he erred in holding that that order was not applicable to this year in spite of the fact that factual situation in the two years was identical. The findings of the learned CIT(A) in this respect are contained in paragraph 29 of his order, which is reproduced for the sake of ready reference - "The Ld. Members of the ITAT while disposing of appeal for A.Y. 1988-89 has simply relied on the facts that the trust has been recognized charitable in the past relying on the aims and objects of the trust and certain decisions. However, I have already pointed out that the case of each and every year is different and the taxability or exemption of receipt in a year depends upon the activities of the trust/society. The appellant has also contravened provision of section 13(1)(c)(ii) read with 13(2)(b) and 13(3)(a) and (ee) of the Income-tax Act." We have perused the objects of the trust as well as the order of the Hon'ble ITAT for assessment year 1988-89. We find that the objects are religious or charitable in nature. The trust has also been registered u/s 12-A of the Act. The Hon'ble Tribunal has given a finding that mere failure to produce the books or not entering income and expenditure relating to providing food in the books do not come in the way of the finding that the assessee is a religious-cum-charitable trust. We do not find any compelling reason to digress from this finding and, therefore, hold that the assessee is a religious- cum-charitable trust. Thus, ground No. 1 is disposed off by holding that the assessee is a religious and charitable trust and that the Ld. CIT(A) ought to have held the trust to be a religious & charitable trust.
9.1 The second ground is that the learned CIT(Appeals) erred in holding that the trust was not validly created and it was not a genuine trust in complete disregard of the fact that the trust was registered u/s 12-A of the Income-tax Act. The finding of the learned CIT(A) was that the question whether under a document the assessee is or is not a trust is always a question of construction of the document and a question of construction of document is always a question of law. It has already been pointed out that the trust is virtually one man show and controlled by Shri Chandraswami. It cannot be a public charitable trust merely because it is evidenced by a deed. It has also been held in Fifth General Education Society Vs. CIT (1990) 185 ITR 634 (All.) that at the stage of registration u/s12-A, the Commissioner is not to examine the application of income. All that he may examine is whether the application is made in accordance with requirements u/s 12-A read with Rule 17- A and whether Form No. 10A has been properly filed. He may also see whether the objects of the trust are charitable or not. Thereafter, he cited certain cases including the case of Municipal Corporation of Delhi Vs. Children Book Trust, AIR (1992) SC 1456, to the effect that the element of public benefit or philanthropy has to be present in order to hold a trust to be existing for charitable purposes. These conditions are not fulfilled by the trust. Having considered the finding of the learned CIT(A), we find that there is an inherent contradiction when it is stated that the Commissioner can only examine whether the formalities have been completed or not and at the same time it is stated that he may also examine whether objects of the trust are charitable or not. The examination of objects is not an empty formality as the registration is crucially dependent upon the objects of the trust and genuineness of its activities. Once it is found that objects are charitable and activities are genuine, then, registration has to be granted. Thus, it follows that if registration is granted, then, the assessee is a charitable or religious trust. It is another matter that in spite of being so, it may not be entitled to exemption u/s 11 for the reason that its income has not been applied wholly or partly for religious or charitable purposes. However, after registration, there cannot be a case of the revenue that the trust was not religious and charitable trust till such time the registration was withdrawn. The registration has not been withdrawn in this case. Therefore, we are of the view that the trust is a genuine trust, duly registered u/s 12-A of the Act. Thus, this ground is also allowed.