Ita/246/2015 Of Norka Roots v. The Commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON THURSDAY, THE 7TH DAY OF DECEMBER 2017/16TH AGRAHAYANA, 1939 ITA.No. 246 of 2015 () ----------------------- AGAINST THE ORDER/JUDGMENT IN ITA 179/COCH/2014 ofI.T.A.TRIBUNAL,COCHIN BENCH DATED 06-03-2015 APPELLANT(S)/APPELLANT/APPLICANT : --------------------------------- NORKA ROOTS NORKA CENTRE, THYCAUD, THIRUVANANTHAPURAM-695 014. BY ADVS.SRI.P.BALAKRISHNAN (E) SRI.MOHAN PULIKKAL SRI.P.P.NARAYANAN SRI.K.S.MENON (K) RESPONDENT(S)/RESPONDENT : -------------------------- THE COMMISSIONER OF INCOME TAX THIRUVANANTHAPURAM. R1 BY ADV. SRI.CHRISTOPHER ABRAHAM, INCOME TAX DEPARTMENT R1 BY ADV. SRI.K.M.V.PANDALAI, INCOME TAX DEPARTMENT THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 07-12-2017, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA 246/15 APPENDIX PETITIONER'S EXHIBITS ANNEXURE-A :COPY OF ORDER DATED 7.3.2005 PASSED BY THECOMMISSIONER OF INCOME TAX. ANNEXURE-B :COPY OF ORDER DATED 5.5.2006 OF THE INCOME TAXAPPELLATE TRIBUNAL IN ITA NO.570/COCH/2005-06. ANNEXURE-C :COPY OF ORDER DATED 6.2.2007 OF THE COMMISSIONER OFINCOME TAX, TRIVANDRUM. ANNEXURE-D :COPY OF ORDER OF THE INCOME TAX APPELLATE TRIBUNALDATED 5.9.2008 IN ITA NO.253/COCH/07. ANNEXURE-E :COPY OF JUDGMENT DATED 19.3.2009 OF THIS COURT INITA NO.31/2009. ANNEXURE-F :COPY OF ORDER DATED 9.1.2014 OF the COMMISSIONER OFINCOME TAX, THIRUVANANTHAPURAM. ANNEXURE-G :COPY OF ORDER DATED 6.3.2015 OF the INCOME TAXAPPELLATE TRIBUNAL IN ITA NO.179/C/2014. ANNEXURE-H :COPY OF GOVERNMENT ORDERS IN RESPECT OF NORKA. ANNEXURE-I :COPY OF NOTE ON THE ACTIVITITES OF THE APPELLANTPRODUCED BEFORE THE COMMISSIONER AND THE TRIBUNAL. ANNEXURE-J :COPIES OF THE MEMORANDUM AND ARTICLES OFASSOCIATION OF THE APPELLANT. //TRUE COPY// jg-15/12 PS TO JUDGE. K.VINOD CHANDRAN & ASHOK MENON, JJ. ------------------------------------------- ITA No.246 of 2015 ------------------------------------------- Dated this the 7[th] day of December, 2017 J U D G M E N T Vinod Chandran, J. The appellant herein claims registration as a charitable institutionunder Section 12A of the Income Tax Act, 1961. This is the third roundof litigation, which arises from an order passed, on remand made by aDivision Bench of this Court as per Annexure-E judgment. Theapplication, declined the registration so claimed. 2.The learned Judges, at the earlier instance, found that theadvancement of any object of general public utility is included in thedefinition of ‘charitable purpose’ under Section 2(12) of the Act. Theobject of the appellant organization being promotion of interests of non-resident Keralites; prima facie, it was found that they are concernedwith the advancement of general public utility. However, the learnedJudges did not think it fit to direct registration. The learned Judgesdirected the Commissioner to verify the source of fund and its utilizationto determine whether the efforts of the appellant also were in line withits avowed objective. The appellant was established and had beenpurportedly carrying on its objects for some years, while the question ofregistration as a charitable institution was being considered by the statutory authorities. The Division Bench observed that thoughverification of accounts is an exercise, carried on every year in the courseof assessment after granting registration; it could even be verified inconsideration of the registration. The said exercise, carried out by theCommissioner before granting registration, would be necessarily forascertainment of the source of funds and its application. It wasspecifically observed that if under cover of promoting interests of Non-resident Keralites, the appellant is engaged in collection of charges fromthem and making profits, then certainly it is a profitable organization,no matter dividend is not declared by virtue of the registration grantedunder Section 25 of the Companies Act, 1956. Specific reference wasmade to unnecessary expenditure, if revealed, being clear evidence ofthe true purpose of the organization and its object not being compliedwith. The orders passed on remand by the first appellate authority andconfirmed by the Tribunal is challenged before us in appeal. 3.Learned Counsel for the appellant submits that theappellant had been constituted specifically for the purpose of aidingNon-Resident Keralites and had been intervening in their issues, toredress their grievances and provide succour, within the country andeven abroad. The appellant has also been carrying on schemessponsored by the State Government to aid and help those Non-Resident Keralites who have lost their jobs abroad and come back to the State.The learned Standing Counsel for the Department, however, wouldcontend that whatever schemes that have been implemented as ameasure of charity, have been done with the funds provided by the State.The appellant is engaged in certification processes and the like, forwhich huge amounts were charged from the Non-Residents; a pie ofwhich is not spent for any charity. It is also contended that the objectsof the appellant do not disclose that it is an agency constituted tochannel the funds of the Government. 4.The Commissioner while verifying the aspects as directed by the Division Bench of this Court had looked at the specific source offunds and expenditure of the appellant over the years from 2006-07 to2013-14. The Tribunal too has extracted the figures as found in theCommissioner’s order, which we do not intend to extract herein again.Suffice it to notice that though the receipts of income from certification,bank interest, project identify card and other income like photostat andcover sales exceeded to Rs.1,00,00,000/- for the financial year 2006-07and reached Rs.3,33,00,000/- in the year 2012-13, there is noexpenditure for charitable purpose made from such income generated.The entire charitable activities carried out by the appellant are out of thefunds given by the Government in two Schemes, termed Saantwanam and Kaarunyam. The statistics, as revealed from the order of theTribunal, shows that in the year 2006-07, 100% of the amounts fundedby the Government was spent. There was considerable reduction inpercentage of expenditure, even out of the Government funds, in thesubsequent years. Out of the funds granted by the Government, theexpenditure was actually between 28% to 60% in the various subsequentyears. It is also pertinent that in the year 2012-13, the total funds spentfor charitable purpose out of the funds granted by the Government cameto only 28.07% ie: an amount of Rs.1 crore 58 lakhs out of a totalgovernment funding of Rs.5 crore 64 lakhs. The administrativeexpenses for that year came to Rs.1,01,66,559/- which was 30.5% of thetotal income generated for that year. The programmes funded by theappellant itself came to a paltry amount of Rs.7.5 lakhs which was only22% of the generated income, the highest percentage in all the years.The own fund programmes from 2009-2010 to 2011-2012 rangedbetween 2 to 5% of the total income. 5.At the risk of repetition, it is to be reiterated that the moniesspent for charitable purposes as noticed by the Commissioner in all theaforesaid years, are mostly out of the funds of the Government. As hasbeen emphasised by the learned Standing Counsel for the Department,very little has been spent, out of the income derived over the years, for any charitable purpose. The administrative expenses ate up a goodpercentage and the rest ended up as profits. The learned Counsel for theappellant argued that in implementing the schemes of the Government,there, necessarily, will be administrative charges. But, it cannot beabove the amounts actually expended. We find that in all the years, theexpenditure has exceeded the amounts spent for charitable purposes. As per Section 12AA of the Income Tax Act, the Commissioner isempowered to call for documents or information from the assessee,which are necessary to satisfy the authority about the genuineness of theactivities of the institution. The Division Bench of this Court had alsodirected that such verification is to be done to ascertain whether actuallythe funds generated as income were expended for charitable purposes.It was incumbent upon the appellant to show that it had utilized itsincome, in advancement of the objectives as stated in the Memorandumof Association. The objectives of the Memorandum of Association havebeen extracted both in the order of the Commissioner and also of theTribunal. It does not in fact speak of a constitution, for the purposes ofmerely canalizing the funds made available by the Government. Thecharitable activities of the appellant was only in applying thegovernment funds; which too was not spent to the extent madeavailable. As noticed by the Tribunal and the Commissioner, the charitable activities carried out by the appellant, was only in so far asexpending the fund provided by the Government, that too, not to its fullextent. The appellant was found to have not applied any part of their netincome to the objectives stated in the Memorandum of Association.Thus, the appellant was also found to have not carried out any charitableactivity in the relevant years, from the income derived from variousactivities of facilitation of certification and other matters in respect ofthe Non-Resident Keralites. The Tribunal found that, thoughtechnically, the objects of the appellant comes within the ambit ofadvancement of an object of general public utility, as described inSection 2(15) as it existed prior to the assessment year 2009-2010, it hasnot carried out any such charitable activity. This Court does not find anyreason to interfere with the orders of the Tribunal or of theCommissioner of Income Tax. Therefore, the Income Tax Appeal standsrejected. The parties are directed to suffer their respective costs. K.VINOD CHANDRANJudge ASHOK MENON Judgejg/dkr xxx