TMI Blog2008 (7) TMI 621X X X X Extracts X X X X X X X X Extracts X X X X ..... , more particularly the educational institutions, the members of the other community are also admitted. The assessee is also giving support to the poor - In the same way, in the case of another assessee, it is not the case of the AO that the activities of the assessee are not otherwise than religious and charitable activities. It is interpreted that as per the words used in section 11(1)( a ) of the Act, for any institution or trust it must have either wholly charitable or wholly religious activities. The entire controversy is revolving around the interpretation of section 11(1)( a ) of the Act. In both these appeals, it is not the case of the Department either that any of the bars provided u/s 13 of the Act are applicable to both these assessees as per the interpretation given by the AO as well by the CIT(A). As per the provisions of section 11(1)(a) of the Act, it requires that there should be nexus between the property held under the trust wholly for charitable or religious purposes and the income under consideration. The interpretation given by the AO as well as by the CIT(A) is that the purpose should be wholly charitable or wholly religious. We are afraid, whether such int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 12A, it will not be wrong to say that proceedings contemplated u/s 12A of the Act are in the nature of quasi-judicial proceedings and CIT has to decide whether the applicant trust or institution are eligible to get the benefits of section 11 or 12 and for deciding the eligibility CIT has to examine the byelaws and objects of the trust. In our opinion, even u/s 12A, granting registration was not merely empty formality and our view is supported by the decision of the Hon ble High Court in Hiralal Bhagwati v. CIT [ 2000 (4) TMI 14 - GUJARAT HIGH COURT] , which is approved by the Hon ble Supreme Court in CIT v. Surat City Gymkhana[ 2008 (4) TMI 16 - SUPREME COURT] . Therefore, we are of the opinion that both these assessees are eligible to claim the exemption u/s 11 of the Act. We therefore cancel the order of the CIT(A) and direct the AO to give benefits of section 11 to both these assessees by treating their income as exempt. In the result, both the appeals of the assessees are allowed. - R.S. PADVEKAR AND N. BHARATHVAJA SANKAR, JJ. Dr. K.B. Mohammed Kutty and P. Balachandran for the Appellant. G. Vijayan Nair for the Respondent. ORDER R. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered under the Societies Registration Act, 1860, as a Charitable Society. The assessee s case was selected for scrutiny and assessment was completed under section 143(3) of the Act. As per return of income filed by the Society, the assessee has declared total loss of Rs. 19,68,531. On perusal of the assessment order, it is seen that Assessing Officer made lot of enquiries by issuing the summons under section 131 of the Income-tax Act. The Assessing Officer also examined the Secretary of the Society, namely, Shri Mohammed M. by issuing summons under section 131 of the Act. The Assessing Officer also examined the byelaws of the Society. The Assessing Officer also examined the Memorandum of Association and he came to the conclusion that assessee trust is engaged in both religious and charitable activities and, therefore, the activity of the assessee is partly religious and partly charitable and thereby assessee is not eligible for claiming the exemption of its income under section 11(1)( a ) of the Income-tax Act, 1961. The relevant observations of the Assessing Officer for denying the benefit of section 11(1) of the Act to the assessee are found on Page No. 5 of the assessment order, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act and determined the taxable total income at Rs. 28,83,349. Assessee challenged the action of the Assessing Officer before the CIT(A). 5. The CIT(A) put his stamp of approval on the stand taken by the Assessing Officer. The CIT(A) was of the opinion that in view of the language used by the Legislature in section 11(1)( a ) of the Act, and as the assessee is engaged partly in religious activities and partly in charitable activities, the benefit of exemption cannot be availed by the assessee under section 11(1)( a ) of the Act. The learned CIT(A) has referred to the plethora of decisions, including the rules of interpretation. The reasons given by the CIT(A) are mainly contained in Paragraphs 19 to 24 of his order, which read as under: "19.However, the logic of the Assessing Officer is found from another perspective, also leaving aside the various decisions cited. The Assessing Officer has taken a stand far ahead of the issues considered in any of the decisions cited by highlighting the disjunctive usage of the word OR in section 11(1)( a ). In addition, he went on to point out that if any other interpretation were to be given for the word OR then it would lead to rend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s there is no reason why the word OR should be interpreted to mean anything other than what is obvious, keeping in view the decisions cited in the Cape Brandy Syndicate case et al. 23.An alternate reasoning of the Assessing Officer as is clear from the order is that if the word OR were to be read as AND as appearing in section 11(1)( a ) then it would render the following section i.e., section 11(1)( b ) as infructuous. It is seen that section 11(1)( b ) provides for exemption of income of a trust which is either partly charitable or partly religious provided it was created before 1-4-1962. This section would not have been , necessary if as the appellant claims the word OR should have been read as AND with a conjunctive meaning as appearing in section 11(1)( a ) with the result that partly charitable trust and partly religious trust would have their income exempted under section 11(1)( a ) itself, making the provisions of section 11(1)( b ) unnecessary. It is accepted law that a literal consideration that leads to absurdity, injust result or mischief is to be avoided. Construction which renders a provision constitutional is to be preferred - K. P. Varghese v. ITO Ek ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the public is a charitable purpose. Even assuming that the maintenance of a prayer hall is a religious activity, it is still a charitable purpose because it is comprehensive to include religious activity also. 7.The exemption under section 11 is granted to a Trust which is for charitable or religious purposes i.e., a Trust within the meaning of section 11(1)( a ) can be either a" Charitable Trust or a Religious Trust or a Trust having both Charitable as well as Religious activity. This is clear from the language and wordings of the section. 8.The authorities below failed to note that the religious or Charitable Trust is entitled for exemption so long as no part of the income can be utilised for purposes which is neither Charitable nor religious. 9.The authorities erred in not following the decisions cited by the appellant and in following certain other decisions which are distinguishable on facts. 10.The officers below failed to note that the appellant had been granted exemption for the previous years under section 11(1)( a ) of the Income-tax Act. Both the appellant and the department had allowed the position to be sustained by not challenging the orders for all those ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to its Memorandum of Association. The Markazu Ssaquafathi Ssunniya is another society which is a Religious charitable society following the same principles per the Memorandum of Association. The fact that Samastha Kerala Sunni Yuvajana Samgham is a religious and charitable society is undisputable. This is registered under the Societies Registration Act, vide No. 20/70. The first aim mentioned in the Memorandum of Association of "Markazu Ssaquafathi Ssunniya" is that "to perform the administration in pursuance to the principles and alms of Samastha Kerala Sunni Yuvajana Samgham State Committee and to look after and protect all the institutions acting under the Samgham". The Markazu Ssaquafathi Ssunniya is another independent registered under the Societies Registration Act vide Registration Number 124/82, dated 31-5-1982. The society is also registered under section 12A of the Income-tax Act, 1961, vide No. M-1/87-88, dated 28-6-1988. The Samastha Kerala Sunni Yuvajana Samgham is also registered under section 12A of the Income-tax Act, 1961. Both the institutions are having independent existence for the purpose of Income-tax Act, 1961. Rule V of Clause ( c ) of objects of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dum of association of Samastha Kerala Sunni Yuvajana Samgham. On verification of documents viz. Income and expenditure Account, Balance Sheet and Memorandum of Association, etc. filed I am convinced that the Society is doing partly religious and partly charitable activities. It is also observed that the society is actively engaged in Religious activities besides the charitable activities mentioned in the Rules and Regulations. On perusal of the final accounts submitted it is seen that the society has spent an amount of Rs. 99,401 for the Ground Construction for constructing a mosque in their premises and has undertaken the extension work of mosque building spending Rs. 65,601 which are in consonance with the objects of the trust. Besides the above the society has spent an amount of Rs. 44,288.20 towards the expenses of Madrassa. The assessee has acquired the following assets which is used exclusively for religious purpose i.e., Hifful Quaran College Building, Masjid Urine Block Building. The assessee has undertaken the construction of Korangad Secondary Madrassa Building during the previous year relevant to the assessment year which is a religious institution. It is also found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ultural Society (ITA No. 729/Coch./2006) argued that assessee is a society registered under the Societies Registration Act, 1860 and also under section 12A of the Income-tax Act, 1961. The Income-tax Registration was granted as early as 28-10-1977. It is primarily and dominantly created for charitable purposes and it runs the institutions, viz., Orphanage, school for the blind and the deaf, Higher Secondary School for the handicapped, home for mentally retarded children, Lower Primary School, Industrial Training Centre, residential Higher Secondary School, etc. The beneficiaries of the said institutions are from all sections of society irrespective of community, caste or sex. The income is derived from the property of the trust as well as from voluntary contributions received by the trust and such income is fully utilised for charitable purposes in India. 11.1 The learned counsel argued that the assessee had been filing its return since inception claiming exemption under section 11(1)( a ) of the Act and the claim had been accepted by the Department up to the assessment year 2002-03, having found that the claim is valid in the eye of law. However, for the assessment year 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r exemption of its income under section 11(1)( a ) of the Act. The learned counsel further argued that no court or other judicial authorities had taken such a view so far and the decision relied on by the assessing authority was distinguishable and totally misinterpreted and wrongly applied to the assessee s case. 11.2 The learned counsel further argued that the mosque maintained by the assessee trust was open to public and people of other religions or community are not forbidden. The amount spent on maintenance of the mosque is very small. The maintenance is only an incidental and ancillary function and does not in any way adversely affect the dominant or main function involving major and multiple charitable activities prescribed in the objects of the trust. The trust is created to advance the cause of charity to the general public, as such, exemption claimed ought to have been allowed. The definition of Charitable purpose in section 2( 15 ) of the Act is not exhaustive but only inclusive. The inclusive definition of the phrase charitable purpose covers a wider field and includes advancement of any other object of general public utility. The Mosque is a prayer hall for g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As such, assessee is entitled for exemption under section 11(1)( a ) of the Act, being partly charitable and partly religious institution. It was argued that section 11(1)( a ) used the words income derived from the property held under trust wholly for charitable or religious purposes . . . . The word purposes is plural which connotes the intention of the Legislature to include mixed trusts for charitable as well as religious purposes and the same word is used for application of income. He relied on the decision of Hon ble Andhra Pradesh High Court in the case of CIT v. Social Service Center [2001] 250 ITR 39, wherein their Lordships held that once an exemption is granted for charitable activities, the religious activities are also included. Their Lordships placed reliance on the ratio laid down by the Hon ble Supreme Court that if the primary or dominant purpose of an institution was charitable any other object which by itself might not be charitable but was merely ancillary or incidental to the primary or dominant purpose would not prevent the trust or institution from being a valid charity. Similar view was expressed by the Hon ble Gujarat High Court in the case of Addl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le object of the trust was to propagate a particular religion whose agricultural income is not for the benefit of general public. The Hon ble Supreme Court found that most of the income was spent for several purposes outside the State of Kerala, whereas for claiming exemption under the Kerala Agricultural Income-tax Act, 1950, exemption was confined to the extent to which such income was applied for such purposes in the State of Kerala. The Hon ble Supreme Court held that the dominant purpose of the trust was propagation of Jain religion, and to serve its follower and hence exemption was denied. The learned counsel submitted that since in the instant case the assessee was not a private religious trust and the income is used for charitable purposes, the aforesaid decision is not applicable on the facts of the present case. Moreover section 13(1)( b ) was not invoked by the Assessing Officer in the present case. The learned counsel further argued that the two other decisions of the Hon ble Supreme Court relied by the Hon ble Jammu Kashmir High Court in the case of East India Industries (Madras) (P.) Ltd. v. CIT [1967] 65 ITR 611 (SC) and Yogiraj Charity Trust v. CIT [1976] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n was granted by the officers of quasi-judicial authority after due verification, the exemption cannot be withdrawn. For the above proposition, learned counsel relied on the decisions of Hon ble Supreme Court in the case of Bharat Sanchar Nigam Ltd. v. Union of India [2006] 152 Taxman 135 and Radhasoami Satsang v. CIT [1992] 1 SCC 659 and the decision of the Hon ble Delhi High Court in the case of Addl. CIT v. Hamdard Dawakhana (Wakf) [1986] 157 ITR 639 . The finding of the CIT(A) that the Assessing Officer has applied reasoning different from earlier years will not justify taking a different approach in the matter. A mere change in opinion cannot be a reason for denying the exemption. 11.7 The learned counsel argued that without prejudice to the contention that the entire income of the assessee trust is exempt from tax, if at all any disallowance is called for, such disallowance can be restricted to that part of income which is found used for alleged non-charitable purposes only. There is no law, logic or reason to disallow the claim on purely charitable application of the trust fund. The other provisions of the Income-tax Act where section 11 has been referred, v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aintenance of mosques etc. 12.1 The learned counsel further argued that while completing the assessment for the year under consideration, the claim of the assessee for exemption was rejected by the Assessing Officer only on the ground that the objects for which the society was formed include both charitable and religious purposes. The Assessing Officer followed the findings of the Income-tax Officer Ward-I(2), Kozhikode in the case of Samastha Kerala Sunni Yuvajana Sangam (another assessee) where also it was found that the society was doing public charitable and religious activities. The learned counsel submitted that the Assessing Officer, on a perusal of the Rules and Regulations and the accounts, found that the assessee has utilised amounts for charitable and religious activities in consonance with the objects of the trust. It was specifically found by him that "the assessee has utilised 85 per cent of the income towards the objects of the society and the balance 15 per cent is accumulated as per the final accounts submitted". The learned counsel referred to the assessment order and submitted that the observations of the Assessing Officer that the assessee is doing charitabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cent of the income is applied of the charitable purposes and 40 per cent for the benefit of the family, it was held that the business was property held in trust partly for charitable purposes within the meaning of these provisions. For the above proposition, the learned counsel relied on the decision of the Hon ble Supreme Court in the case of CIT v. P. Krishna Warriar [1964] 53 ITR 176 . The learned counsel submitted that the word or should be read as a conjunction introducing two alternatives. It has to be understood that the word or is used to give option to carry out either charitable or religious or both. In Maxwell on interpretation of the statutes, it is observed that in ordinary usage and is conjunctive and or is disjunctive but to carry out the intention of the Legislature it may be necessary to read and in place of the word or vice versa. 12.5 The learned counsel further argued that to correctly understand the meaning of the phrase "wholly religious or charitable", we have to take the support of some of the sections in the Income-tax Act, in which the identical phraseology is used by the Legislature. It is submitted that in section 10(23C)( v ), sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to the CIT for registration under section 12A of the Act and the CIT after satisfying himself about the genuineness of the activities of the Trust and the objects of the Trust granted registration under section 12AA of the Act. Moreover, from the beginning of the assessment year 1988-89 till 2002-03, the assessee was granted exemption under section 11 of the Act. The Department had accepted the position in all these years and without any further information or evidence the officer cannot withdraw such an exemption. Though the principle of res judicata does not apply to income-tax matters, where the fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging that order it would not be at all appropriate to allow the position to be changed in a subsequent year unless there was any material change justifying the revenue to take different view of the matter. 12.8 The learned counsel therefore, prayed that the orders of the Assessing Officer as well as the CIT(A) may be set aside to the extent of denying exemption under section 11 of the Act to the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for these activities is whether small percentage of the total expenses is totally irrelevant; as objects of assessee are partly religious and partly charitable and that is bar for claiming exemption. 13.2 The learned DR submitted that the claim of the assessee that the decision of the Hon ble J K High Court in the case of Ghulam Mohidin Trust ( supra ) is not applicable to the facts of the instant case is misplaced. The word OR in section 11(1)( a ) is to be read as AND . On interpreting so, a trust having mixed objectives of charitable and religious nature will not be eligible for exemption. The society had been granted exemption for all the earlier years, and the same cannot be denied now is not correction as the Assessing Officer has power to examine objects while doing assessment. The learned DR submitted that various decisions of the High Courts/Supreme Court, relied by the assessee in the case of A.A. Bibijiwala Trust ( supra ); Barkate Saifiyah Society s case ( supra ), Ahmedabad Rana Caste Association s case ( supra ); Andhra Chamber of Commerce s case ( supra ), H.H. Sir Shahaji The Chhatrapati Maharajasaheb of Kolhapur s case ( supra ), etc. for the propo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income-tax Act, to claim that trust with mixed objectives of charitable and religious nature are eligible for exemption under section 11 of the Act. He submitted, this Circular does not state or clarify that trusts with mixed objective of charitable and religious nature are exempt under section 11 of the Act. 13.6 The learned DR also submitted that the assessee contends that Explanation 3 to section 80G specifically excludes religious purposes from the sphere of charitable purposes for the purposes of section 80G and hence, it is to be concluded that charitable purpose includes religious purposes for the purpose of section 11(1)( a ) of the Act is not correct interpretation of the term "charitable". Section 80G is for the benefit of the donors and not for the trust. Section 80G does not make any distinction of trusts created before and after the commencement of the Act. The Trusts applying for exemption under section 80G include trust created before 1-4-1962 also which may be having religious objectives along with charitable objectives. It is to clarify that such trust will not be eligible for exemption under section 80G i.e., trusts created with mixed objectives even i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he details given in the assessment order, assessee has spent the amount on construction of the Mosque and that is exclusively religious activity and if there is a mixed object of charity and religion, then no benefit of the exemption can be claimed. The learned DR submitted that he is relying on all the decisions and judgments in this case also, which are relied while arguing the earlier appeal. 14.1 In short, the summary of the argument of the learned DR for justifying the orders of the Assessing Officer as well as CIT(A), in ITA No. 729/Coch./2006 is as under : 1.The society has religious objectives along with charitable one. 2.The Executive Committee of the society has powers to utilize funds for such objectives. 3.The society had utilized money for the construction and maintenance of the Mosque, and that is only religious purpose. 4.The assessee has claimed before the Assessing Officer that the society is for the benefit of the Muslims only. 5.The society had utilized its funds for religious activities which are not charitable activities. 6.The society has mixed objectives of charitable and religious nature. 7.Hon ble High Court of J K has held that trust wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd regulations of the assessee-society. As per the object of the assessee-trust it is to establish, develop and manage Madrassa, Mosque, Pallidarz, Arabic College, Centre for the orphans and destitute, Job training Institute, Schools, Hospitals, Nurseries, etc. If the assessee is engaged into partly charitable and partly religious activities, then in view of the decision of the Hon ble Jammu Kashmir High Court in the case of Ghulam Mohidin Trust ( supra ), assessee cannot claim the exemption under section 11(1)( a ) of the Act. 18. In short, it is not the case of the Assessing Officer or the CIT(A) that both the assessees are either not fully or partly engaged in the non-religious or the non-charitable activities. In fact, from the assessment order, we find that the Assessing Officer has undisputedly accepted the fact that, more particularly in the case of Calicut Islamic Cultural Society ( supra ), the assessee is not constituted only for the benefits of the backward community alone but for the benefit of the entire public as such. Moreover, in the institutions run by the assessee, more particularly the educational institutions, the members of the other community are al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce and life , to the intention of Legislature. A Judge should ask himself the question how, if the makers of the Act had themselves come across this ruck in the texture of it, they would have straightened it out. He must then do so as they would have done. A Judge must not alter the material of which the Act is woven but he can and should iron out the creases". (unquote) 21. The above observations are quoted in N.S. Bindra s Interpretation of Statutes (Ninth Edition, Page No. 15). In short, the English language cannot be treated as instrument of mathematic precision. Now the question is can it be said that it is the intention of the Legislature as per the language used in clause ( a ) to section 11(1) of the Act that save the provisions of sections 60 to 63 of the Act for claiming the income exempt which is derived from the property held under the trust which must wholly for the charitable or wholly religious purposes. If the institution or trust are engaged into the mixed object which are partly religious and partly charitable or as per the case of the Assessing Officer as well as the CIT(A) the institution or trust is having the mixed activities of charity as well as religion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nother aspect to be considered here in both these cases is that both these assessees have been granted Registration under section 12A of the Act. The argument of the learned DR is that prior to insertion of section 12AA of the Act, no much more investigation was done by the CIT and it was just an empty formality to grant Registration in the old section 12A of the Act. We are unable to accept the said argument for the reason that in section 12A of the Act also the application of the mind by the CIT was involved. During the course of argument it was brought to our notice that though the exemption is refused to both the assessees, Registration granted under section 12A stand as it is. 23. In our opinion, once the Registration is granted to the assessee by the CIT, Assessing Officer cannot go into probing the objects and the purposes of the trust or institution and that is within the exclusive domain and jurisdiction of the CIT. What Assessing Officer can do that he can at the most investigate the matter within the four corners of section 13 of the Act. In this case the Assessing Officer has gone with investigating and probing the basic objects of the trust by entering into shoes o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entsia, was hit by the provisions contained in clauses ( a ) and ( b ) of sub-section (1) of section 13 ?" 25.2 The facts of the said case can be stated as under : The assessee claimed the exemption of its entire income under section 11 of the Act. Assessing Officer rejected the claim of the assessee on the ground that the trust was not charitable trust and it was hit by the provision contained in section 13(1)( b ) of the Act. The reason for rejection of the assessee s claim was that income was not applied for charitable purposes but only for construction of building for commercial purposes, which was not one of the objects of the trust. The Appellate Assistant Commissioner (AAC) held that trust was partly charitable and partly religious. When the matter reached before the Tribunal, after examining clauses 13 and 14 of the Instrument of Trust, Tribunal held that the trust was partly charitable and partly religious and there was no apportionment of income between the two objects of the trust and it was left to the exclusive discretion of the trustee to spend whatever they like on any objects and hence the assessee was not entitled to claim exemption under section 11 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l-settled that if there are several objects of the trust, some of which are charitable and some non-charitable, and the trustees in their discretion are to apply the income to any of the objects, the whole trust would fail and no part of its income would be exempt from tax. The reason is that in such a case no definite part of the property or its income is allocated for charitable purposes and it would be open to the trustees to apply its income to any of the non-charitable objects or religious purposes. In the instant case, the trustees are at liberty to apply the whole of the income for the promotion of Muslim theology among the Muslim intelligentsia." 26. In our opinion, both the authorities have misinterpreted the judgment in the case of Ghulam Mohidin Trust ( supra ). In that case - it was held that as per the objects of the trust it was partly charitable and partly religious but as far as the present these two cases are concerned, nowhere it is the case of the Assessing Officer that in both these cases the objects of the assessee are partly non-charitable or partly non-religious. Further, in that case there was no proper apportionment of the income between the two objec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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