Contact us   Feedback   Subscription   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2015 (9) TMI 915 - DELHI HIGH COURT

2015 (9) TMI 915 - DELHI HIGH COURT - [2015] 379 ITR 393 (Del) - Withdrawal of exemption granted under Section 10(23C)(iv) w.e.f. AY 2004-05 - status of Hamdard Laboratories questioned - whether the nature of objects/activities of HNF, as well as the third set of trusts (i.e. Jamia Hamdard University, HES, AIUTC, BEB) has a bearing on the classification of Hamdard’s objects? - Held that:- Hamdard had been carrying out its since charitable activities through HNF since the latter was set up, and H .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

uilding HNF’s corpus as opposed to being applied for charitable purposes and the extent of actual charity carried out by HNF is not significant. However, in this Court’s opinion, Hamdard rightly contends that the DGIT(E) erroneously drew a distinction between corpus and non-corpus donations made by it to HNF. The resolutions of Hamdard placed on record clearly mandate that the interest income generated from corpus donations was to be utilized for charitable purposes.

Revenue argument .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

el and Lodging [2008 (5) TMI 17 - SUPREME COURT OF INDIA], the Court held that merely because an educational institution is generating surplus does not imply that it ceases to enjoy the benefit of exemption under Section 10(23C)(iii-ad) of the Act.

This Court finds that the DGIT(E) misconstrued the nature of Hamdard’s activities, inasmuch as it held them to be in the nature of business. This Court has already held above that Hamdard’s objects are charitable in nature, and its activiti .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

in accordance with its Trust Deed. It is baffling that the DGIT(E), on one hand, justified the ruling in Hakim Abdul Hamid (supra) on the ground that the reserve fund was to be utilized for Hamdard’s business whereas on the other hand, withdrew the exemption under Section 10(23C)(iv) of the Act for the reason that Hamdard was applying and accumulating its income for business purposes. The DGIT(E) fell into error in reasoning that in light of the deletion of clauses in the Trust Deed – which obl .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

mstances, it is incomphrenesible that the DGIT(E) would construe Hamdard’s application or accumulation of funds towards its activities, which constitute a part of its objects, as a violation of any of the statutory conditions imposed under Section 10 or Section 11 or those imposed by the order dated 28.12.2007. Hamdard has rightly placed reliance on this Court’s decision in DIT v. Eternal Science of Man’s Society, (2006 (3) TMI 114 - DELHI High Court) where the Court allowed acquisition of movea .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

hat provision mandates that income accumulated in excess of 15% of the total income should be utilized within five years of the period of accumulation. It does not bar all forms of accumulation. The DGIT(E) has nowhere concluded that Hamdard accumulated in excess of 15% of the income, much less concluding that any amount in excess of 15% accumulated by Hamdard was not utilised within a period of five years of its accumulation. Further, Revenue’s contention that Hamdard had admitted a certain amo .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ates that the Revenue had alleged violation of third proviso to Section 10(23C) of the Act. However, there was no finding on the same. Further, the written submissions filed by Hamdard, including the submissions dated 21.05.2013 relied upon by the Revenue, also do not deal with such allegation. Given these facts, this Court does not have any basis to accept the Revenue’s contention that this issue was the subject matter of hearing before the DGIT(E). Therefore, the Revenue’s submission that Hamd .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ng in PHD Chamber of Commerce & Industry (2012 (11) TMI 429 - DELHI HIGH COURT ) also supports this conclusion. In that case, the Court held that the services performed by a trade, professional or similar association, such as a chamber of commerce and industry, could not be held to be in pursuit of a business or trade with a profit motive and would not qualify as a business activity. Thus, Section 11(4A) of the Act would be inapplicable to such associations and they are not required to maintain .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

to be falling within the residual category of ‘charitable purpose’ with the result of attracting the applicability of the first proviso, it would not cease to be a charitable organisation with effect from 01.04.2009. The interpretation of first proviso put forward by the DGIT(E) would exclude all entities advancing an object of general public utility from the definition of ‘charitable purpose’ if such entities carry on any activity of trade, commerce or business, irrespective of the nature of ap .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

se is charitable in nature, and it is not guided by the motive of profit-making. Therefore, the first proviso to Section 2(15) does not alter the charitable status of the organisation - Decided in favour of assessee.

Reopening of assessment - Held that:- In the order dated 25.05.2012, besides a general reference to Hamdard’s alleged failure to disclose all material facts, there is no reference to the particular facts which have not been disclosed. In such circumstances, this Court hol .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

2 passed by the ADIT(E) are hereby quashed.- Decided in favour of assessee.

The orders dated 10.07.2013 passed by the CIT(A) for AYs 2006-07 to 2009-10 denying exemption to Hamdard under Section 11 of the Act are quashed - Decided in favour of assessee. - W.P.(C) 3599/2012 & C.M. NO.7569/2012, W.P.(C) 5715/2013, W.P.(C) 5716/2013, W.P.(C) 5718/2013, W.P.(C) 5729/2013, W.P.(C) 5711/2013 & C.M. NO.12626/2013 - Dated:- 18-9-2015 - MR. S. RAVINDRA BHAT AND MR. R.K. GAUBA, JJ. For The Peti .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ome Tax (Exemptions) ( DGIT(E) ) - Respondent in W.P.(C) 5711 of 2013 - by order dated 21.08.2013 retrospectively withdrew the exemption granted to Hamdard under Section 10(23C)(iv) of the Act with effect from assessment year (AY) 2004-05. 2. In W.P.(C) 5711 of 2013, Hamdard has impugned the said order of the DGIT(E). In W.P.(C) 3599 of 2012, Hamdard challenges reopening of its assessment for AY (assessment year) 2005-06, and impugns the notice of reopening dated 27.03.2012 issued under Section .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ncome Tax (Appeals) ( CIT(A) ) for AYs 2006-07, 2007-08, 2008-09 and 2009-2010, holding that Hamdard was not entitled to the benefit of exemption under Section 11 of the Act. Since the focal point of the dispute involves the withdrawal of Hamdard s exemption under Section 10(23C)(iv) of the Act, the Court would first discuss the facts in W.P.(C) 5711 of 2013 before proceeding to discuss the facts of the other writ petitions. The Income-tax department has hereinafter been referred to as Revenue , .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

mi Income (charity) and Khandani Income (family income). However, the concept of family income was abolished by a declaration of the Settlor/ Founder-Wakif Mutawalli dated 10.10.1985, with retrospective effect from 01.01.1973. The principal objects of Hamdard, as set out in the Deed dated 28.08.1948 are as under:- 44. The Qaumi Income of the Wakf, shall be spent only within the territories of the Union of India and only on objects of public charity, which satisfy the following two cumulative tes .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

eds of the country or to such needs as may benefit the largest number of persons or their generations. 45. Priority may be given to the following: (1) To establish and run an Institute for the promotion of medical education and research with emphasis on indigenous systems of medicine. (2) To establish and successfully conduct a Tibbia College in conformity with the recognised standards. (3) To establish and run charitable hospitals and clinics where poor patients are given free treatment. 46. Qa .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s, needy widows or helpless persons, needy authors and research scholars and victims of unforeseen calamities without restriction of caste, colour or creed. 4. Following its objectives, Hamdard claims that it is involved in various secular, charitable, nation building activities and humanitarian objectives; and it is not guided by factors relating to caste, creed or religion. It asserts that it is a pioneer in the development and growth of the Unani system of medicine. Hamdard has set up around .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e activities, Hamdard created a special purpose vehicle, a registered society for philanthropic purposes, i.e Hamdard National Foundation (HNF) on 12.05.1964. HNF s objects and functions are as follows: The objects for which the Society is established are as follows:- 1. To receive, control and supervise proper utilisation of the income of the Foundation received from Hamdard Dawakhana (Wakf), Delhi, as Qaumi Income and from any other body, person or concern, Indian and foreign, in any form as a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

lief of the poor, education, medical relief and the advancement of any other object of general public utility not involving the carrying on of any activity for profit; and (b) they must be consistent with the principles of the true teachings of Islam. Provided, however, that in spending the income on objects of public charity, priority shall be given to the collective, needs of the country or to such needs as may benefit the largest number of persons or their future generations. 3. To collaborat .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

spent on the following:- (a) To establish and run education institutions, and/or to aid those which are already in existence. (b) To build schools, laboratories, libraries, or such other buildings of a public nature as may benefit the largest number of people in the country. (c) To publish books, pictures, maps or literature or to add in publications of the same by the publication of which the objects of the wakf are fulfilled or achieved. 3. Help may also be given to needy orphans, needy widows .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

AY 1984-85. For renewal of the said exemption for AY 2004-2005, Hamdard submitted its application in the prescribed form. The Revenue sought clarifications from Hamdard and upon an examination of the objects, activities and financial records, renewed the exemption under Section 10(23C)(iv) of the Act on 28.12.2007, with effect from AY 2004-2005, subject to certain conditions stipulated in the order dated 28.12.2007. 7. On 14.01.2009, the DGIT(E) issued a show cause notice to Hamdard, for 03.02.2 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Act, stating that conditions (a) and (c) imposed in the exemption order dated 28.12.2007 had been violated. 8. Rejecting the submissions made by Hamdard, on 22.02.2012, the DGIT(E) passed an order withdrawing the exemption granted to Hamdard under Section 10(23C)(iv) of the Act. Relying on this order, on 19.04.2012, the Assessing Officer ( AO ) raised a demand of ₹ 112 crores against Hamdard for AYs 2006-2007 to 2009-2010 and re-opened the assessment proceedings for the AY 2005-2006. Hamda .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

exemption under the said provision and withdrew it with effect from AY 2004-05. W.P.(C) 3599 of 2012 9. In the course of assessment proceedings for AY 2005-2006, the Revenue raised several queries in its questionnaire dated 17.01.2007 regarding the objects and activities of Hamdard. Hamdard answered those queries vide letters dated 01.02.2007, 20.02.2007 and 12.03.2007. On 21.03.2007, an order of assessment in Hamdard s case was passed under Section 143(3) of the Act for AY 2005-2006. In the sai .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d for by the assessee which is pending. The main activity of the assessee is to provide healthcare in the field of Unani medicine, production, sale and marketing of unani and ayurvedìc medicines, the proceeds of which are governed by the Wakf Deed, and applied for charitable purposes. The activities of the assessee are within the meaning of section 2(15) of the Income Tax Act. As such, exemption is allowed to the assessee u/s 11 of the Income Tax Act, as claimed. 10. On 27.03.2012, the Re .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

r expansion of manufacturing units. Though Hamdard s objects are charitable, its activities were held to be not charitable in nature. Revenue also stated that Hamdard had violated Section 11(4A) of the Act by not maintaining separate books of accounts for incidental business activities, had not utilised the accumulations made during the relevant assessment year (AY 2005-06) in line with its objects and that it was giving donations to HNF, which was not in furtherance of its charitable activities .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

iminary objections pertaining to the reopening of assessment proceedings. Hamdard contends that the Revenue has sought to reopen Hamdard s assessment proceedings for the AY 2005-2006, based on a mere change of opinion on the same set of facts. WP (C) NOS. 5715, 5716, 5718 AND 5729 OF 2013 13. In these writ petitions, Hamdard impugns four separate orders, all dated 10.07.2013, passed by the CIT(A), in Appeal Nos. 27-30/2012-13 for AYs 2006-07 to 2009-10. Hamdard submits that based on the order da .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

was heard on several occasions. Hamdard filed written submissions dated 04.03.2013 and 06.05.2013 before the CIT(A). On 28.06.2013, Hamdard s representative - the second Petitioner in the four writ petitions - reached the office of CIT(A) for hearing of the appeal and was awaiting the presence of the counsel for Hamdard. However, he was informed by the CIT(A) that he was under transfer and that he had already handed over charge to a new incumbent - the second Respondent in the writ petitions; an .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

office. Upon reaching there, he was informed by the said Respondent that he was to go abroad for some official work and that he would take up the appeal after returning; he further expressed his inclination to await the passing of a fresh order by the DGIT(E), on the issue of exemption under Section 10(23C) (iv) of the Act. However, Hamdard in its rejoinder affidavit submits that these events transpired on 01.07.2013 and not on 29.06.2013, and that the reference to 29.06.2013 was an inadvertent .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d requested for adjournment. Shri V.K. Tiwari CIT (A) XXI was hearing this case and he has been transferred out in AGT-2013. order of CBDT, and in his place, I Md. Mohsin Alam CIT has taken over the change on 28/6/2013. The case is adjourned to 8/7/2013 at 11.30 A.M. 8/7/2013 Shri Javed Naseem, CA appeared and the case was heard. 17. Hamdard alleges that the second Petitioner s signatures were obtained on the said order sheets under the pretext of just completing the record , and that nothing wa .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ate was given on the order sheet and fresh intimation was to be sent to Hamdard. It is alleged that however, on 11.07.2013, the second Petitioner was informed by the second respondent s office that Hamdard s appeal against the ADIT(E) s orders dated 19.04.2012 had been dismissed by orders dated 10.07.2013. Submissions on Behalf of Hamdard I Withdrawal of Exemption Under Section 10(23C)(iv) 18. Mr. Parag Tripathi, Hamdard s Senior Counsel urges that the order withdrawing Hamdard s exemption under .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t violated any condition of the grant of exemption dated 28.12.2007; the present being merely a case where the Revenue seeks to take a different view on the same set of facts. The manufacture and sale of unani medicines is the Hamdard s business since its inception and this pre-existing business was dedicated to the cause of public charity by the founder-Wakif Mutawalli in 1948. Hamdard submits that comparing it with a commercial private pharmaceutical company is ill-founded and perverse as in t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

issioner of Income Tax v. Hamdard Dawakhana (Wakf), [1986] 157 ITR 639, where its objects and the exact nature of its activities have been examined by this Court in detail in light of the Supreme Court s decision in ACIT v. Surat Art Silk Cloth Manufacturers Association (1980) 121 ITR 1, and were held to be charitable. It is submitted that this Court in the said decision had also held that Hamdard s objects fall within the ambit of the first three heads of charity under Section 2(15) of the Act, .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he date of passing of the impugned order. HNF is a mechanism having the same objects as that of Hamdard and is a beneficiary of donations made by Hamdard, for effectuating the charitable mandate of the the Trust Deed. The grant of a donation by one charitable institution to another, for the purpose of carrying on charitable activities amounts to an application of income for charitable purposes. Hamdard relies on the UK Court of Appeal s decision in Inland Revenue Commissioners v. Helen Slater Ch .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

el). 21. Hamdard relies upon Instruction No. 1132 dated 05.01.1978, issued by the CBDT, which states that a charitable trust will not lose exemption under the Act if it passes a sum of money to another charitable trust for utilization by the donee trust towards its charitable purposes, and that it shall be proper utilization of money by the donor trust for charitable purposes. It is further submitted that, since the formation of HNF in 1964, Hamdard has been carrying out its charitable activitie .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

inal products is not the object of Hamdard in terms its Trust Deed. Not only are Hamdard s objects charitable but the activities are also charitable, the business being an asset dedicated to charity, and Hamdard utilizes the income generated from the manufacture and sale of Unani and Ayurvedic medicines for the attainment of the charitable objects. The details of accumulation and purpose thereof are a part of the return of income. Accumulation of income for the capital expansion of the asset is .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

sed to and accepted by the Revenue at every stage. To support this contention, Hamdard relies upon the audited accounts filed by it with the Revenue for the Financial Years 2003-2004, 2004-2005, 2006-2007 and 2007-2008. 24. Mr. Tripathi submits that the accumulation of income for legitimate expansion of the activities of Hamard is merely ancillary to the predominant charitable purpose. Further, details of the same have been specifically stated in the documents accompanying the return of income a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

f an entity is charitable then the said charitable intent will not stand vitiated merely because the activities of the entity result in profit or income which can be measured by standards applicable to commercial activity. 2) A clear distinction has to be drawn between a charitable object and the incidental and ancillary means employed to feed the same, which may result in profit. 3) Surplus, if any accruing from the activities of such an entity has to be applied for the charitable purpose, whic .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

on and maintenance of the charitable assets is ex-facie indispensable and incidental to the effectuation of the charitable purpose. 28. Furthermore, the period of accumulation provided in clause (a) of the third proviso to Section 10 (23C) of the Act is only five years and the Revenue had no jurisdiction to embark upon an enquiry into accumulations prior to AY 2002-2003; which were incidentally old details not in the possession of Hamdard. Mr. Tripathi submits that DGIT(E) fell into error in det .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n of clause (b) of the third proviso to Section 10(23C) of the Act, Hamdard would have relied upon the details of its fixed deposits, being investments in specified modes, to show that the same had increased from ₹ 134.45 Crores in AY 2004-2005 to ₹ 419.56 Crores in AY 2012-2013. 29. Mr. Tripathi argues that the law laid down by the Supreme Court in CIT v. Thanti Trust, [2001] 247 ITR 985 has been misconstrued by the DGIT(E) in its application to Hamdard s case. Hamdard submits that .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

4A), the DGIT(E) accepted that the business of Hamdard is incidental to the attainment of the objectives of the Trust since separate books are required to be maintained for such a business. As a matter of fact such books of accounts are being maintained all along and have never been a focal point of dispute between the assessee and the department. The principle that a business undertaking can also be in the nature of a property held under a trust thereby entitling it to tax exemptions finds stat .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

wly inserted proviso to section 2(15) will not apply in respect of the first three limbs of section 2(15), i.e. relief of the poor, education or medical relief. Consequently, where the purpose of a trust or institution is relief of the poor, education or medical relief, it will constitute charitable purpose even if it incidentally involves the carrying on of commercial activities. … 3.The newly inserted proviso to section 2 (15) will, apply only to entities whose purpose is advancement of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e of trade, commerce or business or renders any service in relation to trade, commerce or business, it would not be entitled to claim that its object is charitable purpose. Reliance is also placed on the speech of the Finance Minister relating to the amended definition of charitable purpose , wherein he had stated that it is not meant to apply to genuine charitable organisations. 32. Thus, Hamdard submits that the scope, ambit and mischief of the newly introduced proviso is confined only to orga .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ess is a business held under trust and is merely incidental to the effectuation and fulfillment of the charitable purpose. Therefore, given the decision in Dharmadeepti v. CIT, (1978) 3 SCC 499, Hamdard s objects cannot be said to fall outside the scope of definition of charitable purpose in Section 2(15). Reopening of Assessment Proceedings 33. Hamdard contends that the reopening of assessment proceedings is based merely on a change of opinion on the same set of facts, and thus, the notice of r .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

in the meaning of section 2(15) of the Income-tax Act. As such, exemption is allowed to the assessee u/s 11 of the Income-tax Act, as claimed. It is submitted that there is no change in the objects and activities of Hamdard since AY 2004-2005. For AY 2005-06, it has duly declared a sum of ₹ 25,63,40,455/- as profits and gains of business or profession, leaving no doubt about the disclosure made by it. Further, the fact that Hamdard was donating its income to HNF was known to the Revenue ev .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

part of the AO on the same facts as had been examined by his predecessor and the AO is not empowered to review the order passed by his predecessor by invoking the provisions of section 147/148 of the Act. Reliance is placed on the decisions in CIT v. Kelvinator of India Ltd., (2002) 256 ITR 1, approved by the Supreme Court in (2010) 320 ITR 561 (SC); BLB Limited v. ACIT, (2012) 343 ITR 129 (Delhi); Atma Ram Properties Pvt. Ltd. v. DCIT, (2012) 343 ITR 141; CIT v. Purolator India Ltd., (2012) 34 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e presence of the authorized counsel for Hamdard, who never attended any proceedings before the second respondent. No such presence is recorded in the order sheets of 28.06.2013 and 08.07.2013. The presence recorded in the order dated 10.07.2013 is contrary to the order sheets dated 28.06.2013 and 08.07.2013. Prior to 28.06.2013, the second Respondent had not even assumed charge of the office of CIT(A). Accordingly, on 19.07.2013, the counsel for Hamdard wrote to the second respondent, categoric .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

No. 3598 of 2012. 38. According to Hamdard, a valuable right of oral hearing available to it has been rendered nugatory by the second respondent. It is incomphrensible that an appeal which was heard at length by the predecessor of the second Respondent over several months was allegedly heard by the second Respondent on one day, and that too in the absence of the counsel for Hamdard. The appeals filed by Hamdard were heard in part by Mr. V.K. Tiwari, the erstwhile CIT(A), and were never heard by .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

efore him. Hamdard relies upon the decisions in G. Nageswara Rao v. APSRTC, AIR 1959 SC 308; R. Jagdishchand v. Dy. Collector of Customs, AIR 1963 Cal 331; Amir Singh v. Government of India, AIR 1965 Punjab 84 and Chatro Devi v. Union of India, 137 (2007) DLT 14. 39. Further, it argued that the second Respondent abused his position and power as a senior appellate authority, and exercised undue influence over the second Petitioner by making him sign backdated order sheets, under the pretext of co .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

f the principles of natural justice, and are thus, void and non-est. Submissions on Behalf of Revenue Withdrawal of Exemption Under Section 10(23C)(iv) 40. Mr. Rohit Madan, learned Counsel for the Revenue, justifies the withdrawal of exemption under Section 10(23C)(iv) of the Act, stating that the impugned order comprehensively deals with all the facts in light of the prevalant position of law. It is stated that Hamdard is engaged purely in business activities and accordingly notification dated .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

-52800243 58520855 97530166 126379385 Donations and Corpus Funds to HNF -158400000 294381000 292600000 348000000 Applied to Fixed Asseets -19311271 13604038 13230941 25342372 Applied for ongoing projects 19817621 23109268 5597738 0 Utilization of accumulation of previous year 19817621 23109268 5597738 0 Accumulation 124901014 23633138 246840001 342806088 41. The Revenue argues that a bare reading of Section 2(15) reveals that Hamdard s purposes are not covered by the definition of charitable pu .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

er Sections 12A read with 12AA of the Act, the objects of Hamdard are commercial in nature, i.e. manufacture and sale of Ayurvedic and Unani Medicines on commercial basis like any other pharmaceutical organization manufacturing medicines - with the sole intention of earning profit. The revenue submits that although Hamdard s objects are charitable, its entire activity is of manufacturing and selling medicines, which implies that it is a commercial organization. Transfer of a part of the surplus .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

mdard Dawakhana (Wakf) (supra) did not find Hamdard s activities to be falling within the first three heads of charity under Section 2(15) of the Act; in fact, Hamdard s activities fall within the residual category under Section 2(15). 44. Mr. Madan urges that the DGIT(E) has correctly held that Hamdard violated conditions (a), (b) and (c) of the order granting exemption dated 28.12.2007. Hamdard has accumulated and applied its income towards its business activities - involving manufacture and s .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of the decisions relied upon by Hamdard deal with a case of investment in business. 46. As regards condition (c), it is stated that it is an admitted fact that Hamdard has not been maintaining separate books of accounts for its income applied to charitable activities. Hence, there is a blatant violation of condition (c) imposed in the order of exemption as well seventh proviso to Section 10(23C), which disentitles it for the exemption granted by the revenue under the law. Hamdard s contention th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

down in Surat Art Silk (supra). Therefore, it is immaterial that Hamdard applies its surplus towards charitable activities. Since it carries on an activity of trade, commerce and business, it ceases to be a charitable organisation with effect from 01.04.2009. Reopening of Assessment Proceedings 48. The Revenue s justification for reopening the assessment proceedings for AY 2005-06 is premised primarily on the withdrawal of Hamdard s exemption under Section 10(23C)(iv) of the Act. In addition, it .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ther, there was no compliance by Hamdard for the hearings scheduled on 30.04.2013 and 28.05.2013. The case was heard only on 04.03.2013 and 07.05.2013 and 08.07.2013. It is incorrect that Hamdard s counsel never appeared in the appellate proceedings, as he appeared on 07.05.2013 when the matter was discussed with him. On 28.06.2013, Shri Javed Naseem, CA & Corporate Head (Finance) of Hamdard attended office and requested for adjournment and the case was adjourned to 08.07.2013. Shri Javed Na .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

etitioner met him on 29.06.2013 as it was not a working day, states that on 28.06.2013, the said petitioner attended the said respondent s office and requested for adjournment. Accordingly, the case was adjourned to 08.07.2013 for hearing. The second Respondent denies having called the second Petitioner on 08.07.2013, or that he was asked to sign the order sheets for 28.06.2013 on 08.07.2013. Analysis and Conclusions 52. As noted at the outset of this Court s judgment, the focal point of the six .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

exemption under Section 10(23C)(iv) 53. In the order dated 28.12.2007, the DGIT(E), while granting exemption to Hamdard under Section 10 (23C)(iv) of the Act with retrospective effect from AY 2004-05, had imposed the following conditions on Hamdard, which were to be continuously complied with to seek exemption: (a) the assessee will apply its income, or accumulate for application wholly and exclusively to the objects for which it is established and in a case where more than fifteen per cent of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

b-section (5) of Section 11; c) this order will not apply in relation to any income being profits and gains of business unless the business is incidental to the attainment of the objectives of the assessee and separate books of accounts are maintained in respect of such business; (d) the assessee will regularly file its return of income before the Income tax authority in accordance with the provisions of the Income Tax Act. 1961; (e) that in the event of dissolution, its surplus and the assets w .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ions. The DGIT (E) held that Hamdard s objects fell within the purview of the residual class under Section 2(15) (viz. advancement of any other object of general public utility ), and not just within the first three categories (i.e. relief of the poor, education and medical relief). He then cited the following grounds for withdrawal of exemption under Section 10 (23C) (iv): a. Hamdard had applied as well as accumulated its income not in terms of its objects but towards its business activities, w .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

to be existing for charitable purpose . The DGIT(E) relied upon the Supreme Court s decision in Thanthi Trust (supra), and held that the decision in Surat Art Silk (supra) which was relied upon by this Court in Hamdard Dawakhana (Wakf) (supra) was no longer applicable on account of change of law. This court proceeds to examine the legality of each of the reasons, contained in the impugned order, for the withdrawal of exemption under Section 10(23C)(iv). 55. A clarification is called for at this .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Therefore, it cannot withdraw the exemption under Section 10(23C)(iv), and that too, retrospectively. This contention, however, is not sound, because the Revenue is entitled to continuously monitor an assessee s activities and its compliance with the conditions for grant of exemption, statutory or otherwise. This has been affirmed by the Supreme Court recently in Queen s Educational Society v. CIT, (2015) 372 ITR 699, where Court held: …the 13th proviso to Section 10(23C) is of great impo .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ion must forthwith be withdrawn. At the same time, this court recognizes that to the extent there is no change in the facts and circumstances of the case- or the law applicable, the Revenue is bound to follow the principle of consistency (see Radhaswami Satsang v. CIT, (1992) 193 ITR 321 (SC) and DIT v. Escorts Cardiac Diseases Hospital Society, (2008) 300 ITR 75 (Delhi)). What is the nature of Hamdard s objects? 56. Clauses 44 to 47 of the Trust Deed dated 28.08.1948 stipulate Hamdard s objects .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Section 2(15) of the Act. The clauses enumerating Hamdard s objects continue to remain the same and since the definition of charitable purpose applicable for the period prior to 01.04.2009 is identical to the one applied by this Court in Hamdard Dawakhana (Wakf), the issue concerning charitable nature of the organization prior to 01.04.2009 is no longer res integra. The court would examine the charitable nature of the organisation from 01.04.2009 onwards in the relevant section below. 58. That b .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ed entities, viz. Jamia Hamdard University (education), Hamdard Education Society (HES) (education and residual category), Business and Employment Bureau (BEB) (residual category), All India Unani Tibbi Conference (AIUTC) (residual category) and through Saeda Hospital. It was held that since Hamdard does not have control over the charitable activity of HNF, as it may choose to spend on activities falling within the residual category as opposed to the first three categories of charitable purpose .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tion 2(15). 59. Hamdard s contention, both before the DGIT(E) and this Court, is that this Court in Hamdard Dawakhana (Wakf) (supra) had held the objects of Hamdard to be falling within the first three categories of Section 2(15). However, the DGIT(E), in our opinion, rightly rejected this contention. Although the revenue in that case had urged that the objects fell within the residual category, the Court did not render a finding on this issue. The Court, while applying the test laid down in Sur .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

f the actual carrying out of the primary purpose of the trust (Ref. Surat Art Silk) and the Court would not have been required to delve into the issue of whether Hamdard was involved in carrying an activity for profit. However, this Court does deem it appropriate to go so far as to infer this from the said decision. 60. A preliminary issue to be decided here is whether the nature of objects/activities of HNF, as well as the third set of trusts (i.e. Jamia Hamdard University, HES, AIUTC, BEB) has .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

alling in the residual category, Hamdard ought to be within the residual category. In the opinion of this Court, while the activities of donee trusts may have some relevance for determining the nature of Hamdard s objects for the purposes of Section 2(15), the primary basis for such determination must needs be Hamdard s trust deed containing its objects. 61. Now, coming to an examination of Hamdard s objects, Clause 44 (a) of the Deed dated 28.08.1948 lists out objects of public charity to inclu .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

46 and 47 permit Hamdard to engage in other activities which would qualify under the head of relief for the poor . While Hamdard may pursue charitable activities for the advancement of objects of general public utility (owing to the generality of clause 44), clauses 45, 46 and 47 indicates that Hamdard s objects fall within the first three categories of charitable purpose spelt out in Section 2(15), and not in the residual category. Here, this Court relies on the Supreme Court s ruling in Dharm .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

dum of Association had referred to charity as the sole object without any limitations, including those prescribed by the context, it may have been possible to extend it to all the four heads mentioned in Section 2(15), as was done in Chaturbhuj Vallabhdas v. Commissioner of Income-Tax 14 I.T.R. 144. But the words are to give charity ; and then to promote education is also specified. Obviously, the former must, bear a limited meaning. To our mind, the most appropriate seems to be relief of the po .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ved from Hamdard and any other body and applying it for the purposes enumerated thereafter, which are identical to clauses 44 to 47 of Hamdard s Trust Deed. The fact that they have been classified under two different heads, viz. objects and functions is immaterial, as it is only a matter of form and does not alter the manner of application of donations received by HNF. 63. The DGIT(E) in the impugned order dated 21.08.2013 as well as in the affidavit on record admits that HNF s main activity is .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

r it has already found that Hamdard s and HNF s objects fall within the first three categories of charitable purpose under Section 2(15), and the fact that HNF s charitable activity carried out through Jamia Hamdard University - admittedly comprising of bulk of HNF s charity - also falls under one of the first three categories ( education ). Further, the DGIT(E) itself has held that 36% of HNF s direct charity falls within the first three heads of charitable purpose . As regards the balance 64%, .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

4. The DGIT(E) held that while running an educational institution is core charity - falling within the head of education under Section 2(15), donating the surplus to an educational institution would not qualify Hamdard under the category of education . Hamdard submits that the funding of activities falling within the first three categories is by itself a charitable purpose within the same categories, and relies upon the Supreme Court s decision in Aditanar Educational Institution v. Additional C .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

iable activities through another charitable institution is entitled to exemption under the Act. For instance, a trust may donate its surplus to another trust, which runs and manages an educational institution, or transfers the surplus received to another educational institution. 65. Sarladevi (supra) held as follows: "We respectfully agree with the view expressed by the Bombay High Court on the point. Our attention was also invited by Mr. Patel for the assessed to a decision of the Calcutta .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

f the Income-tax Act, 1961. The Calcutta High Court, speaking through Sabyasachi Mukharji J., in terms, held that the assessed donor trust was entitled to exemption under Section 4(3) of the Income-tax Act. It must, therefore, be held that when a donor trust which is itself a charitable and religious trust donates its income to another trust, the provisions of Section 11(1)(a) can be said to have been met by such donor trust and the donor trust can be said to have applied its income for religiou .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

y the income there from for its religious and charitable purposes, would not make the slightest difference, so far as entitlement of the donor trust for exemption under Section 11(1) goes." 66. The above decision of the Gujarat High Court was concurred in Shriram Memorial Foundation (supra) by a Division Bench of this Court. It is settled, therefore, that the trust which donates the surplus at the first instance would be qualified for exemption under Act, for its activities would be charita .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

us by Hamdard to HNF, which transfers its surplus primarily to Jamia Hamdard University, does not come within the head of education is rejected. 67. Hamdard had been carrying out its since charitable activities through HNF since the latter was set up, and HNF enjoyed the benefit of exemption under Section 11 of the Act since its inception on 12.05.1964. HNF s charitable status was further approved by the CIT(A) in its order dated 31.01.2012. However, the DGIT(E) has drawn a distinction between c .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ously drew a distinction between corpus and non-corpus donations made by it to HNF. The resolutions of Hamdard placed on record clearly mandate that the interest income generated from corpus donations was to be utilized for charitable purposes. Whether Hamdard accumulated and applied its income towards its objects? 68. The DGIT(E) held that Hamdard accumulated and applied its income towards expansion of its business - and since Hamdard s business does not form a part of its objects, it was in vi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d that the application/permitted accumulation of its income for capital expansion and maintenance of charitable assets is indispensable and incidental to the effectuation of its charitable purpose. It would, therefore, be appropriate to first examine the objects of Hamdard, prior to determining whether its application and accumualation of income is in accordance with the same. 69. The starting point for discussion is this Court s decision in Hamdard Dawakhana (Wakf) (supra), where, upon an exami .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nied exemption under the Act. However, the Court rejected this contention, and held that the objective of the trust was to apply the income for charitable purposes, and therefore, exemption could not be denied. The relevant observations of this Court merit reproduction herein, as follows: 16. Thus, the emphasis [of the Revenue] is on the fact that this charity is carrying on a business, namely, the Hamdard Dawakhana. In fact, the dedication is of a business because the dedicated property is neit .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Hamdard Dawakhana. Although the source of the income is a business, the object of the trust is not to run that business, but to utilise the income of that business for a charitable purpose… 18. In our view, the entire point is now covered by the Supreme Court's judgment in Addl. CIT v. Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1 (SC). The court pointed out in that case that when the object of a trust was the carrying on of an object of general public utility, it is .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of any business at a profit, then the object of the trust is charitable, notwithstanding the source of the income. 19. It is hardly possible for a charitable trust to work with no source of income. So, the makers of the trust in the present case, dedicated a portion of the income of the business for being used for charitable purpose As long as the user of that money is charitable, then the exemption has to be granted. XXX XXX XXX 26. It was submitted before us that clause 46 shows that it is po .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

al relief are themselves charitable purposes within the meaning of section 2(15), we do not see why the charitable income cannot be used for running such educational and commercial institutions. What is visualised is the running of institutions for the employment of the poor. Similarly, the inns referred to in clause 46 are really not hotels run for commercial purposes, but sera is for the housing of the poor. The context in which the objects have been specified shows that the income has to be u .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

house for employment of poor people. The effect may be the same, i.e., the setting up of a commercial establishment, but the object is different. One is to run an institution for profit and the other is to provide employment to the poor by giving them work and income. Similarly, in making a graveyard or a mosque or an inn, the money is used for charitable purposes or it may be used for profit by selling the space, e.g., by making income from the inn. If you read it in the context in which the u .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

70. Hamdard s objects, as laid down in its Trust Deed, continue to remain the same as those considered in Hamdard Dawakhana (Wakf) (supra). However, the DGIT(E) in its impugned order did not follow the ruling in Hamdard Dawakhana (Wakf), stating that the latter relied upon Surat Art Silk (supra), which is no longer applicable in light of the Supreme Court s decision in ACIT v. Thanthi Trust, (2001) 247 ITR 785 and Section 11(4A), which was introduced subsequent to the decision in Surat Art Silk .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

, this Court (for reasons explained in the section concerning violation of condition (c) below) holds that in light of the decision in CIT v. Mehta Charitable Prajnalay Trust, (2013) 357 ITR 560, Section 11(4A) is not applicable to Hamdard s case. Further, the Supreme Court in CIT v. Gujarat Maritime Board, (2007) 295 ITR 561 as well as in its recent decision in Queen s Educational Society (supra) has also applied the Surat Art Silk (supra) test to determine the dominant object of the respective .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rat Art Silk (supra) test had been rendered obsolete in light of the insertion of Section 11(4A). In light of this overwhelming authority in favour of Hamdard on this issue, this Court has no hesitation in holding that the DGIT(E) erred in holding that the dominant purpose test laid down in Surat Art Silk (supra) does not apply in light of the decision in Thanthi Trust and insertion of Section 11(4A). As a result, the DGIT(E) s basis for rejecting this Court s determination in Hamdard Dawakhana .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he trust to invest in any business undertaking to be carried on by the trust. The trust carried on business of purchase and sale of cotton yarn. Based on Clause 1(g), the revenue contended that the object of the trust was to carry on activity for profit and therefore, the object of the trust was not charitable within the meaning of Section 2(15) of the Act. While holding that the business of the trust was carried out under clause 7(e) of the trust deed, the Court held that clause 1(g) of the tru .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

al factor in determining the charitable nature of an entity (see M/s. GS1 India v. DGIT, [2014] 360 ITR 138; Institute of Chartered Accountants of India v. DGIT, [2013] 358 ITR 91; PHD Chamber of Commerce & Industry v. DIT, (2013) 357 ITR 296). A look at Hamdard s Trust Deed and its activities unequivocally establish that they are not guided by profit motive. Indeed, in furtherance of the charitable purpose, Hamdard s Trust Deed dated 28.08.1948 was amended on 10.10.1985 with effect from 01. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

/64 or 100% Charitable Wakf and there is no Khandani Income whatsoever and no private beneficiary whomsoever. 74. The Revenue urges that Hamdard had been enjoying enormous profit margins year after year, generating considerable surplus and consequently, its activities cannot be considered as those of a charitable organisation. However, this submission runs afoul a plethora of Supreme Court decisions, the most recent being Queen s Educational Society (supra), where, following the law laid down in .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

cumulated income towards fixed assets and ongoing projects relating to Hamdard s business. These included Hamdard s new factories at Okhla and Manesar, Herbs and Medicinal Plants Cultivating Project, Muffadarat Plant Ghaziabad and Multi Speciality Hospital and Medical College (Jamia Hamdard University s project). The DGIT(E) held that only the Multi Speciality Hospital and Medical College project was charitable in nature, while the others were in furtherance of Hamdard s business and not its obj .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

f charitable nature of the institution. Specifically, the following observations have been cited: 7.2 Clause (x) of Sub sec. (5) to sec. 11 prescribes one of the modes of investment as "investment in immovable property". Thus, the surplus income can be applied to investment in immovable property. The charitable purposes will include the educational activities and acquiring the income yielding assets to promote the educational objects of the Society. Consequently, combined reading of th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e a bar on management of Society to invest its surplus funds in acquisition of a commercial property as the law does not mandate any extra bar. 7.3 Coming to the other aspect that because the assessee is not carrying out any educational activity in this commercial property, therefore, the investment becomes for non-charitable purposes and the assessee has endeavored to enter into business operations. In our view the assessee's charitable objects include spreading education and opening of sch .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ust still retains this property. In these circumstances, we are unable to hold that the assessee's investment can be held non-charitable in nature. However, the DGIT(E) refused to apply the above observations to Hamdard s case, drawing a distinction between investment in immoveable property and investment in business. The DGIT(E) held as follows: The assessee is relying on this decision to argue that it is permissible to even buy business assets or engage in business with the accumulated fun .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the DGIT(E) refused to rely upon Govinda Naicker Estate (supra) on the ground that it did not concern investment in business. In Govinda Naicker Estate, the Madras High Court had approved exploitation of property for the purposes of augmenting the charitable institution s business. 77. This Court finds that the DGIT(E) misconstrued the nature of Hamdard s activities, inasmuch as it held them to be in the nature of business. This Court has already held above that Hamdard s objects are charitable .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s would be exempt from tax under Section 11 if it is applied or finally set apart for charitable or religious purposes. The DGIT(E) refused to rely on this decision on the ground that the clauses pertaining to the application of amounts in Reserve Fund no longer exist; and the introduction of Section 13(1)(d) and Section 11(5), which preclude reinvestment of funds into business. 79. This Court does not find either of the aforesaid reasons for non-applicability of Hakim Abdul Hamid (supra) to be .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

alam Azad Islamic Awakening has held that investment even in commercial property assets remains charitable purposes so long as the income generated by it is applied to charitable objects . As a result, the insertion of Section 11(5) or Section 13(1)(d) does not negative the applicability of this Court s decision in Hakim Abdul Hameed (supra) to the facts of this case. Secondly, the deletion of clauses from the Trust Deed prescribing the mode of utilisation of Reserve Funds is not relevant, as th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

self. If the Trust business has to continue to yield profits which are to be utilised for the purposes for which the Trust was created then it was necessary that a portion of the profit should be transferred to a Reserve Fund. The purpose of the Reserve Fund, therefore, is the same as the purpose of the Trust itself. The trust has a two-fold purpose, namely, benefit to the community at large and maintenance of the family of the Mutawalli. The Reserve Fund also has the same two-fold purpose. To t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ruling in Hakim Abdul Hamid (supra) on the ground that the reserve fund was to be utilized for Hamdard s business whereas on the other hand, withdrew the exemption under Section 10(23C)(iv) of the Act for the reason that Hamdard was applying and accumulating its income for business purposes. The DGIT(E) fell into error in reasoning that in light of the deletion of clauses in the Trust Deed - which obligated Hamdard to utilize the Reserve Fund for business purposes - this Court s decision in Haki .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ctivities, which constitute a part of its objects, as a violation of any of the statutory conditions imposed under Section 10 or Section 11 or those imposed by the order dated 28.12.2007. 81. In light of the above, this Court holds that the decision in Abul Kalam Azad Islamic Awakening (supra), where it was held the application of income derived from investment in commercial property to be the determining factor, is squarely applicable. Here, too, Hamdard, in accordance with its Trust Deed, has .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

cess of five years? 82. The DGIT(E) in his impugned order held that Hamdard accumulated its income beyond five years in respect of accumulations made upto AY 2005-06. It also held that Hamdard had admitted a sum of ₹ 17.21 crores as amount deemed to be income as per Section 11(3) for AY 2010-11, which was not offered to tax in the return filed for the said assessment year. 83. This Court finds that the DGIT(E) has misintepreted the provision concerning accumulation of income, third proviso .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tilised within a period of five years of its accumulation. Further, Revenue s contention that Hamdard had admitted a certain amount to be deemed income within the meaning of Section 11(3) of the Act does not conclusively determine the issue. It is settled that estoppel does not apply under the Act and the assessee can resile from an incorrect position it had adopted earlier (see CIT v. Bharat General Reinsurance, 81 ITR 303). Did Hamdard invest its funds in violation of condition (b) stipulated .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

for exemption from the applicability of the 3rd proviso. Hamdard contended that no query was raised by the DGIT(E) on this issue and therefore, it could not present its case. Were Hamdard granted an opportunity, it would have demonstrated that it has fixed deposits of ₹ 419.56 crores, which constitutes investment in the modes specified in Section 11(5). In response to this contention, the Revenue submits that this issue was raised in the DGIT(E) s order dated 22.02.2012, which had been qu .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tion read with Section 11(5) of the Act has not been complied with. 85. A perusal of the order dated 22.02.2012 indicates that the Revenue had alleged violation of third proviso to Section 10(23C) of the Act. However, there was no finding on the same. Further, the written submissions filed by Hamdard, including the submissions dated 21.05.2013 relied upon by the Revenue, also do not deal with such allegation. Given these facts, this Court does not have any basis to accept the Revenue s contentio .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

posed in the order of exemption dated 28.12.2007. However, in the absence of this fact having been examined by the DGIT(E), this Court cannot determine the veracity of the same at first instance. Did Hamdard violate condition (c) of the order of exemption 87. The DGIT(E) s determination that Hamdard violated condition (c) of the order of exemption is premised on its finding that Section 11(4A) of the Act applies to an entity in the nature of Hamdard. It is apparent that condition (c) has been so .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ction 10(23C) reads as follows: Provided also that nothing contained in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) shall apply in relation to any income of the fund or trust or institution or any university or other educational institution or any hospital or other medical institution, being profits and gains of business, unless the business is incidental to the attainment of its objectives and separate books of account are maintained by it in respect of such busines .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

A) and the seventh proviso to Section 10(23C)/condition (c), the DGIT(E) s approach of applying the principles of interpretation of the former provision for interpreting the applicability of the latter cannot be faulted with. Therefore, if Section 11(4A) were held to be applicable to Hamdard, so would condition (c)/seventh proviso, and vice-versa. As a corollary, if the nature of Hamdard s activities were such that no compliance with Section 11(4A) was required, the issue of violation of Section .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

11(4A) was concerned. Hamdard relied upon this Court s decision in CIT v. Mehta Charitable Prajnalay Trust, (2013) 357 ITR 560, where it was held that Section 11(4A) of the Act would not apply to a business held under trust. However, the DGIT(E) refused to follow Mehta Charitable Prajnalay Trust (supra) since it was a case of a trust doing business, as opposed to business held in trust; since both Thanthi Trust (supra) and the instant case involve the latter, the decision in Thanthi Trust (supra .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d be necessary to closely examine the two decisions. 91. The Supreme Court in Thanthi Trust (supra) was concerned with a trust engaged in newspaper publishing activity. The object of the trust was to educate the Tamil public and diseminate news. The Court had to determine whether the trust was entitled to exemption under Section 11 for three different periods: (a) AY 1979-80 to AY 1983-84, in light of Section 13(1)(bb) of the Act; (b) AY 1984-84 to AY 1991-92, in light of Section 11(4A) of the A .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

a Trust. He submitted that there was a difference between income derived from a business that was a property or part of the corpus of a Public Charitable Trust and income derived from a business which was carried on by such a Trust but which was not held under Trust. In other words, there was a legal obligation to use the income for the public charitable purpose of the Trust in the first case and not in the latter… XXX XXX XXX 15. A Public Charitable Trust may hold a business as part of i .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

m such business unless the business is carried on in the course of the actual carrying out of a primary purpose of the Trust. Section 13(1)(bb), therefore, will apply to a Public Charitable Trust for the relief of the poor, education or medical relief that carries on a business, regardless of whether or not that business is held by the Trust in Trust, that is, as a part of its corpus. Even a business that is held by such a Trust as a part of its corpus is carried on by the Trust and, therefore, .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

when the Bill was passed. A business held under Trust had, therefore, not been intended to be excluded from the benefit of section 11 by reason of the enactment of sub-section (4A). This was also evident from the fact that sub-section (4A) did not mention in its non obstante clause sub-section (4). 22. Sub-section (4) of section 11 remains on the statute book, and it defines property held under Trust for the purposes of that section to include a business so held. It then states how such income .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

under Trust" for the purposes of section 11 to include a business held under Trust. Sub-section (4A) restricts the benefit under section 11 so that it is not available for income derived from business unless (a) the business is carried on by a Trust only for public religious purposes and it is of printing and publishing books or any other notified kind or (b) it is carried on by an institution wholly for charitable purposes and the work in connection with the business is mainly carried on .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

lic religious purposes so it does not fall within clause (a). It is a Trust not an institution, so it does not fall within clause (b). It must, therefore, be held that for the assessment years in question the Trust was not entitled to the exemption contained in section 11 in respect of the income of its newspaper. 92. There is nothing to indicate that the Court rejected the distinction between a business held under trust and a trust carrying on business for the purposes of Section 11(4A). On the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ere a business was held under trust was answered in the negative in several authoritative pronouncements starting from the judgment of the Lahore High Court in Gadodia Swadeshi Stores v. Commissioner of Income Tax, Punjab, (1944) 12 ITR 385. The general provision under Section 4(3)(i) of the 1922 Act exempted income derived from property held under trust from taxation. However, section 4(3)(ia) provided that any income derived from a business carried on behalf of a religious or charitable trust .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

de only under that provision, and when the conditions laid down therein are not satisfied, it is not open to the assessee to fall back upon the general provision contained in Section 4(3)(i) and claim exemption thereunder on the ground that business is property. The Lahore High Court held that the fact that the business carried on behalf of the trust failed to satisfy the two conditions laid down in Section 4(3)(ia) was no reason why it should not be exempted from taxation if it fell within Sect .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of Income-tax v. Krishna Warriar (P.), (1964) 53 ITR 176. By that time clause (ia) of Section 4(3) had been enacted as a proviso to clause (i) of Section 4(3), by an amending Act of 1953. After referring to the judgment of the Lahore High Court (supra) and rejecting the argument of the revenue that a proviso in a statute be always read as limitation upon the effect of the main enactment Subbarao, J. (as he then was) observed as under:- ........But it is not an inflexible rule of construction tha .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

is that the sound view of the enacting clause, the saving clause and the proviso taken and construed together is to prevail". So construed we find no difficulty, as we will indicate later in our judgment, in holding that the said clause (b) of the proviso deals with a case of business which is not vested in trust for religious or charitable purposes within the meaning of the substantive clause of section 4(3)(i). 16. Thus, if a property is held under trust, and such property is a business, .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n of a business held under trust from the scope of Section 11(4A), that too upon an overall consideration of the decision in Thanthi Trust. In such circumstances, we hold that the DGIT(E) s refusal to follow Mehta Charitable Prajnalay Trust (supra) is erroneous. The distinction drawn by the DGIT(E) on facts, viz. that in Mehta Charitable Prajnalay Trust (supra) the business was not held in trust, which is admittedly the case herein, is immaterial, given that the Court s ruling therein was on the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

a) also supports this conclusion. In that case, the Court held that the services performed by a trade, professional or similar association, such as a chamber of commerce and industry, could not be held to be in pursuit of a business or trade with a profit motive and would not qualify as a business activity. Thus, Section 11(4A) of the Act would be inapplicable to such associations and they are not required to maintain separate books of accounts to avail exemption from tax. This Court, upon an ex .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t maintaining separate books of account for commercial activity and, therefore, denied registration/notification, has to be rejected as fallacious and devoid of any merit. Similar allegation is often made in cases of charitable organization/association without taking into account the activity undertaken by the assessee and the primary objective and purpose i.e. the activity and charity activity are one and the same… The 'business' activity undertaken by the petitioner is integral .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

We fail to understand when the petitioner is maintaining the books of accounts with regard to their receipts/income as well as the expenses incurred for their entire activity then how it can be held that separate books of accounts have not been maintained for 'business' activities. The "business" activities are intrinsically woven into and part of the charitable activity undertaken. The "business" activity is not feeding charitable activities. In any case, when we hol .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ncement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity. 96. Facially, this proviso sought to do away with the test of application of surplus .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

urposes became immaterial. A second proviso to Section 2(15) was inserted by Finance Act, 2010 with retrospective effect from 01.04.2009, which excludes the applicability of the first proviso where the total receipts of the entity are less than the limit prescribed therein. However, this is not relevant for the purposes of this case. 97. The DGIT(E) held that the first proviso to Section 2(15) squarely applies in Hamdard s case, as Hamdard s objects fall within the residual category and its acti .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

umambiguous phrasing of the first proviso and this Court s decision dated 11.04.2013 in Hamdard s case in W.P.(C) 3598 of 2012, whereby it quashed the order dated 22.02.2012. On the applicability of the first proviso to Section 2(15), the Court noted: We may note here that the first proviso to sub Section was amended by Finance (No.2) Act, 2009 with retrospective effect from 01.04.2009. The said proviso is applicable in cases where an assessee claims that it is carrying on charitable purpose cov .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

th the result of attracting the applicability of the first proviso, it would not cease to be a charitable organisation with effect from 01.04.2009. The interpretation of first proviso put forward by the DGIT(E) would exclude all entities advancing an object of general public utility from the definition of charitable purpose if such entities carry on any activity of trade, commerce or business, irrespective of the nature of application of surplus generated from such activity. This unduly broad in .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

(15) of the Act and cannot be interpreted to mean any activity which is carried on in an organised manner. The purpose and the dominant object for which an institution carries on its activities is material to determine whether the same is business or not. The purport of the first proviso to section 2(15) of the Act is not to exclude entities which are essentially for charitable purpose but are conducting some activities for a consideration or a fee. The object of introducing the first proviso is .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tax exempt, as they should be. However, some entities carrying on regular trade, commerce or business or providing services in relation to any trade, commerce or business and earning incomes have sought to claim that their purposes would also fall under "charitable purpose". Obviously, this was not the intention of Parliament and, hence, I propose to amend the law to exclude the aforesaid cases. Genuine charitable organizations will not in any way be affected.' The expressions &quo .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of income earned is, now, not a relevant consideration in view of the express words of the first proviso to section 2(15) of the Act, nonetheless the test of dominant object of an entity would be relevant to determine whether the entity is carrying on business or not. 99. More recently, this Court in India Trade Promotion Organization v. Director General of Income-tax (Exemptions), [2015] 371 ITR 333, while adjudicating upon the constitutional validity of the first proviso to Section 2(15), read .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

be within the nature of a business, for: …merely because the petitioner derives rental income, income out of sale of tickets and sale of publications or income out of leasing out food and beverages outlets in the exhibition grounds, does not, in any way, affect the nature of the petitioner as a charitable institution if it otherwise qualifies for such a character. Affirming the dominant purpose test applied in Institute of Chartered Accountants of India (supra) in the context of first pro .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ctivity would also not fall within the categories of trade, commerce or business… 100. Finally, the Court rejected the broad ambit of first proviso sought to be urged by the Revenue, specifically in the context of Section 10(23C)(iv), and held as follows: 58. In conclusion, we may say that the expression "charitable purpose", as defined in Section 2(15) cannot be construed literally and in absolute terms. It has to take colour and be considered in the context of Section 10(23C)( .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

retation of the proviso to Section 2(15) of the said Act would be that it carves out an exception from the charitable purpose of advancement of any other object of general public utility and that exception is limited to activities in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business for a cess or fee or any other consideration. In both the activities, in the nature of trade, commerce or business or the activity of re .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

itable purpose'. On the flip side, where an institution is not driven primarily by a desire or motive to earn profits, but to do charity through the advancement of an object of general public utility, it cannot but be regarded as an institution established for charitable purposes. 101. This Court has already held above that Hamdard s dominant purpose is charitable in nature, and it is not guided by the motive of profit-making. Therefore, the first proviso to Section 2(15) does not alter the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

blic utility to avoid tax liability as it was noticed that object of general public utility was sometimes only a mask or device to hide the true purpose which was trade, commerce or business. 102. It has thus been established that Hamdard is by no means a mask or a device to conceal any income generated from any of its activities. W.P.(C) 3599 of 2012 103. The ADIT(E) re-opened assessment proceedings for Hamdard for AY 2005-06 through its notice dated 27.03.2012 issued under Section 148 of the A .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d allied objects. Though Hamdard s objects were charitable, its activities were not; c. Hamdard had violated Section 11(4A) of the Act by not maintaining separate books of accounts for incidental business activities; d. Hamdard had not utilised the assessments made during the concerned assessment year in line with its objects; e. Hamdard was giving donations to HNF, which was not for furtherance of its business activities; f. DGIT(E) had withdrawn the approval granted under Section 10(23C)(iv) o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d. DGIT(E). The facts brought in your return for A.Y. 2005-06 have not been disclosed all the facts properly (sic) which could lead to assessment. Even, when an Organization has lost its charitable status retrospectively, claim of exemption by that organization tantamount to furnishing of false particulars and failure on part of assessee to disclose fully and truly all material facts necessary for assessment. XXX XXX XXX The AO in this case has not changed its opinion but based on the exemption .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ed after the expiry of four years from the end of the relevant assessment year (AY 2005-06). Further, it is contended that the reopening of assessment is based on a mere change of opinion, as the AO s predecessor had examined the same set of facts. 106. It is not disputed that an order of assessment under Section 143(3) of the Act was passed for AY 2005-06 on 21.03.2007 and the assessment proceedings for AY 2005-06 have been re-opened after the expiry of four years prescribed in the first provis .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

jections to reopening of assessment on account of its failure to disclose all material facts, besides the withdrawal of exemption under Section 10(23C)(iv) of the Act. The order dated 16.04.2012, while noting that Hamdard s surplus to the tune of ₹ 25,23,36,930/- may have escaped assessment, does not state that the said conclusion was being arrived at based on new facts discovered by the ADIT(E). Indeed, the letters dated 01.02.2007, 20.02.2007 and 12.03.2007 placed on record by Hamdard de .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t the pre-condition for reopening of assessment after the expiry of four years has not been met in this case. 107. Even on the merits of the reasons provided by the ADIT(E) for the reopening of assessment proceedings, contained in the orders dated 16.04.2012 and 25.05.2012, the Revenue s case does not succeed. It is evident from these orders that the reopening of assessment was premised on the withdrawal of Hamdard s exemption under Section 10(23C)(iv) of the Act by the CIT(A) s order dated 22.0 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tained in the order dated 28.07.2013. Therefore, in light of this Court s order in W.P.(C) 5711 of 2013, the basis for re-opening of assessment proceedings for AY 2005-06 does not survive. Consequently, the notice of reopening dated 27.03.2012 and orders dated 16.04.2012 and 25.05.2012 passed by the ADIT(E) are hereby quashed. WP (C) Nos. 5715, 5716, 5718 and 5729 of 2013 108. The CIT(A) through separate but identical orders dated 10.07.2013 for AY 2006-07 to AY 2009-10 dismissed Hamdard s appea .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

08.07.2013 by the CIT(A) who passed the impugned orders. 109. This Court holds that the second Respondent, acting as the CIT(A), has passed the impugned orders dated 10.07.2013 in violation of the principles of the natural justice, without having given Hamdard an opportunity of presenting its case and having failed to consider Hamdard s written submissions in the impugned orders. The Supreme Court in G. Nageswara Rao (supra) held in unequivocal terms and dismissed the notion that an authority t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

aring took place on the said date whereas the second Respondent contends that Hamdard s counsel - Mr. R.M. Mehta - made submissions on that date. Hamdard has placed on record letters dated 19.07.2013 and 04.09.2013 wherein the second Respondent was urged to clarify that Hamdard s counsel did not appear before the second Respondent on 08.07.2013. Further, a perusal of the impugned orders dated 10.07.2013 would indicate that the second Respondent has omitted to consider Hamdard s submissions filed .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

find any mention in the impugned orders. This Court cannot go into the propriety of Hamdard s submission that the second Respondent got orders dated 28.06.2013 and 08.07.2013 signed by Hamdard s representative on a false pretext. However, the other facts discussed above are sufficient to establish that the second Respondent violated principles of natural justice in passing the impugned orders. Even on merits, it is apparent that the ground for denial of exemption under Section 11 is that Hamdar .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ctivity and the assessee by itself is not engaged in any charitable activity except the donations made to HNF, which the assessee considers as a charitable organization. But it is seen that even the activities of HNF is not charitable as no free treatment or free medicines are distributed to the poor. The exemption u/s. 11 is available when the assessee is engaged in charitable activities, but in the present case it is an admitted fact that the assessee is engaged in business and is not directly .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version