Wp/18065/2004 Of The Tax Bar Welfare Association v. The Director Of Income Tax (Exemptions)

THE HON'BLE SRI JUSTICE DILIP B.BHOSALEANDTHE HON’BLE SRI JUSTICE A.RAMALINGESWARA RAO WRIT PETITION No.18065 of 2004 O R D E R:(per Hon'ble Sri Justice Dilip B.Bhosale) This writ petition under Article 226 of the Constitution of Indiatakes an exception to the order dated 27.07.2004 passed by theDirector of Income Tax (Exemptions), Hyderabad, whereby anapplication filed by the petitioner-Association seeking renewal ofapproval under Section 80G(5)(vi) of the Income Tax Act, 1961 (for short ‘I.T. Act’) read with Rule 11AA(5) of the Income Tax Rules,1962 (for short ‘the Rules’) had been rejected. Petitioners are the Bar Association, registered under theSocieties Registration Act, 1860, of the lawyers practicing on thetaxation side. They had obtained an exemption under Section 80G of I.T. Act in respect of donations received by them duringthe period from 01.04.1999 to 31.03.2003. The order under Section80G was issued by the Commissioner of Income Tax on 26.09.2000. After expiry of the period for which the exemption was granted, thepetitioner-Association filed an application in Form No.10G on 19.02.2004 for its renewal/continuation. Thatapplication had been rejected by the impugned order dated 27.07.2004 passed by the Director of Income Tax (Exemptions). Before we proceed further, it would be advantageous to re-produce the relevant observations made in the impugned order,which read thus: “..... Thus, neither any charitable activities are substantiated tohave been undertaken nor they are borne out by the accountsof the applicant. The culmination of applicant’s endeavour in thebenefit to the public in general is not perceptible. On the contrary,benefit to the professional interest of the group of individuals,constituting the association in as much as substantial funds couldbe mobilised for construction of a building is most prominent andexclusive. The association had a distinct advantage in the mobilisation of these funds since all its members were taxpractitioners and tax consultant by profession. This advantage isclearly discernible from the fact that during the accounting year2001-02, the entire corpus donations amounting to Rs.4,71,177/-during the year 2001-02 and Rs.8,500/- during the year 2002-03were collected from outsiders and not even a single rupee wasdonated by any member of the association. The associationappears to have obtained and used the approval u/s.80G(5) onlyto mobilize substantial funds for construction of a building ofits own and no charity to public in general was either intendedor really undertaken.The income of the association in the formof membership fee, annual subscriptions, bank interest, etc.was utilised only to meet the expenses of advertisement,electricity, printing & stationery, salaries to staff, and travellingcharges. For the accounting year 2002-03, an amount ofRs.27,478.10 was also incurred on account of ‘functions &celebrations’, the particulars of which were never made availablethrough specifically and repeatedly requisitioned. The nature ofthese expenses as apparent from the caption does not denote anyapplication for charitable objects. 6. The applicant contended that its Memorandum ofAssociation included certain objects which were charitable in naturein as much as these objects were of general public utility andaccordingly sought to strengthen its entitlement for continuance ofapproval u/s.80G(5)(vi). The contention of the applicant is however,misplaced. Enumeration of certain objects, which could bevalidly interpreted to constitute general public utility, may bemore appropriate and relevant in the matter of grant ofregistration u/s.12A, whereas for grant of continuance ofapproval u/s.80G(5) (vi), the test does not always lie in theMemorandum of Association. Continuance of approval in termsof the provisions of section 80G(5) (vi), on the basis of grant ofregistration u/s.12A as charitable institution, were to operateindefinitely entirely on the basis of objects originally enumerated inthe memorandum, the legislation would not have provided forperiodical renewals of such approval and that too, only after anappraisal of the activities. In the instant case, an appraisal of theaffairs of the applicant reveals that all its efforts were aimed atmobilising substantial funds for construction of building whichwent to the sole benefit of the fluctuating body of individualswho have common professional interests, whereas theselection of community claimed to have benefited by itsactivities has not even been sufficiently and identifiably defined”by any common quality of a public or impersonal nature. (emphasis supplied) It appears that the petitioner-Association during the accountingyears ending on 31.03.2001 and 31.03.2002 had undertakenconstruction of building for their Association. By the end of year 2002-03, land and building under construction were shown cumulatively ofRs.13,77,390/- out of which construction of building was accounted forRs.10,37,150/-. It has come on record that during the accountingyears, ending on 31.03.2001, 31.03.2002 and 31.03.2003, theexpenses debited to Income & Expenditure Accounts were in thenature of fixed overheads, such as travelling charges, electricitycharges, miscellaneous expenses, printing and stationery, salaries tostaff, travelling charges, etc. Similarly, the Director of Income-Tax(Exemptions) has quoted certain incidents of mis-utilisation of corpusfund such as dinner expenses at Citizen Club, extraordinary generalmeetings expenses at Hotel Ratna and some other expenses whichcould not be linked to construction of building. All these expenditurewas made from the corpus fund. Though the petitioner-Association was given ample opportunityto adduce necessary evidence to substantiate that the activities, asclaimed by them, were really undertaken and to identify from itsaccounts that the funds were utilised for those activities, no suchmaterials/evidence was produced on record. As a matter of fact, theauthorized representative of the Bar Association urged before theDirector of Income Tax that the expenses in connection with suchactivities were incurred separately by the members individually andwere not incorporated in its accounts. While dealing with thiscontention/claim, the Director of Income-Tax has observed that theAssociation as an entity carried out certain activities, which were laterattributed to individuals. Similarly, though counsel for the petitioner-Association, after inviting our attention to the Aims and Objects of theAssociation, submitted that the entire corpus fund of the Associationwas utilized to pursue charitable activities, he could not point out fromthe record any material in support of his contention. Even before this Court, the petitioner-Association could not and did not furnish anyparticulars in support of its contention. The petitioner-Association hasneither substantiated their claim that the charitable activities wereundertaken during the relevant period nor did it borne out from theaccounts submitted by them before the Director of Income Tax. Court, the petitioner-Association could not and did not furnish anyparticulars in support of its contention. The petitioner-Association hasneither substantiated their claim that the charitable activities wereundertaken during the relevant period nor did it borne out from theaccounts submitted by them before the Director of Income Tax. From perusal of sub-rule (5) of Rule 11AA of Income Tax Rules,it is clear that where the Commissioner is satisfied that one or more ofthe conditions laid down in clauses (i) to (v) of sub-section (5) of section 80G are not fulfilled, he is empowered toreject the application for approval, after recording the reasons for suchrejection in writing. Apart from the fact that the reasons aresatisfactory, they seem to have been recorded after granting anopportunity of being heard to the petitioner-Association. From theadmitted facts it is apparent that the conditions laid down in clauses (i)to (v) of sub-section (5) of Section 80G were not fulfilled.We do not find any error of law or jurisdiction having beencommitted by the Director of Income Tax (Exemptions) in passing theimpugned order. Hence, the Writ Petition is dismissed. In view of the peculiarfacts and circumstances of the case, there shall be no order as tocosts. Miscellaneous petitions pending in the writ petition, if any, alsostand disposed of. __________________ Dilip B.Bhosale, J ________________________ A.Ramalingeswara Rao, J