Itta/613/2013 Of M/S. Kamma Sangham v. The Director Of Income Tax (Exemptions)

*THE HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTAANDTHE HON’BLE SRI JUSTICE SANJAY KUMAR + ITTA No.613 OF 2013% Dated 22-01-2014# M/s. Kamma Sangham, Hyderabad. AppellantVERSUS$ The Director of Income Tax (Exemptions), Hyderabad.Respondent! Counsel for Appellant : Sri C.P. Ramaswami^ Counsel for the respondent : None appeared<GIST: > HEAD NOTE:? Cases referred1.(1985) 156 ITR 3232.(1988) 170 ITR 623.(2003) 262 ITR 1944.(2000) 242 ITR 457 IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH ATHYDERABAD THE HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTISENGUPTA ANDTHE HON’BLE SRI JUSTICE SANJAY KUMAR I.T.T.A. No. 613 OF 2013 DATE: 22.01.2014 Between: M/s. Kamma Sangham,Hyderabad. … Appellant And The Director of Income-Tax (Exemptions),Hyderabad. … Respondent This Court made the following: THE HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTAANDTHE HON’BLE SRI JUSTICE SANJAY KUMAR I.T.T.A. No. 613 of 2014 JUDGMENT:(Per the Hon’ble The Chief Justice Sri Kalyan Jyoti Sengupta) This appeal is sought to be preferred and admitted against thejudgment and order dated 23.11.2011 of the learned Tribunal in relation tothe assessment year 2001-02 on the following suggested questions oflaw. “1. On the facts and in the circumstances of the case whether theTribunal was correct in law in perversely bolding that theinvestment made in immovable property was not for charitablepurpose despite the provisions of Section 11(5) of the Income TaxAct, 1961 treating such investment as application forcharitable purpose? 2. Whether the learned ITAT was correct in law in wronglyapplying Section 13(1)(bb) in the case of the appellant forassessment year 2001-02 despite the fact that Section 13(1)(bb) was omitted with effect from 01[st] April 1984 by theFinance Act, 1983 and the objects of the appellant trust havealready been approved to be charitable in nature? 2) In this matter, the learned Tribunal has refused to interfere withthe judgment and order of the Commissioner of Income Tax (Appeals) bywhich the Commissioner dismissed the appeal filed by the appellant by confirming the order of the Assessing Officer not allowing exemptionunder Section 11 of the Income Tax Act, 1961 (for short, “the Act”) to theassessee in respect of the income said to have been derived in courseof carrying on its business. 3) The brief facts of this case are as follows: 2) In this matter, the learned Tribunal has refused to interfere withthe judgment and order of the Commissioner of Income Tax (Appeals) bywhich the Commissioner dismissed the appeal filed by the appellant by confirming the order of the Assessing Officer not allowing exemptionunder Section 11 of the Income Tax Act, 1961 (for short, “the Act”) to theassessee in respect of the income said to have been derived in courseof carrying on its business. 3) The brief facts of this case are as follows: On earlier occasion, the Tribunal set aside the order of theCommissioner of Income Tax (Appeals) by order dated 28.11.2007 andrestored the matter back to the file of the Assessing Officer on theground that the Assessing Officer has not given any findings as towhether the money so accumulated or set apart had been deposited inthe form or modes specified in Section 11(5) of the Act. On remand, itwas submitted by the assessee that it had passed the resolution on13.06.1992 to the effect that at the end of each year, 75% of the incomeof the Sangham will be accumulated for the purpose of construction ofbuilding at its Ameerpet landed property. It was further submitted thatout of the net income of Rs.59,28,817/- of the year, Rs.44,46,614/-, being75% thereof, has been transferred to Building Fund Reserve Account. Itwas further stated that most of the donations have been collected for thespecific purpose of construction of building and the donors haveinstructed the management to use the funds only for the said purpose. Itwas also stated that though the funds were accounted for under the head“Donation”, legally those came under “Corpus fund” to be used only forbuilding construction. As such the assessee claimed before the lowerauthorities that donation of Rs.40,09,000/- should be treated as Corpusfund, not forming part of the income of the trust. It was further submittedthat though the excess of income over expenditure worked out toRs.59,28,807/- before transfer to building fund reserve, income for thepurpose of Section 11, capital gain is also to be considered asapplication of income. It was explained by the assessee that Form-10was not filled along with the return of income for the assessment year 2001-02 intentionally, as there was no surplus requiring statutorycompliance as provided under Section 11(2) of the Act. However, theassessee filed Form-10 along with letter dated 12.08.2009. However, theAssessing Officer has not accepted the explanation and refused to grantthe relief as prayed for. The Assessing Officer, on fact, noted that asper the statement of computation of total income, the total income was ofRs.82,02,415/-, whereas the application was of Rs.66,32,281/-. Out ofthe said application, Rs.3,60,388/- had been applied in building thecommittee hall, while Rs.41,61,881/- were applied in building thecommercial complex. So it was found by the Assessing Officer that theapplication of the aforesaid fund in construction of the building is not atall covered by any of its objects. The Commissioner of Income Tax(Appeals) also upheld the findings of the Assessing Officer. On fact, theCommissioner of Income Tax (Appeals) found that the aforesaidapplication of fund for construction of the building by the assessee is notthe charitable activity. This was also found by the learned Tribunal itself. 4) In the context of the aforesaid, the learned counsel for theappellant would argue that all the authorities should have taken a broaderview in the matter as this fund has been utilized for construction of thebuilding and the income therefrom would be utilized for fulfilling theobjects. As such, all the authorities should have allowed the exemption. He further argues that once registration under Section 12 of the Act isgranted, the authorities below do not have any option but to allow thebenefit under Section 11 of the Act. In support of his argument, he hasrelied upon the following decisions in Commissioner of Income Tax,Bangalore vs. J.H. Gotla[[1]],Commissioner of Income Tax vs. St.George Forana Churth[[2]],Commissioner of Income Tax vs.Hyderabad Race Club Charitable Trust[[3]]and Commissioner of Income Tax vs. Janmabhumi Press Trust[[4]]. 5) After going through the impugned judgment and order of thelearned Tribunal and considering the argument of the learned counsel forthe appellant, we think that the only issue in this matter is whether on thefacts and circumstances of the case the authorities below is justified inrefusing to grant the benefit under Section 11 of the Act. All theauthorities below, on fact, found that the funds received by way ofdonation have been utilized for construction of commercial building andnone of the clauses of the trust provides for construction of building forcharitable activities. However, it has been argued that this building itselfis being utilized as a source of income to augment the fund of the trustso much so to fulfill the charitable activities in a broader sense. It isalso argued that once exemption is granted, obviously the benefit underSection 11 of the Act has to to be applied. 6) Before we proceed further, we think it fit to reproduce the relevant portion of Section 11 of the Act. “11(1) Subject to the provisions of Sections 60 to 63, the followingincome shall not be included in the total income of the previous yearof the person in receipt of the income- (a)income derived from property held under trust whollyfor charitable or religious purposes, to the extent to whichsuch income is applied to such purposes in India; andwhere any such income is accumulated or set apart forapplication to such purposes in India to the extent to whichthe income so accumulated or set apart is not in excessof fifteen percent of the income from such property; (b)income derived from property held under trust in partonly for such purposes, the trust having been createdbefore the commencement of this Act, to the extent towhich such income is applied to such purposes in India;and where any such income is finally set apart forapplication to such purposes in India, to the extent towhich the income so set apart is not in excess of fifteenper cent of the income from such property; (c)income derived from property held under trust- (i)created on or after the 1[st] day of April, 1952,for a charitable purpose which tends topromote international welfare in which India isinterested, to the extent to which such incomeis applied to such purposes outside India, and (ii)for charitable or religious purposes, createdbefore the 1[st] day of April, 1952, to the extentto which such income is applied to suchpurposes outside India” Provided that the Board, by general or special order,has directed in either case that it shall not be includedin the total income of the person in receipt of suchincome; (d)income in the form of voluntary contributions made witha specific direction that they shall form part of the corpusof the trust or institution. Explanation – For the purposes of clauses (a) and (b) –(1)in computing the fifteen per cent of theincome which may be accumulated or setapart, any such voluntary contributions as arereferred to in Section 12 shall be deemed to bepart of the income; (ii)for charitable or religious purposes, createdbefore the 1[st] day of April, 1952, to the extentto which such income is applied to suchpurposes outside India” Provided that the Board, by general or special order,has directed in either case that it shall not be includedin the total income of the person in receipt of suchincome; (d)income in the form of voluntary contributions made witha specific direction that they shall form part of the corpusof the trust or institution. Explanation – For the purposes of clauses (a) and (b) –(1)in computing the fifteen per cent of theincome which may be accumulated or setapart, any such voluntary contributions as arereferred to in Section 12 shall be deemed to bepart of the income; (2)if, in the previous year, the income appliedto charitable or religious purposes in India fallsshort of eighty five per cent of the incomederived during that year from property heldunder trust, or, as the case may be, held undertrust in part, by any amount – (i)for the reason that the whole or any part ofthe income has not been received during thatyear, or (ii)for any other reason, then – (a)in the case referred to in sub-clause (i), somuch of the income applied to such purposesin India during the previous year in which theincome is received or during the previous yearimmediately following as does not exceed thesaid amount, and (b)in the case referred to in sub-clause (ii) somuch of the income applied to such purposes in India during the previous year immediatelyfollowing the previous year in which the incomewas derived as does not exceed the saidamount, may, at the option of the person in receipt of the income (suchoption to be exercised in writing before the expiry of the time allowedunder sub-section (1) of Section 139 for furnishing the return ofincome) be deemed to be income applied to such purposes duringthe previous year in which the income was derived; and the incomeso deemed to have been applied shall not be taken into account incalculating the amount of income applied to such purposes, in thecase referred to in sub-clause (i), during the previous year in whichthe income is received or during the previous year immediatelyfollowing, as the case may be, and, in the case referred to in sub-clause (ii) during the previous year immediately following theprevious year in which the income was derived.” 7) We find that in order to get the benefit under Sections 11 and 12of the Act, the conditions as mentioned in Section 12(A) of the Act haveto be fulfilled, meaning thereby, the trust has to get a registration asrequired. Section 12AA provides for procedure for registration. We areof the view that granting registration does not ipsidixit entitle theassessee to get the benefit under Section 11 or 12. According to us,registration initially recognizes the charitable activities of the trust. However, in order to get the benefit under Sections 11 and 12, factually ithas to be established that income derived from property held under trustwholly for charitable or religious purposes to the extent to which suchincome is applied to such purposes. If this factual aspect is notestablished, the registration does not help otherwise. All the authoritiesbelow have found that the application of the fund is not made forcharitable activity but for construction of the building, which again doesnot directly reflect the charitable activities. Even on the record, it doesnot appear that the assessee had intended to apply the future income,which might be derived from the building so constructed. In this context,what the learned Tribunal has noted on fact is required to be reiterated: “In assessee’s case major portion of the income of theassessee has been spent towards construction of a commercial “In assessee’s case major portion of the income of theassessee has been spent towards construction of a commercial complex. As seen from the object clause of the bye-lawsconstruction of commercial complex is not the object of theassessee. Its main object is to establish educational institutions,providing boarding and lodging to the students and working youth,rendering financial help to the deserving students, providingscholarships, to establish hospitals and libraries. Even thecommercial complex was not used for any of the objects for whichthe trust was created but had been used to let out to commercialorganizations to earn rent. The income generated through that alsonot fully used for the purpose of attainment of objects of theassessee. Subsequently, income generated by the assesseef wasregularly being ploughed back into income generating assets withoutapplying the same for charitable purposes.” 8) As far as the Corpus fund is concerned, the Tribunal has foundas follows: “The entire donation received in the assessment year underconsideration was in the nature of corpus donation. It has beenbrought on record by the lower authorities that all the 164 letters fromthe donors in this regard were stereotype letters in Telugu apparentlywritten by a single person. The said letters only stated that thedonations had been given as a token of assistance to the programmeof the assessee in general. There is no clear mentioning of anydesire for making the said donation towards corpus fund. There is nospecific direction in writing regarding that the donation has beenmade for the specific purpose of construction of commercialcomplex. In view of this, the donations so received are to beconsidered as normal donation and cannot be considered asdonations towards corpus fund.” 9) The decision of the Supreme Court for taking liberal view in a taxmatter in case of J.H. Gotla (1 supra), according to us, is not disputed,but on the aforesaid clear fact finding that it was not for the charitableactivities, it is difficult to follow the same in this case. 10) The decision of the Kerala High Court in case of St. GeorgeForana Church (2 supra) is not applicable on the facts andcircumstances of this case, as in that case it was found that theassessee has made addition to a building belonging to the church andthe addition to the building was made with the intention of letting them outfor rent and factually such intention was reflected in that case. Here, the authorities below did not find such intention. Hence, this decision is nothelpful in this case. 11) The decision of this Court in case of HyderabadRaceClubCharitable Trust (3 supra) rendered that the fund was applied for thecharitable activities. Here, all the authorities below, on fact, found that itwas not applied for charitable activities. Hence, this judgment is also nothelpful in this case. 12) The decision of the Karnataka High Court in case ofJanmabhumi Press Trust (4 supra) is not helpful in this case asfactually it was found that any investment made in the construction of abuilding which in turn would augment its income, such income would beapplied for the charitable activities. In this case, from the records suchan intention was not reflected and this was found by all the authoritiesbelow. 13) Therefore, we think that on the clear fact finding the learnedTribunal has passed just and correct order and we do not find any reasonto interfere with the same, as we do not notice any question of law,which is required to be decided. 14) Hence, we dismiss the appeal. ___________________ K.J. SENGUPTA, CJ ___________________ SANJAY KUMAR, J Date: 22.01.2014ES LR copies to be marked. [1] (1985) 156 ITR 323 (1985) 156 ITR 323 [2] (1988) 170 ITR 62 (1988) 170 ITR 62 [3] (2003) 262 ITR 194 (2003) 262 ITR 194 [4] (2000) 242 ITR 457 (2000) 242 ITR 457