Director Of Income Tax Exemptions,Chennai v. M/S.shanmuga Arts, Science,Technology & Researchacademy(Sastra)

IN THE HIGH COURT OF JUDICATURE AT MADRAS Reserved Date : 24.06.2021 Pronounced Date : 02.07.2021 CORAM THE HON'BLE MR.JUSTICE M. DURAISWAMY AND THE HON'BLE MRS.JUSTICE R. HEMALATHA Tax Case Appeal No.1059 of 2014 Director of Income Tax Exemptions,Chennai ... Appellant Vs. M/s.Shanmuga Arts, Science,Technology & ResearchAcademy(SASTRA) No.5,Main road,Dr. Subbaraya Nagar,Kodabakkam,Chennai-24. ...Respondent PRAYER:Tax Case Appeal filed under Section 260A of the IncomeTax Act, 1961 against the order of the Income Tax AppellateTribunal, Chennai "B" Bench, dated 20.07.2011 passed inI.T.A.No.1531/mds/2010 for the assessment year 2007-2008.Appeal against the order dated.29.06.2010 made in ITANO.201/09-10 on the file of the Commissioner of Income Tax(Appeals)-XII, Chennai and Appeal against the orderdated.31.12.09 made in PAN/GIR No.AAAAB0187C3636-B on the fileof the Income Tax Officer(OSD) Exemption-III, Chennai. For Respondent : Ms.Pushya Sitaraman Senior Counsel for Ms.J. Sree Vidya J U D G M E N T (Judgment of the Court was delivered by R.HEMALATHA, J.) This appeal is filed against the order dated 20.07.2011in ITA.No.1531/MDS/2009 of ITAT Chennai, Bench-B.https://hcservices.ecourts.gov.in/hcservices/ 2.The respondent/assessee is a Trust registered underSection 12AA of the Income Tax Act, 1961 videC.No.1146/III/106/84 dated 03.07.1985. The Trust had filed thereturn of income for assessment year 2007-2008 on 02.11.2007for Rs.60,76,26,276/- and claiming exemption forRs.6,65,60,886/- being the amount of donation made by it underSection 11 of the Act. The Assessing Officer had issued anotice u/s.143(2) of the Act on 21.08.2008 through which thedetails of donations made during the period were called forand according to the Assessing Officer, there was noexplanation offered for many donations made by the Trust as towhether they were for activities in conformity with theobjects of the Trust. Therefore, all the donations weretreated as not exempted and a demand was reworked by theAssessing Officer. Consequently, the capital expenditureclaimed for Rs.21,00,56,146/- was not considered as theassessee was being taxed in the status of AOP (Association ofpersons)whereasanunclaimeddepreciationofRs.10,09,67,711/- was allowed for the same reason of status ofAOP. It was also observed by the Assessing Officer that out ofa total amount of Rs.6,70,21,273/- paid as donations, theassessee had claimed only Rs.6,65,60,886/- in its returnexplaining that two items of Rs.39,613/- and Rs.5,00,000/-were given to Charities for Tsunami and to political parties,individuals and others, out of which Rs.5,00,000/- wasrecovered back during the same financial year from the founderMr.S.Ramachandra Iyer. The assessee Trust themselves hadremoved that amount from the list of donations. 3. The Respondent/Trust, aggrieved over this order,approached the Commissioner of Income Tax (Appeals) XII,Chennai, who in a 33 page order discussed threadbare as to howthe Assessing Officer was incorrect in concluding that therespondent/Trust was not eligible for the exemption for thedonations made by it. A remand report was called for by theCommissioner of Income Tax (Appeals) from the AssessingOfficer and the remand report dated 25.05.2010 was alsodiscussed in his order. The Assessing Officer in his remandreport had once again reiterated that the assessee being adeemed University and having objects solely educational innature had definitely deviated from the objects of the Trustdeed by making donations to activities which were not coveredby the ambit of the Trust-deed. The Commissioner of IncomeTax (Appeals) concluded that the Trust-deed had empowered theTrustees to apply the trust funds to anyone or more of thespecified objects of the Trust and the Assessing Officercannot interfere in the discretion of the Trustees.Furthermore, it was also held by the Commissioner of IncomeTax (Appeals) that the Assessing Officer ought to havereferred the matter to Commissioner of Income Tax forwithdrawal of the Registration u/s. 12(AA) (3) of the Act andonly upon the receipt of the order of the Commissioner, thehttps://hcservices.ecourts.gov.in/hcservices/denial of exemption u/s.11 could have been proceeded with. Thus the lack of jurisdiction on the part of Assessing Officerwas also pointed out in that order. It was further observedthat “out of the total sum of Rs.6,65,60,886/-disbursed by the appellant towards “Charity andDonations” during the previous year 2006-07relevant to the Assessment Year 2007-08, theAssessing Officer has accepted an amount ofRs.6,50,66,000/- as donations made in pursuant ofthe objects of the Appellant. According to theAssessing Officer, the balance of Rs.14,94,886/-,constituting 0.34% of the total expenditure ofthe appellant, are not in accordance with theobjects of the appellant trust, though thedonations were made for charitable purposes.Hence, exemption u/s.11 of the Income Tax Act,1961 was denied by the Assessing Officer. Theappellant had submitted that the donationsspecified by the Assessing Officer were alsopermitted by the objects of its Trust Deed dated19.04.1984.” 4. The Commissioner of Income Tax (Appeals) also reliedon the order of the Andhra Pradesh High Court in the Trusteesof H.E.H. the Nizam's Pilgrimage Money Trust Vs. CWT/IT (171ITR 323), which held that “if any part of the income of the trust hasbeen applied to charitable or religious purposesin India in the assessment year 1974-75 or isaccumulated or is set apart for application tosuch purposes in India, the income to that extentis entitled to be dealt with under Section 11 (1)(a) and exemption granted in accordance with thesaid section”. 5. According to the Commissioner of Income Tax (Appeals),it is immaterial whether the Charitable and religious purposesfor which the Trust is created are confined to the objects ofthe Trust and what is required is that the income must beapplied or accumulated for application or set apart forapplication as per the provisions of the Income Tax Act, 1961.Thus it was observed that even assuming that the objects ofthe Trust do not empower the Trustees to spend any part of theincome of the Trust property for a particular purpose, stillif they do spend any part of the income for charitable orreligious purpose in India, it would be entitled for exemptionu/s.11 (1) (a) of the Act for that year. The Commissioner ofIncome Tax (Appeals) gave a verdict in favour of the assessee. https://hcservices.ecourts.gov.in/hcservices/ https://hcservices.ecourts.gov.in/hcservices/ 6. The Revenue filed an appeal before the Income TaxAppellate Tribunal, Chennai Bench – B in ITA.No.1531/MDS/2010.The Income Tax Appellate Tribunal in its order found that theAssessing Officer in his remand report had finally acceptedalmost all the donations except Rs.14,94,886/- constituting0.34% of the total expenditure. However, the Assessing Officererred in claiming that the application of funds by the Trustwas contrary to the objects of the Trust. The Income TaxAppellate Tribunal held that the application of the income wasmore relevant even if the objects of the Trust do not empowerthe Trustees to spend a part of the income for a particularpurpose and that any such expenditure for charitable orreligious purpose would be entitled for exemption u/s.11 (1)(a) of the Act for that year as held by the Andhra PradeshHigh Court in Trustees of H.E.H. the Nizam's Pilgrimage MoneyTrust Vs. CWT/IT (171 ITR 323), which was also confirmed bythe Apex Court. It was also concluded by the Income TaxAppellate Tribunal that the Trust was a Public CharitableTrust as evidenced in the Trust deed dated 19.04.1984 and thesupplementary deeds dated 06.05.2000 and 19.01.2001. TheIncome Tax Appellate Tribunal has upheld the order of theCommissioner of Income Tax (Appeals). 7. Now the present appeal is filed on the followingsubstantial questions of law and additional substantialquestion of law: Substantial Questions of law: “1. Whether on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal was right in holding that thetrust deed dated 19.04.1984 alone would berelevant to conclude about the objects andactivities of the trust? 2. Whether on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal was right in holding that theincome of the trust need not be applied towardsthe objects of the trust and it is suffice thatincome be applied or accumulated as per the Actirrespective of the object of the trust deedwhether charitable/religious purpose and therebyholding that the assessee is entitled forexemption under Section 11? 3. Whether on the facts and in thecircumstances of the case, the Tribunal was rightin holding that the assessee trust is to behttps://hcservices.ecourts.gov.in/hcservices/treated as a public charitable trust with the activity of education when the assessee hadamended the trust deed with the main object ofeducation and the assessee trust is running aneducational institution as a deemed university? 4. Whether on the facts and the circumstancesof the case, the Tribunal was right in holdingthat the assessee trust running educationalinstitution by charging fee can be treated as apublic charitable trust as per Section 2 (15)? 5. Whether on the facts and in thecircumstances of the case, the Tribunal was rightin holding that the expenditures and donation madeby the assessee trust to related individuals,political parties and others, in contravention tothe objects of the trusts can be ignored whileconsidering the applicability of exemption underSection 11? Additional Question of Law: “ Whether on the facts and the circumstancesof the case the order of the tribunal is notperverse and right in holding that theexpenditures and donation made by assessee trustto related individuals, political parties andothers, in contravention to the objects of thetrusts, can be ignored while considering theapplicability of exemption under Section 11” 5. Whether on the facts and in thecircumstances of the case, the Tribunal was rightin holding that the expenditures and donation madeby the assessee trust to related individuals,political parties and others, in contravention tothe objects of the trusts can be ignored whileconsidering the applicability of exemption underSection 11? Additional Question of Law: “ Whether on the facts and the circumstancesof the case the order of the tribunal is notperverse and right in holding that theexpenditures and donation made by assessee trustto related individuals, political parties andothers, in contravention to the objects of thetrusts, can be ignored while considering theapplicability of exemption under Section 11” 8. Mr.J.Narayaswamy, learned Senior Standing Counsel forthe Appellant/Revenue argued that the Tribunal was wrong inholding that the assessee was entitled for the exemptionu/s.11 of the Act. According to him, the Tribunal also erredin interpreting the contents of the Trust-Deed while declaringthe Trust as Public Charitable Trust. It was also contendedthat the Tribunal accepting the view of the Commissioner ofIncome Tax (Appeals) that the Assessing Officer was notempowered to deny exemption u/s.11 of the Act withoutreferring the case to the Commissioner of Income Tax forwithdrawal of Registrations u/s.12AA (3) of the Act was alsoerroneous. It was also argued by the Learned Counsel that theCommissioner of Income Tax (Appeals) as well as the Tribunaldid not reasonably answer the question as to whether thepayments of donations by the Trust were in consonance withthe objects of the Trust. Therefore, his contention was thatthe Assessing Officer was right in declaring the donationswhich were not in conformity with the objects of the Trust asnot entitled for exemption u/s.11 of the Act. He alsohttps://hcservices.ecourts.gov.in/hcservices/contended that the order of both Commissioner of Income Tax (Appeals) and Income Tax Appellate Tribunal are perverse andliable to be set aside. 9. Per contra, Ms.Pushya Sitaraman, learned counsel forthe respondent/assessee made certain arguments which arelisted below. (i) The Assessing Officer though in her original reporthad declared all the donations to the tune of Rs.6,65,60,886/-as not entitled for exemption took a complete u-turn in herremand report accepting most of the donations as permissiblebarring a few totalling to Rs.14,94,886/- (ii)The Assessing Officer's interpretation that the Trustwas granted Registration under Section 12AA of the Act onlybased on the objects of the Trust which were solelyeducational in nature and any donations/contribution toactivities other than educational purposes were violative andnot entitled for exemption was hypothetical and against thevarious rulings of the Courts. (iii) When there is no violation of provisions ofSection 13 of the Act, exemption u/s.11 cannot be denied. (iv) Relying on the following decision in Commissioner ofIncome-Tax Vs. Rama Krishna Jewellers, the learned counsel forthe assessee contended that concurrent findings of theCommissioner of Income Tax (Appeals) and Income Tax AppellateTribunal on factual issues should not be re-appreciated onappeals unless it is shown to be ex-facie perverse. (v) There is no substantial question of law to decide inthe instant case and the findings of both Commissioner ofIncome Tax (Appeals) and Income Tax Appellate Tribunal arebased on proper reasoning and analysis. (iii) When there is no violation of provisions ofSection 13 of the Act, exemption u/s.11 cannot be denied. (iv) Relying on the following decision in Commissioner ofIncome-Tax Vs. Rama Krishna Jewellers, the learned counsel forthe assessee contended that concurrent findings of theCommissioner of Income Tax (Appeals) and Income Tax AppellateTribunal on factual issues should not be re-appreciated onappeals unless it is shown to be ex-facie perverse. (v) There is no substantial question of law to decide inthe instant case and the findings of both Commissioner ofIncome Tax (Appeals) and Income Tax Appellate Tribunal arebased on proper reasoning and analysis. 10. We have carefully perused the facts of the case,rival submissions, relevant records including the AssessingOfficer's order, remand report, Commissioner of Income Tax(Appeals)'s order and Income Tax Appellate Tribunal's order.On a thorough reading of the Section 11 of the Income Tax Act,it is evident that there is no bar for the charitable orreligious trust to claim the exemption as long as it isapplied in India for such charitable or religious purposes. Section 11 (1) (a) reads as under: “Income derived from property held underTrust wholly for charitable and religioushttps://hcservices.ecourts.gov.in/hcservices/purposes, shall be exempted - 1) to the extent such income is applied inIndia for such purposes and 2) where any such income is accumulated orset apart for such application to suchpurpose in India, t the extent to which theincome re-accumulated or set apart is not inexcess of 15% of the income from suchproperty. Therefore, it is clear that as per Section 11(1)(a)exemption of 15% of income is unfettered and not subject toany conditions. 11. The Respondent/Trust is a Public Charitable Trust anddoing educational services. It is not the case of theAppellant that the entire amount claimed as donations wasliable to be disallowed. The remand report had categorised allthe donations made by the Trust into those which weresatisfactorily explained and those which were not. A cursoryglance of the list of beneficiaries would only show that therehave been donations to charitable and religious institutionsonly and that philanthropy has been the essence of all thedonations. 12. The Commissioner of Income Tax (Appeals) as well asthe Income Tax Appellate Tribunal disagreed with thecontention of the Assessing Officer that withdrawal ofregistration u/s.12AA is not a pre-requisite for the denial ofexemption under Section 11 of the Act. 13. Section 13 of Income Tax Act, 1961, specifies thecircumstances where exemption under Sections 11 and 12 wouldnot be available for a Trust. The reasons where Section 13would be invoked are Income not for the benefit of Public - Section 13 (1) (G)1. Income from Trust for the benefit of a particularreligion or caste ( if trust created after 01.04.1962) religion or caste ( if trust created after 01.04.1962) 2. Any income of the Trust which benefits certain person 3. Income or property used for the benefit of a person. 14. The compliance of the following main condition isessential for claiming exemption under Section 11: a) Trust must have been created for any lawful purposeb)Such trust/institution must be for charitable/religioushttps://hcservices.ecourts.gov.in/hcservices/purposes. 15. According to Section 2(15), charitable purposeincludes relief of the poor, education, yoga, medical relief,preservation of environment and preservation of monuments orplaces or objects of artistic or historic interest and theadvancement of any other object of general public utility. 16. Trust/institution covered under advancement of anyother object of general public utility can do commercialactivities upto 20% of its total receipts [Proviso to section2(15)] 14. The compliance of the following main condition isessential for claiming exemption under Section 11: a) Trust must have been created for any lawful purposeb)Such trust/institution must be for charitable/religioushttps://hcservices.ecourts.gov.in/hcservices/purposes. 15. According to Section 2(15), charitable purposeincludes relief of the poor, education, yoga, medical relief,preservation of environment and preservation of monuments orplaces or objects of artistic or historic interest and theadvancement of any other object of general public utility. 16. Trust/institution covered under advancement of anyother object of general public utility can do commercialactivities upto 20% of its total receipts [Proviso to section2(15)] 17. The advancement of any other object of general publicutility shall not be a charitable purpose, if it involves thecarrying on of any activity in the nature of trade, commerceor business, or any activity of rendering any service inrelation to any trade, commerce or business, for a cess or feeor any other consideration, irrespective of the nature of useor application, or retention, of the income from suchactivity, unless,— i) such activity is undertaken in thecourse of actual carrying out of suchadvancement of any other object ofgeneral public utility; and ii)the aggregate receipts from suchactivity or activities, during theprevious year, do not exceed 20% of thetotal receipts, of the trust orinstitution undertaking such activity oractivities, for the previous year. 18. In the instant case, the Assessing Officer had firstdisallowed the entire exemption and subsequently scaled itdown to Rs.14,94,886/- though reiterating that theRespondent/Trust had acted in violation of its own object setout in the Trust deed. If the Assessing Officer had objectionregarding the entire amount of donation, then her remandreport should not have accepted any of the donations withvalid reasons. 19. Moreover, Charity is clearly defined as relief of thepoor, education, yoga, medical relief, preservation ofenvironment, etc., Thus public charitable trust donating toactivities other than education cannot be denied exemptionu/s.11 of the Act. Therefore, the conclusion of the AssessingOfficer is totally unwarranted. 20. In view of the aforesaid submissions, we do not seeany reason to interfere with the order of the Commissioner ofIncome Tax (Appeals) and Income Tax Appellate Tribunal. Wereject the grounds of appeal taken by the Revenue. There is noiota of perversity in their orders. Therefore, all thesubstantial questions of law and additional substantialhttps://hcservices.ecourts.gov.in/hcservices/question of law are answered against the Appellant/Revenue. 21. In the result, the appeal is dismissed. There shallbe no order as to costs. Sd/- Assistant Registrar(CS III) //True Copy// Sub Assistant Registrar gv To 1. Director of Income Tax Exemptions, Chennai. 2. The Income Tax Appellate Tribunal, B Bench, Chennai 3. The Commissioner of Income Tax (Appeal)-XII, Chennai 4. The Income Tax Officer, OSD Exemption-III, Chennai +1CC to Mr.J.Narayanasamy, Sr.No.30686+1CC to Mr.J.Sreevidya, Sr.No.30683 Pre-delivery Judgment in Tax Case Appeal No.1059 of 2014 RSV (CO)K.RK. (20.07.2021)