TMI Blog2014 (7) TMI 222X X X X Extracts X X X X X X X X Extracts X X X X ..... spent on various other items amounting to ₹ 5 lacs. The assessee was a charitable institution and was carrying on activities for charitable purposes - at the relevant time, the assessee trust was required to utilize 75% of its funds for charitable purposes to take benefit u/s 11 and 12 of the Act - more than 75% of the total income during the AY had been applied for charitable purposes as per return - The amounts invested for the construction of immovable property had to be treated as application of income - The requirement of 75% was enhanced to 85% by Finance Act 2002 w.e.f 1.4.2003 - revenue was unable to dislodge the finding of facts recorded by the Tribunal. Relying upon Commissioner Of Income-Tax Versus Barkate Saifiyah Society [1993 (11) TMI 13 - GUJARAT High Court] - the AO was right in framing the assessment on 21.3.2000 and assumption of jurisdiction by CIT u/s 263 of the Act was improper – thus, the registration granted to the assessee u/s 12A of the Act was in accordance with law and the assessee had complied with the requirement of Sections 11 and 12 of the Act, as a necessary corollary, the action of the assessing authority in treating the assessee as an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities and expenditure claimed. It was also observed that the trustee Shri Shambhu Dayal Shastri alias Swami Sudershan Acharyaji, his wife Smt.Asharfi Devi and two sons were beneficiaries of the trust. They were taking food and residing in the trust premises. It was further noticed that the trust was running a bookshop in the premises and sale proceeds of these books were not recorded in the books of account of the Trust. No receipt of sale of books was issued. The CIT concluded that the order passed by the Assessing Officer granting exemption to the trust and adopting its Income at Rs. nil was erroneous and prejudicial to the interest of the revenue. The same was set aside with a direction to the Assessing Officer to pass a fresh order after taking into account the various observations made and findings given in the order. Vide order dated 27.3.2002, Annexure P.3, the Assessing Officer after examining the matter passed fresh assessment order and assessed the income of the assessee at ₹ 84,12,517/- in addition to levy of interest under Sections 234A, 234B and 234C and penalty under Section 271(1) (c) of the Act. The assessee went in appeal before the Tribunal against the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted that in case the income was applied for charitable purposes and there had been no violation under section 13(1) of the Act, the exemption had to be granted. Reliance was placed on judgments in Malayammal and others v. A.Malayalam Pillai and others, 1991 Supp. (2) SCC 579, CIT v. Social Service Centre, ((2001) 250 ITR 39 (AP), Hiralal Bhagwati v. CIT, (2000) 246 ITR 188 (Guj.) [affirmed in ACIT v. Surat City Gymkhana, (2008) 14 SCC 169 (SC)] and Raghunath Das Parihar Dharamshala vs. CIT, (1986) 158 ITR 432 (Raj.) in support of the submissions. Learned counsel further argued that the order under Section 263 of the Act was different from the reasons given in the notice sent to the assessee under the said provision. With regard to the submission whether the temple is a public trust, reliance was placed upon judgment in Ramchandra Shukla vs. Shree Mahadeoji, AIR 1970 SC 548 which was followed in Commissioner of Income Tax v. Barkate Saifiyah Society, (1995) 213 ITR 492 (Guj.). Learned counsel had referred to CM No.11042 CII of 2012 urging that the assessee-trust was carrying on charitable activities as it has since constructed the temple, is running Gaushalas, langar organized in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lescence or of persons requiring medical attention or rehabilitation. (e) To do any other act of medical relief for philanthropic purposes and not for the purposes of profit. (f) To provide food, clothing and/or shelter for the poor and/for needy persons and to give help to them either in cash or kind or otherwise. (g) To establish, maintain and/or grant aid to homes, orphanages or other establishments for relief of and to give help to the poor and destitute and physically handicapped persons, orphans and widows and otherwise provide for them. (h) To establish, maintain, construct and/or grant aid to guest houses and/or dharmasalas, ashrams for the use of the public. (i) To construct public roads, parks, gardens, well, tubewells, tanks and jalkshetra and/or maintain and/or grant aid for the construction/maintenance and/or repairs of the same for the use of general public. (j) To grant relief to the people affected by earthquake, flood, fire, famine, pestilence and other natural calamity of similar nature and to give donation, subscriptions or contributions to institutions, establishments or persons doing such relief works. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d asked for such a report to verify the assessee s claim under section 80G. (iii) Books for the previous year ending 31ST March 1997 relevant to AY 1997-98 had not been written till 18.5.1998 and these were produced for the first time on 13th July 1998 before the predecessor CIT who impounded the same. (iv) The AO had passed the order without examining the books of account and an order passed in a hurry and without making requisite enquiries was erroneous and prejudicial to the interests of revenue. (v) That the trustee Shri Shambhu Dayal Shastri and his wife Smt.Asharfi Devi who had been co-opted as a trustee by the husband were living in the trust premises, eating the food of the trust and even the other trustee Smt. Manjushree, who was the sole settler of the trust was living in the trust premises and eating food offered by the trust. (vi) That Shri Shmbhu Dayal Shastri alias Swami Sudershana Acharyaji set up a managing committee for the trust which included two of his sons who too were enjoying all the benefits of the trust. (vii) That the trust had purchased an air conditioned luxury car for the use of the Swamiji and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll these things and earning huge profits which were unaccounted. (xiv) That the trustees were residing in the trust property, eating food provided by the trust and enjoying the benefits of a chauffeur driven luxury car, which was a trust property and by this, there was clear violation of the provisions of section 13(1), which prohibited the use of trust property or income by the settler or any of the trustees directly or indirectly for their personal benefit. (xv) The trust deed revealed that the settler had created a public charitable trust for doing charity for the general public but through the passage of time, the trust had been converted by the trustee into a religious trust. (xvi) That facts on record pertaining to relevant assessment year revealed that there had been a violation of the provisions of the section 11(1) (b) since the receipts had been accumulated and nothing was spent on charity although substantial amounts had been spent in various assessment years on the construction of a temple, on langar expenses, vehicle maintenance, purchase of a luxury car etc. That nothing had been spent on relief of the poor, public charity or on ed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erlooked the fact that it was Smt.Manjushree Srivastawa who had settled on the trust a sum of ₹ 3000/- as the corpus and whereby the trust had come into existence. (viii) The trust had substantial contributions made to it by the members of the public for charitable purposes and if the Board of Trustees in their wisdom considered it appropriate to apply the trust funds either for constructing a building or acquiring a car, it could not be treated as a ground to deny exemption and to hold that there was no application of income for charitable purposes. (ix) There was no material available with the department more particularly the commissioner to hold that there had been a purchase of a luxury car for the use of specific persons and it was vehemently denied that the car purchased was not a luxury vehicle. (x) It had been completely overlooked by the Commissioner that a sum of ₹ 28 lakhs and odd had been spent on langar and which was definitely expenditure for charitable purposes. (xi) There was no material on record for the CIT to hold that any benefit had been derived by the persons specified in Section 13(2) of the IT Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts were quite adequate for completing the assessment. (xx) In a given case, rejection of the request for exemption under section 80G was not at all relevant for purposes of deciding whether the activities of a trust were charitable or otherwise. (xxi) As per the notice issued under section 263, purchase of a luxury car or the residence of the Swamiji being in the property belonging to the trust were not the points raised/indicated. It was a fact that the Swamiji was living in a separate property located at Sector 16A Faridabad. (xxii) There was no bookshop in existence during AY 1997-98 and observations of the CIT with reference to his informal visit to the premises at the end of 2002 would not be relevant since this was in his private capacity and in case the same had to be considered as official, then the assessee should have been confronted with relevant facts before recording the facts, which were adverse. Further,the aforesaid action on the part of the CIT reflected bias and prejudice towards the assessee. There was no evidence with the department for the allegation that the trustees were eating food belonging to the trust and furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration under sub section (3) of Section 12AA of the Act was conferred on CIT only from 1.10.2004 by Finance (No.2) Act, 2004. 13. The assessee had filed audit report alongwith the return. In response to statutory notices issued by the assessing authority, the assessee had furnished details/information from time to time as required. The Tribunal had after appreciating the respective submissions of learned counsel for the parties, concluded that the assessment was rightly framed under Section 143(3) of the Act on 21.3.2000. It had also been noticed that the donations received by the assessee had been applied for the purpose for which the trust had been created which included the construction of the building and other charitable purposes. The reason recorded by CIT in the notice issued under section 263 of the Act was that the books of account of the assessee were impounded on 13.7.1998 during the course of proceedings for grant of exemption under Section 80G of the Act and that the assessment was finalized without checking the books of account and making due enquiries. The Tribunal did not accept the aforesaid reason as the books impounded relating to the assessment year 1997-98 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and was carrying on activities for charitable purposes. At the relevant time, the assessee trust was required to utilize 75% of its funds for charitable purposes to take benefit under Sections 11 and 12 of the Act. The Tribunal has recorded that more than 75% of the total income during the assessment year had been applied for charitable purposes as per return. The amounts invested for the construction of immovable property had to be treated as application of income. The requirement of 75% was enhanced to 85% by Finance Act 2002 w.e.f 1.4.2003. Learned counsel for the revenue was unable to dislodge the finding of facts recorded by the Tribunal. 14. The contention of the learned counsel for the revenue that the assessee was constructing a temple and had utilized the funds for religious purposes only which did not constitute charitable purpose, is repelled in view of the judgment of the Apex Court in Ramchandra Shukla's case (supra), which was followed in Barkate Saifiyah Society's case (supra). 15. In Barkate Saifiyah Society's case (supra), while dealing with similar issue with regard to religion and charity, it was held that there was no line of demarcation bet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Purta. The former meant sacrifices, and sacrificial gifts and the latter meant charities. Among the Istha acts are Vedic sacrifices, gifts to the priests at the time of such sacrifices, preservations of vedas, religious austerity, rectitude, vaisvadev sacrifices and hospitality. Among the Purta acts are construction and maintenance of temples, tanks, wells, planting of groves, gifts of food, dharamshalas, places for drinking water, relief of the sick, and promotion of education and hearing. (cf. Pandit Prannath Saraswati's Hindu Law of Endowments, 1897, pages 26-27). Istha and Purta are in fact registered as the common duties of the twice born class. (cf. Pandit Saraswati, page 27). In view of the aforesaid discussions, it can be said that a trust can be either for religious purposes or for charitable purposes or it can be for both charitable and religious purposes. 16. The Apex Court in Malayammal's case (supra) had held that there was no distinction between religion and charity. It was recorded as under:- In Hindu system there is no line of demarcation between religion and charity. On the other hand, charity is regarded as a part of religion. B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocessions for the honour of deities and so on. Gifts for the promotion of education and knowledge are considered specially meritorious. This judgment was affirmed by the Apex Court in Surat City Gymkhana's case (supra). 18. A Division Bench of the Andhra Pradesh High Court in Social Service Centre's case (supra) had held that construction of a church was a purpose of general public utility. It was further noticed that expenditure on religious activities was also entitled to exemption. It was indicated as under:- We do not find that donation to a church or construction of a church is not a purpose which is not of general public utility. Therefore, the contention of the Department that the expenditure on religious activities could not be given exemption cannot be accepted particularly in the context of our polity. We are aware that most of the religious and charitable activities go together in this country. Secondly, if we look at Section 11 which is reproduced below it becomes clear that it is not necessary that an institution which is dealing in charitable and religious activities should get a notification issued for both the purposes because the w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the advance to the said firm at Rangoon was in effect realized and invested in a building for the purpose of starting a hospital. The trust had also earned during that assessment year other income amounting to ₹ 1,64,210.03.The assessee claimed exemption for the total income of ₹ 8 lakhs plus ₹ 1,64,210.03 under Section 11(1) of the Income-tax Act, 1961. The Income-tax Appellate Tribunal by a majority of 2:1 held that the sum of ₹ 8 lakhs was to be treated as income of the assessee for the purposes of Section 11. The Tribunal gave the benefit of section 11(1) to the assessee for the assessment year 1970-71 in respect of the entire income consisting of ₹ 8 lakhs plus ₹ 1,64,210.03. On a reference to the High Court, the High Court has held that the sum of ₹ 8 lakhs was an asset acquired in realization of an outstanding due and hence, the sum of ₹ 8 lakhs cannot be included in the income of the assessee for the purposes of section 11(1) ..xxx xxx xxx A mere look at sections 11(1) and 11(2) is sufficient to dispel this argument. Under Section 11(1), every charitable or religious trust, irrespective of whether it has filed a declaration ..... X X X X Extracts X X X X X X X X Extracts X X X X
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