Ita/299/2011 Of Commissioner Of Income Tax-Ii, Jalandhar v. M/S Sadhu Singh Hamdard Trust, Jalandhar

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH ITA No.299 of 2011Date of decision: 16.11.2015 The Commissioner of Income Tax, Jalandhar I, Jalandhar .....- Appe M/s Sadhu Singh Hamdard Trust, Nehru Garden Road, Jalandhar. ....mesponden CORAM: HON’BLE MR. JUSTICE AJAY KUMAR MITTALHON’ BLE MR. JUSTICE RAMENDRA JAIN 1. Whether Reporters of local papers may be allowed to see the judgment?2. To be referred to the Reporters or not?3. Whether the judgment should be reported 1n the Digest? Present: Mr. Vivek Sethi, Advocate for the appellant-revenue. None for the respondent-assessee. Ajay Kumar Mittal,J, 1]This appeal has been preferred by the revenue under Section260A of the Income Tax Act, 1961 (in short, “‘the Act’) against the ordedated 13.6.2011, Annexure A.3 passed by the Income Tax AppellateTribunal, Amritsar Bench, Amritsar in ITA No.344(ASR)/2010 for theassessment year 2007-08 claiming following substantial question of law:- Whether, the Tribunal was right in law in allowing the benefitunder Section 11 of the Income Tax Act, 1961 without appreciating that the object of the trust was not within the ambitof section 2(15) and there was violation of section 11(4A) aswell as section 13(3) of the Income Tax Act, 1961?” ? A tew facts relevant for the decision of the controversy;involved as narrated in the appeal may be noticed. The assessee filed itsreturn of income for the assessment year 2007-08 declaring nil income afterclaiming exemption under Section I1 of the Act. The assessment wascompleted by the Assessing Officer under Section 143(3) of the Act on8.12.2009, Annexure A.| at a total income of<a2,8/,32,760/- claimed asdeduction under Section 11 of the Act by the assessee. Aggrieved by theorder, the assessee filed appeal before the Commissioner of Income Tax(Appeals) Jalandhar [CIT(A)]. Vide order dated 28.5.2010, Annexure A.2,the CIT(A) allowed the appeal. The department went in appeal before theTribunal. Vide order dated 13.6.2011, Annexure A.3, the Tribunal dismissedthe appeal holding that the assessee 1s entitled to exemption under Section11 of the Act, relying upon its own order in the assessee's case for theassessments years 1993-94 to 1995-96 in ITA No.184 to 186 (ASR)/2001. 3]We have heard learned counsel for the appellant-revenue.4 A perusal of the order passed by the Tribunal dated 13.6.201shows that on identical issue, the Tribunal by relying upon its own order inthe assessee's case for the assessment years 1993-94 to 1995-96 in ITA Nos.184 to 186 (ASR)/2001 has decided the matter in favour of the assesseeagainst which ITA Nos.75 to 77 of 2004 had been filed 1n this Court. Videorder dated 26.7.2012, these appeals were disposed of with the followingobservations:- 2). Adverting to second issue, we may examine the relevant provisions of the Act which are material.Section 11(1)(a)ot theAct excludes income derived from property held under trust forcharitable purposes from the computation of taxable income.Section 11(1)(a)of the Act provides that the income derivedfrom the property held in trust wholly for charitable or religiouspurpose will be exempt to the extent it 1s applied to suchpurposes. The provision at the relevant time reads thus:- "11 (1). Subject to the provisions of|sections 60To63, thefollowing income shall not be included 1n the total incomeof the previous year of the person 1n receipt of the income- (a) income derived from property held under trust whollyfor charitable or religious purposes, to the extent to whichsuch income 1s applied to such purposes in India; and,where any such income is accumulated or set apart froapplication to such purposes 1n India, to the extent to whichthe income so accumulated or set apart is not 1n excess oftwenty five per cent of the income from such property." 26. The Hon'ble Apex Court dealing with the case of a Trustwhether it was covered by the definition of charitable purpose,in Thanthi Trust's case (supra) analyzed the provisions ofSection 11(1)(a) of the Act as under:- "11 (1). Subject to the provisions of|sections 60To63, thefollowing income shall not be included 1n the total incomeof the previous year of the person 1n receipt of the income- (a) income derived from property held under trust whollyfor charitable or religious purposes, to the extent to whichsuch income 1s applied to such purposes in India; and,where any such income is accumulated or set apart froapplication to such purposes 1n India, to the extent to whichthe income so accumulated or set apart is not 1n excess oftwenty five per cent of the income from such property." 26. The Hon'ble Apex Court dealing with the case of a Trustwhether it was covered by the definition of charitable purpose,in Thanthi Trust's case (supra) analyzed the provisions ofSection 11(1)(a) of the Act as under:- "23. Sub-section (1)(a) ofSection 11says that incomederived from property held under trust only for charitable orreligious purposes, to the extent it 1s used in the mannerindicated therein, shall not be included in the total incomeof the previous year of the trust. Sub-section (4) defines thewords property held under trust for the purposes ofSection11to include a business held under trust. Sub-section(4A)restricts the benefit underSection |]so that it 1s notavailable for income derived from business unless (a) the business is carried on by a trust only for publicreligious purposes and it 1s of printing and publishing booksor any other notified kind or (b) it 1s carried on by an institution wholly for charitable purposes and the work inconnection with the business 1s mainly carried on by thebeneficiaries of the institution, provided, in both cases, thatseparate books of account are maintained by the trust or theinstitution in respect of such business. Trusts andinstitutions are separately dealt with in the Act (Section ||itself and Sections |25SVAIand13, tor example). Theexpressions refer to entities differently constituted. It 1s thusclear that the newspaper business that is carried on by theTrust does not fall within sub-section (4A). The Trust 1s notonly for public religious purposes so it does not fall withinclause (a). It 1s a trust not an institution, so it does not fallwithin clause (b). It must, therefore, be held that for theassessment years 1n question the Trust was not entitled tothe exemption contained inSection 11in respect of theincome of its newspaper. 27. Sub-section (4) ofSection |1oft the Act defines the words"Property held under Trust" for the purposes of that section toinclude a business held under trust. Sub-section (4) ofSection1]1s 1n the following terms:- "11(4). For the purposes of this section "property held undertrust" includes a business undertaking so held, and where aclaim 1s made that the income of any such undertaking shallnot be included in the total income of the persons 1n receiptthereof, the Assessing Officer shall have power to determinethe income of such undertaking in accordance with theprovisions of this Act relating to assessment; and where anywncome so determined 1s in excess of the income as shownin the accounts of the undertaking, such excess shall bedeemed to be applied to purposes other than charitable orcrt w religious purp DSSection 11(4A)of the Act was introduced into the Act witheffect from Ist April, 1984.Section 11(4A)was substituted with effect from Ist April, 1992 as under:- "(4A). Sub-section (1) or sub-section (2) or sub- section (3)or sub-section (3A) shall not apply in relation to any incomeof a trust or an institution, being profits and gains ofbusiness, unless the business in incidental to the attainmentof the objectives of the trust or, as the case may be,institution, and separate books of account are maintained bysuch trust or institution 1n respect of such business." 29. It was interpreted by the Hon'ble Apex Court in theaforesaid judgment as under:- DSSection 11(4A)of the Act was introduced into the Act witheffect from Ist April, 1984.Section 11(4A)was substituted with effect from Ist April, 1992 as under:- "(4A). Sub-section (1) or sub-section (2) or sub- section (3)or sub-section (3A) shall not apply in relation to any incomeof a trust or an institution, being profits and gains ofbusiness, unless the business in incidental to the attainmentof the objectives of the trust or, as the case may be,institution, and separate books of account are maintained bysuch trust or institution 1n respect of such business." 29. It was interpreted by the Hon'ble Apex Court in theaforesaid judgment as under:- "The substituted sub-section(4A) states that the incomederived from a business held under trust wholly forcharitable or religious purposes shall not be included in thetotal income of the previous year of the trust or institution 1fthe business 1s incidental to the attainment of the objectiveof the trust or, as the case may be, institution and separatebooks of account are maintained in respect of such business.Clearly, the scope of sub-section (4A) 1s more beneficial to atrust or institution than was the scope of sub- section (4A) asoriginally enacted. In fact, 1t seems to us that the substitutedsub-section (4A) gives a trust or institution a greater benefitthan was given bySection 13(1)(bb). If the object ofParliament was to give trusts and institutions no morebenefit than that given bySection 13(1)(bb), the language ofSection 13(1)(bb)would have been employed in thesubstituted sub-section (4A). As it stands, all that it requiresfor the business income of a trust or institution to be exemptis that the business should be incidental to the attainment ofthe objectives of the trust or institution. A business whoseincome is utilized by the trust or the institution for thepurposes of achieving the objectives of the trust or theinstitution 1s, surely, a business which 1s incidental to theattainment of the objectives of the trust. In any event, ifthere be any ambiguity in the language employed, the provision must be construed in a manner that benefits theassessee. The Trust, therefore, is entitled to the benefit ofSection |1for the Assessment Year 1992-93 and thereafter.It 1s, we should add, not in dispute that the income of itsnewspaper business has been employed to achieve itsobjectives of education and relief to the poor and that it hasmaintained separate books of account in respect thereof, 30. Under|Section 11(1)(a)of the Act, the income derived fromproperty held under trust only for charitable or religiouspurpose is exempt to the extent of its utilization for thatpurpose. However, wherever there 1s accumulation or settingaside for application to such purposes 1n India, the accumulationor setting apart is not to be in excess of twenty five per cent ofthe income from such property. However, this has been reducedto fifteen per cent by Finance Act, 2002 with effect from1.4.2003. According toSection 11(4A)of the Act, an exemptionis permissible where the activities are incidental to theattainment of the objectives of the trust and separate books ofaccount are maintained by the trust or the institution in respectof such business. The Tribunal recorded that the only activity ofthe assessee was running newspaper to attain the main object ofpromoting Punjab, Punjabi and Punjabiat and the conditions ofSection 11(4A), thus, automatically stood satisfied. However,the CIT(A) had recorded that there was net income ofRs.22,99,905/- from publication of newspaper and there wasnothing to show that this amount had been utilized forcharitable purpose for claiming exemption underSection |1ofthe Act. The Tribunal while allowing the appeal of the assesseehad not adverted to this aspect with reference to any material onrecord| 31. Now, we would delve into the objection relating to non-compliance of provisions ofSection 13(1)(c)read with Section13(3) of the Act. It would be expedient to reproduce therelevant portion of the aforesaid provisions, which reads thus:- 31. Now, we would delve into the objection relating to non-compliance of provisions ofSection 13(1)(c)read with Section13(3) of the Act. It would be expedient to reproduce therelevant portion of the aforesaid provisions, which reads thus:- "13(1) Nothing contained 1nsection 11OT|section 12shalloperate so as to exclude from the total income of the previousyear of the person in receipt thereotf (a) XX XX XX (b) XX XX XX (c) in the case ofa trust for charitable or religious purposes ora charitable or religious institution, any income thereot- (1) If such trust or institution has been created or establishedafter the commencement of this Act and under the terms ofthe trust or the rules governing the institution, any part ofsuch income enures, or (11) 1f any part of such income or any property of the trust ofthe institution (whenever created or published) is during theprevious year used or applied, directly or indirectly for thebenefit of any person referred to 1n sub-section (3). xX xX xX xX x XI (3) The persons referred to 1n clause (c) of sub- section (1)and sub-section (2) are the following, namely:- (a) the author of the trust or the founder of the institution; (b) any person who has made a substantial contribution to thetrust or institution that 1s to say, any person whose totalcontribution upto the end of the relevant previous yearexceeds twenty five thousand rupees; (c) where such author, founder or person is a Hindu undividedfamily, a member of the family; (cc) any trustee of the trust or manager by whatever namecalled of the institution; (d) any relative of any such author, founder, person, member,trustee or manager as aforesaid; (e) any concern in which of the persons referred to in clauses (a), (b), (c), (cc) and (d) has a substantial interest. xX xX xX xX xX xX xx" 32. According to these provisions, wherever, any part of incomeor any property of the trust or the institution 1s apphed directlyor indirectly for the benefit of any person referred to in sub-section (3) ofSection 13, the provisions ofSection 11shall notOperate granting benefit of exemption to the trust. TheAssessing Officer had recorded that certain payments weremade to Bibi Parkash Kaur (trustee), S. Barjinder Singh and also to Smt. Sadjit Kaur wife of S.Barjinder Singh which were made to persons as defined inSection 13(3)ot the Act and as such were inadmissible. Thesefindings were affirmed by the CIT(A) on appeal. However, theTribunal had reversed these findings primarily on the groundthat there 1s no finding that these were excessive. However, theTribunal while reversing these findings had not recorded anydefinite and clear finding relating to violation of the provisionsof|Section 13(3)of the Act. The matter, thus, requires to beremanded to the Tribunal to re-adjudicate the claim of theassessee for exemption of income underSection 11of the Actwith reference to provisions ofSection 13(3)of the Act in thelight of the observations made hereinbefore. 33. The substantial questions of law are answered accordingly.In view of the above, the case 1s remanded to the Tribunal to re-adjudicate the issue relating to exemption claimed underSection |Iwith reference to provisions of|Section 11(1)(a)ot theAct and also to examine the question of admissibility ofdeduction in respect of payments made to certain persons interms oT|Section 13(1)(c)read with.Section 13(3)oft the Act. 34. The appeals are disposed of in the above terms.” 4]In view of the above, the appeal is disposed of in the sameterms as in ITA Nos.75 to 77 of 2004 decided on 26.7.2012 (reported as[(2013) 263 CTR (P&H) 61]. (Ajay Kumar Mittal)Judge November 16, 2015;1 ; (Ramendra Jain)Judge