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TMI Blog2012 (7) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... Sanskrit language and practicing ayurvedic system of medicines. However, with efflux of time, the main activity of the assessee has become predominantly of providing medical relief through allopathic system of medicines. Thus, while the object regarding spreading of Sanskrit has not been followed at all, the other object of providing medical relief through Ayurvedic system has been relegated to the background. This has lead to the violation of the terms of registration of the assessee-trust. Consequently, the registration granted to the assessee is no longer valid, therefore, the assessee is not entitled to exemption under sections 11 and 12 of the Act. 2.1 He has referred to the objects of the trust created through Will by Shri Kharaiti Ram on 08.01.1928. The Will bequeathed certain properties to the trust for carrying out two objects- (i) imparting education in and preaching Sanskrit according to Sanatan Dharma methods, and (ii) devising means for imparting education in and improving the Ayurvedic system of medicines and preaching the same. In order to attain object no. (ii), it is not prohibited to take help from the English or Unani or any other system of medicines and accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een that the main activity now is providing medical relief through allopathic system. The total receipts amount to about Rs. 18.98 crore out of which the receipts from Ayurvedic Research Institute amount only to about Rs. 55.41 lakh. Similarly, total expenditure amounts to about Rs. 27.97 crore, which is in the nature of application of income towards charitable objects, but the expenditure of the Ayurvedic Research Institute amounts only to about Rs. 53.31 lakh. The details of expenditure on Ayurvedic Research Institute in terms of staff expenditure, administrative expenditure, expenditure on charitable claims and purchase of ayurvedic medicines have been furnished. 2.6 It was submitted that the objects permit the taking of help of any other system of medicine in order to achieve object no. 2. It has been held that the reference of taking help from English, Unani or any other system of medicine is for imparting education in ayurvedic system of medicine. The trust has been authorized to open one or more ayurvedic hospitals, therefore, the claim that it is permitted to open an allopathic hospital is not correct. 2.7 It was further submitted that the trust can only open the hospital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the assessee-trust was constituted under the Will of late Shri Kharaiti Ram dated 08.01.1928. Our attention has been drawn towards the objects. These objects have already been described by us. It is the case of the ld. counsel that the assessee has been carrying out object no. 2, i.e., devising means for imparting education in and improving the ayurvedic system of medicine and preaching the same. In doing so, the trust is not prohibited from taking the help from English, Unani or any other system of medicines and according to need one or more than one ayurvedic hospital is permitted to be opened. Although the receipts and expenditure from providing relief through allopathic system of medicines far exceed the receipts and expenditure in providing medical relief through ayurvedic system of medicine, the former is in aid of the latter. Therefore, the trust has not exceeded the objects in the trust deed. 3.1 Our attention has been drawn towards the definition of the terms "charitable purpose", furnished in section 2(15), which includes medical relief. It is argued that providing medical relief through allopathic system of medicine is also a charitable purpose, therefore, the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvedic system of medicine. For attaining object no. (ii), the trust was permitted to take help of English, Unani or any other system of medicine. It also could open one or more ayurvedic hospitals. Initially, the object of providing medical relief through ayurvedic system of medicine was undertaken, and it constituted the major activity in assessment year 1973-74, as seen from the details furnished in paragraph no. 2.3 (supra). However, with the passage of time, medical relief through ayurvedic medicines and research was relegated to the background and the activities mainly constituted of providing medical relief through allopathic system of medicines. The details in respect of this year are mentioned in paragraph no. 2.5 (supra). The case of the ld. CIT, DR is that the assessee is not entitled to exemption under sections 11 and 12. On the other hand, it is the case of the ld. counsel that the assessee is entitled to the aforesaid exemption. 5.1 The first issue in this connection is as to whether the assessee has been following the objects narrated in the Will. The case of the ld. CIT, DR is that while help could have been taken from other systems of medicines, the prime object wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of M. Visvesvaraya Industrial Research & Development Centre (supra), a certificate of registration was granted on 08.02.1984. This remained in force. The AO made assessments up to assessment year 1988-89, in which deduction u/s 11 was granted, although exemption u/s 35(1)(ii) was withdrawn on 31.03.1981. The court held that the assessee had been granted certificate. However, the issuance of certificate does not prevent the assessing officer from considering in a particular year whether the assessee was entitled to deduction under sections 11 and 12. This point has not been looked into by the Tribunal. Therefore, the matter was remanded to the Tribunal. The ratio of the case is that notwithstanding grant of registration, the AO has to examine in each year whether deduction u/s 11 is admissible to the assessee. In the case of Cane Development Council (supra) also, it has been held that the question of deduction u/s 11(1) will have to be looked into at the time of assessment in the light of provision contained in section 2(15) read with its proviso. In the case of Red Rose School (supra), it was inter-alia held that the misuse of income derived by a charitable institution f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of Sakthi Charities (supra) was-whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee-trust as originally constituted could not be regarded as a charitable trust entitled to exemption u/s 11 of the Act? Briefly, the facts are that the trust was established on 25.06.1968 with a view to carry out various objects. The assessee applied for approval u/s 80G(5). The Commissioner objected to certain objects, as a consequence of which the trustees executed a rectification deed on 31.01.1969 removing the offending clauses in the objects. Thereafter, the AO granted exemption u/s 11 read with section 80G by an order passed on 04.03.1969. In a subsequent assessment, the AO took an objection that certain clauses which were omitted did not constitute charitable purpose and that subsequent rectification deed was not valid, therefore, he refused to grant the relief. The Hon'ble Court came to the conclusion that the trust deed, as it originally existed, had both charitable and non-charitable objects. The trust deed did not grant any authority to the trustees to alter the objects. The well-established law on the issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income is applied to such purpose in India.... The words "such purpose" can only mean the "charitable purpose". Therefore, even if it is assumed that the trustees have exceeded the authority granted to them under the Will and carried out the purpose of medical relief through allopathic system of medicine or set up an allopathic hospital, the assessee would still be entitled to deduction under this provision. 5.10 He referred to the decision in the case of Allahabad Agricultural Institute (supra), and submitted that the case dealt with stay of demand and, therefore, the observations of the court should be read in the light of the main issue before it. The decision of the court is that the assessee is required to show substantial prima facie case in its favour, which means that a prima facie error should have been shown in the assessment. He relied on the decision of Hon'ble Supreme Court in the case of S. RM. M. CT. M., Tiruppani Trust v. CIT [1998] 230 ITR 636/96 Taxman 635. The factual basis on which exemption u/s 11(1) was denied in this case was that before giving information for accumulation of income in form no. 10, the assessee utilized a sum of Rs. 8.00 lakh in the accounti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ima facie error in the finding of the AO. However, he has not been able to show any contrary observation or decision. Further, we do not see how the decision in the case of S. RM. M. CT. M. Tiruppani Trust (supra) helps the case of the assessee as no case was made out that setting up of the hospital was not one of the main objects. On the basis of the cases cited before us, it can be said that the income and expenditure in respect of medical relief through allopathic treatment are beyond the scope of the objects. Therefore, they will have to be segregated as they do not fall within the objects of the institution. We are aware that the decision in the case of Allahabad Agricultural Institute (supra) was decided on a different point, but the fact remains that the Hon'ble Court mentioned at length that the income applied to objects other than the permitted objects cannot be deducted as the basis of registration ceases to exist. Since we are relying on this judgment, it will be appropriate to reproduce the contents of placitum 10 on page 119 of the report, which reads as under:- "The argument is misconceived. The registration is granted by the Commissioner. It can be cancelled by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation, objects and genuineness of the activities. The provisions also ensure that financial discipline is maintained in respect of surplus money or accumulated income in terms of the pattern of investment. The genuineness of activities inherently involve the idea of pursuing the objects permitted by the instrument of formation and nothing more. The observations of the Hon'ble High Court in the case of Allahabad Agricultural Institute (supra) also support the view that mere registration would not entitled an institution to claim exemption u/s 11 if the basis of registration undergoes a change. Therefore, we find force in the argument of the ld. CIT (DR) that for claiming exemption u/s 11(1)(a) the assessee will have to adhere to the objects for which it was formed. Accordingly, it is held that since medical relief through allopathic treatment does not fall within the ambit of the objects mentioned in the Will, the income and expenditure from this activity will have to be treated separately. A consequence of this finding is that surplus from this activity cannot form subject matter of exemption u/s 11. 7. In regard to the applicability of principle of res-judicata, the ld. CIT, DR s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been drawn towards the decision in the case of Radhasoami Satsang v. CIT [1992] 193 ITR 321/60 Taxman 248 (SC). 8. We have considered the facts of the case and submissions made before us. In this case, the DIT(E) had sought to cancel registration from assessment year 2002-03. However, this action was set aside by the Tribunal on technical grounds that he did not have such power when the order was passed. This decision has been confirmed by the Hon'ble Delhi High Court. The conduct of the revenue itself shows that cognizance was taken of the fact that the trustees exceeded their authority under the Will. However, due to inadequacy in legal framework, the department had to ultimately assess income under Chapter III. The decision in the case of Allahabad Agricultural Institute (supra) shows that the AO could have made a departure from past even in earlier years. In the light of the aforesaid decision, grant of benefit u/s 11(1)(a) would be beyond the purview of law. In such a situation, the rule of consistency cannot prevail over the well entrenched principle of res-judicata. As discussed earlier by references to the decision in the case of Pragati Construction Co. (supra) and A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through allopathic system of medicine. The income and expenditure from these activities have to be segregated, which has to be taken as profit available for the purpose of pursuing the main object of Sanskrit and ayurvedic system of medicines. In the case of Escorts Ltd. (supra), it is mentioned that the petitioner's contention is that allowance under the two provisions are by nature unconnected with, and independent of, each other. However, the two deductions are of the same nature which enable the assessee to write off certain items of capital expenditure against his business profits. It is further mentioned that the mere fact that a baseless claim was raised by some over-enthusiastic assessees who sought a double allowance or that such claim may perhaps have been accepted by some authorities is not sufficient to attribute any ambiguity or doubt as to the true scope of the provisions as they stood earlier. On the basis of this finding, some pre-existing decisions were overruled. It is also mentioned that the Parliament never intended to provide for a double deduction which is supported by the opinion of Direct Tax Laws Committee (Popularly known as Choksi Committee). In the case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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