Ita/59/2007 Of The Commissioner Of Income-Tax v. Sree P.subramoniam Religious Trust

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE HARUN-UL-RASHID TUESDAY, THE 16TH DECEMBER 2008 / 25TH AGRAHAYANA 1930 ITA.No. 59 of 2007() -------------------- ITA.262/COCH/2000 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT/RESPONDENT ----------------------------------------- THE COMMISSIONER OF INCOME-TAX, THIRUVANANTHAPURAM. BY ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT(S): APPELLANT ------------------------- SHREE P.SUBRAMONIAM RELIGIOUS TRUST, NEW THEATRE BUILDING, THIRUVANANTHAPURAM. ADV. SRI.T.M.SREEDHARAN FOR R1 SRI.V.P.NARAYANAN FOR R1 THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ALONG WITH ITA NO.125/2008 ON 16/12/2008, THE COURT ON 16/12/2008 DELIVERED THE FOLLOWING: C.N.RAMACHANDRAN NAIR &HARUN-UL-RASHID, JJ. .................................................................... I.T. Appeal Nos.59 of 2007 &125 of 2008 .................................................................... Dated this the 16th day of December, 2008. JUDGMENT Ramachandran Nair, J. The common question raised in the two appeals filed by theDepartment for the assessment years 1993-94 and 1994-95 is whetherthe Tribunal was justified in granting exemption on the expenditureincurred by the assessee by way of advance made to a cement trader forpurchase of cement for construction purposes for the trust. We haveheard Standing Counsel appearing for the appellant and counselappearing for the assessee. 2. Assessee is a charitable institution which enjoys registration under Section 12A of the Income Tax Act. During the assessmentyears 1993-94 and 1994-95, assessee claims to have spent an amount ofRs.1,50,000/- and Rs.1 lakh respectively towards charitable purposes as contemplated under Section 11(1)(a) of the Act. However, on enquiry,the officer noticed that these amounts were just advanced to a cement trader for purchase of cement for construction of a pilgrim centre atSabarimala. According to the assessee, construction requirespermission and approval from concerned authorities and therefore,advance for purchase of cement is in the form of application of fundsfor charitable purpose. On the other hand departmental representativereferred to the findings of the Assessing Officer and of the firstappellate authority and contended that even at the time of hearing theappeal in 2000, the assessee could not adduce any evidence forconcrete steps taken for construction of pilgrim centre. We find fromthe order of the C.I.T.(Appeals) that even during 2000, the assessee didnot have any evidence of actual utilistation of funds advanced to thecement trader for charitable purpose. Eligibility for exemption underSection 11(1) is on the actual application of funds for charitablepurposes. If any part of it is to be allowed as a deduction over theexpenditure, it has to be carried forward strictly in accordance with theprocedure contemplated under Section 11(2) of the Act. The assesseehas no case that the amount advanced to cement trader is set apart forfuture use in terms of the provisions of the Act. On the other hand, assessee's case is that the advance paid for purchase of cement shouldbe treated as actual application of funds for religious purposes. assessee's case is that the advance paid for purchase of cement shouldbe treated as actual application of funds for religious purposes. 3. We are unable to uphold the order of the Tribunal becauseTribunal allowed the claim just based on an affidavit filed by thetrustee that the funds advanced will be utilised for the purchase ofcement later. There is nothing wrong in advancing funds for purchaseof cement, if the cement is to be utilised for construction purpose forthe trust. However, in this case except payment made to a trader, thereis nothing to indicate as to the terms or the time for purchase of cement.The trader has no doubt confirmed receipt of advance for supply ofcement. However, there is nothing to indicate that any approval orpermission is granted or is expected within a reasonable time forconstruction to justify the advance made to the trader. We are of theview that this advance is only siphoning off funds of the trust and thereis no immediate requirement of cement as no concrete proposal wasthere for construction of pilgrim centre. Even at the time of hearingappeals by the C.I.T.(Appeals) which is after 5-6 years of expiry of theassessment year, the assessee has no case that the funds advanced were in fact utilised for the purpose for which it was advanced. At themaximum it is in the form of an investment or deposit which does notqualify for deduction under Section 13(1)(d) of the Act. We,therefore, allow the appeals reversing the orders of the Tribunal andrestoring the assessment confirmed by the Commissioner's (Appeals)order. C.N.RAMACHANDRAN NAIRJudge pms HARUN-UL-RASHIDJudge