Director Of Income Tax (Exemption v. Abul Kalam Azad Islamic Awakening

THE HIGH COURT OF DELHI AT NEW DELHI % Judgment delivered on: 26.02.2013 +ITA 80/2013 DIRECTOR OF INCOME TAX (EXEMPTION) ...Appellant versus ABUL KALAM AZAD ISLAMIC AWAKENING ...Respondent Advocates who appeared in this case:For the Petitioner: Mr Karan Khanna, Ms Asmita KumarFor the Respondent: None CORAM:-HON’BLE MR JUSTICE BADAR DURREZ AHMEDHON’BLE MR JUSTICE R.V.EASWAR JUDGMENT BADAR DURREZ AHMED, J (ORAL) 1.This appeal by the revenue is directed against the order dated30.03.2012 passed by the Income Tax Appellate Tribunal in ITA386/Del/2012 pertaining to the cancellation of registration under Section12AA(3) of the Income Tax Act, 1961(hereinafter referred to as the ‘saidAct’).The respondent assessee had filed an appeal before the Tribunalbeing aggrieved by the order of the Director of Income Tax (E) passedunder Section 12AA(3) read with Section 12 of the Income Tax Actcancelling the registration granted to the assessee under Section 12(A). 2.The entire case of the revenue was that since the assessee, in theassessment year 2005-2006, had invested in commercial property at Bangalore and it was not for a charitable purpose and further that in thesaid property no educational activity was carried out which was the objectof the assessee.The respondent/assessee had contended that it waspermissible for it to invest in immovable property in terms of section11(5) of the said Act. It was also contended that though the investmentwas in commercial property, the income generated from it was applied forcharitable purposes. Therefore, the registration under section 12A of thesaid Act could not have been cancelled. The Tribunal accepted the pleasraised by the assessee and allowed its appeal. The Tribunal observed asunder:- "7. We have heard rival contentions and gone through therelevant material available on record. Relevant provisionsof Section 11, read as under : “Income from property held for charitable orreligious purpose. 11 (2)Where eighty-five per cent of the incomereferred to in clause (a) or clause (b) of sub-section (1)read with the Explanation to that sub-section is notapplied, or is not deemed to have been applied, tocharitable or religious purposes in India during theprevious year but is accumulated or set apart, either inwhole or in part, for application to such purposes inIndia, such income so accumulated or set apart shall notbe included in the total income of the previous year of the person in receipt of the income, provided thefollowing conditions are complied with, namely : (a) Such person specifies, by notice in writing given tothe Assessing Officer in the prescribedmanner, thepurpose for which the income is being accumulated orset apart and the period for which the income is to beaccumulated or set apart, which shall in no case exceedten years; (b) The money so accumulated or set apart is investedor deposited in the forms or modes specified in sub-section (5). …. (5) The forms and modes of investing or depositing themoney referred to in clause (b) of sub-section (2) shallbe the following, namely :-…… (x) Investment in immovable property. 7.1. Plain reading of provisions of sec. 11 (2)(b) lay downthat 85% of the income is to be applied to charitablepurposes or set apart and the moneys accumulated or setapart can be invested or deposited in the forms or modesspecified in sub-sec.(5). 7.2. Clause (x) of Sub sec. (5) to sec. 11 prescribes one of the""modes of investment as investment in immovable property.Thus, the surplus income can be applied to investment inimmovable property.The charitable purposes will include (b) The money so accumulated or set apart is investedor deposited in the forms or modes specified in sub-section (5). …. (5) The forms and modes of investing or depositing themoney referred to in clause (b) of sub-section (2) shallbe the following, namely :-…… (x) Investment in immovable property. 7.1. Plain reading of provisions of sec. 11 (2)(b) lay downthat 85% of the income is to be applied to charitablepurposes or set apart and the moneys accumulated or setapart can be invested or deposited in the forms or modesspecified in sub-sec.(5). 7.2. Clause (x) of Sub sec. (5) to sec. 11 prescribes one of the""modes of investment as investment in immovable property.Thus, the surplus income can be applied to investment inimmovable property.The charitable purposes will include the educational activities and acquiring the income yieldingassets to promote the educational objects of the Society.Consequently, combined reading of these provisions make itclear that the assessee can set apart or invest its income in an"immovable property". The word "immovable property" bynatural reading, will include any type of land, residential orcommercial property or any other form of property, whichcan be termed as immovable property as defined in theTransfer of Property Act. Thus, the society/ management isallowed to invest its surplus in immovable property,including commercial property. Thus, there cannot be a baron management of Society to invest its surplus funds inacquisition of a commercial property as the law does notmandate any extra bar. 7.3. Coming to the other aspect that because the assessee isnot carrying out any educational activity in this commercialproperty,therefore,theinvestmentbecomesfornon-charitable purposes and the assessee has endeavored to enterinto business operations. In our view the assessee's charitableobjects include spreading education and opening of schools;investment even in commercial property assets remainscharitable purposes so long as the income generated by it isapplied to charitable objects. It has not been demonstratedthat the assessee applied rent received from these properties-to any non charitable purposes.Besides, it has not beendemonstrated that the assessee's intention was to enter inbusiness of purchase and sale of commercial propertyinasmuch as we are in year 2012, the property was purchasedin FY 2004-05 and the Trust still retains this property. Inthese circumstances, we are unable to hold that the assessee'sinvestment can be held non-charitable in nature." (underlining added) 3.We are of the view that the Tribunal had correctly appreciated thelaw and has come to the conclusion that the respondent assessee wasentitled under Section 11(5)(x) to invest in immovable property out of thefunds which were surplus with it. The Tribunal has also concluded thatthere was no evidence on the part of the department that the assessee hadapplied the rent received from the commercial property for non-charitablepurpose. That being the case, the registration under Section 12 A couldnot have been cancelled. We do not find any substantial question of lawwhich arises for our consideration. 4.The appeal is dismissed. FEBRUARY 26, 2013‘ns’ BADAR DURREZ AHMED, JR.V.EASWAR, J