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TMI Blog2002 (12) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... heets for the relevant previous years. The assessee claimed the benefit of section 11 of the Act on the ground that it was an institution established wholly for "charitable purposes" within the meaning of section 2(15) of the Act and had been registered as such under section 13 of the Act. The Assessing Officer (hereinafter referred to as the "AO") denied the benefit of section 11 on two grounds. First, he held that the respondent-assessee was a diamond bourse and as such its objects were not "charitable purpose" within the meaning of section 2(15) of the Act. Secondly, he took the view that, even if so, the assessee had breached the conditions under section 13 and as such was liable to be denied the benefit of section 11. The assessee carried the matter in appeals to the Commissioner of Income-tax (Appeals) who confirmed the orders of the Assessing Officer. Further appeals were carried to the Income-tax Appellate Tribunal. The Tribunal came to the conclusion that the objects for which the respondent-assessee was established were "charitable purpose" within the meaning of section 2(15) of the Act and that there was a no breach of the provisions of section 13. In this view of the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the previous year used or applied, directly or indirectly for the benefit of any person referred to in sub-section (3)." Section 13(2) provides as under: "...(a) if any part of the income or property of the trust or institution is, or continues to be, lent to any person referred to in sub-section (3), for any period during the previous year without either adequate security or adequate interest or both;..." The relevant provision of section 13(3) is: "The persons referred to in clause (c) of sub-section (1) and sub-section (2) are the following, namely:-- (a) the author of the trust or the founder of the institution;..... (cc) any trustee of the trust or manager (by whatever name called) of the institution;...." Section 2(15) of the Act defines "charitable purpose" as including relief of the poor, education, medical relief, and the advancement of any other object of general public utility. In order to decide the first question, the circumstances under which the appellant-assessee came into existence are required to be noticed. The diamond exporters in India had formed a Diamond Exporters Association for facilitating export of diamonds. There was need for setting up a diamo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ahar International Airport, Bombay. When the MMTC was appointed as the Custodian, it had incurred expenditure on behalf of Bharat Diamond Bourse to the extent of about Rs. 81 lakhs for setting up of the bourse. On August 31, 1984, the managing committee of the assessee resolved to treat the expenses incurred by the MMTC as a loan which was to be returned with interest at 6 per cent. per annum. The MMTC had taken certain premises on lease in the Diamond Plaza which were sub-leased to the assessee on the same terms and conditions except from the deposit. The principal object of establishment of the bourse was to facilitate the diamond trade so that maximum revenue could be earned by way of foreign exchange and also to make the diamond trade more competitive at the international level. On December 15, 1986, an agreement was arrived at between the MMTC and the assessee under which it was agreed that from April 1, 1988, service charges would be collected by the assessee and not by the MMTC, and from that date the bourse would meet its own obligations towards its staff, their expenses, etc., and so on. Under the said agreement, the operations of the bourse were taken over from the MMTC. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er alia, carrying on business in art silk yarn, raw silk, cotton yam, art silk cloth, silk cloth, silk cloth and cotton cloth belonging to and on behalf of its members as well as buying and selling and dealing in all kinds of cloth and yarn belonging to and on behalf of its members. The Constitutional Bench of this court held that, if there are several objects of the institution, some of which are charitable and some non-charitable, and the trustees or the managers in their discretion may apply the income of the institution of those objects, the trust or institution would not be liable to be regarded as charitable and no part of its income would be exempted from tax. Where the main or primary objects are distributive, each and every one of the objects must be charitable in order that the trust be held as a valid charity. But, if the primary or dominant purpose of the institution is charitable and another which, by itself, may not be charitable, but is merely ancillary or incidental to the primary or dominant object, it would not prevent the institution from validly being recognised as a charity. The test to be applied is, whether the object which is said to be non-charitable is the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... establishing and maintaining an international trading centre in India for all those engaged as manufacturers, traders, exporters and imports, brokers/commission agents of diamonds." These being the pre-dominant objectives, we agree with the view taken by the Tribunal as well as the High Court that the assessee was rightly registered under section 11 by treating it as an institution established for charitable purpose within the meaning of section 2(15) of the Act. The next question which needs our attention is, whether the Tribunal was right in its conclusion that the assessee did not lose the benefit of the exemption under section 11. The Assessing Officer took the view that the assessee lost its benefit under section 11 under the following circumstances: In the previous years relevant to the assessment year 1989-90, the assessee had advanced an amount of Rs. 70 lakhs to one Bharat Shah without interest and security and even without entering into a written agreement with the said Bharat Shah. The said Bharat Shah was one of the signatories to the memorandum of association of the assessee-company and also the Honorary Secretary of the institution. For this reason, the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 131 of the Income-tax Act to Bharat Shah and, in response to the summons, he made a statement in writing by letter dated February 7, 1992. According to Bharat Shah, he had received Rs. 70 lakhs as part payment from the assessee during the year ending March 31, 1989, towards deposit of lease money in respect of renting one full floor in the premises at Diamond Village, Gamdevi to Bharat Diamond Bourse to house the customs, custodian and other facilities of the assessee. According to Bharat Shah, he, his family members and business associates had entered into agreement to purchase the entire 11th floor in the building known as "Diamond Village" at Gamdevi, Bombay, towards which they had already paid Rs. 1.24 crores to the builder and that they had decided to give the said floor on rent to the assessee on terms and conditions "to be mutually decided" on completion of the floor. The Assessing Officer was of the view that the money received by Bharat Shah had been utilised by him for investment in his name in the property, though there might have been a tacit understanding that the assessee would be given business premises on the 11th floor on lease. Therefore, upon apprais ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... outgoings including municipal tax would be on the account of the bourse and, if there was central air-conditioning, the bourse would pay contribution separately for the cost and maintenance thereof. After having said this a request was made to Bharat S. Shah "will you please now negotiate on behalf of the owners of the premises and draw up the necessary documents in our favour. In order to facilitate your working, the Bourse will provide you adequate amount as per clause above. When the documentation is ready, money may be handed over to them with a receipt". On November 28,1988, the following note confirming the arrangement was made: "The managing committee of the bourse in its meeting held on 11th February, 1988, had decided to take on lease alternate accommodation of about 12,000 sq. ft. in the vicinity of Opera House for housing all the infrastructural facilities preferably on one floor. The managing committee has also decided to pay deposit to the owner/builders of the new premises after taking all action considered necessary to protect the interest of the bourse. As per the above decision we have so far paid an amount of Rs. 50 lakhs to Shri Bharat S. Shah. The total depos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that Bharat Shah was merely negotiating on behalf of the assessee for procurement of suitable premises, the lease for the premises, the ownership of the premises or the lease rights would be in favour of the respondent assessee with the builder as lessor or seller. The Assessing Officer was, therefore, justified in concluding that the amount of Rs. 70 lakhs, when it was paid to Bharat Shah, was clearly intended for his buying the premises in Diamond Plaza building which in turn, may have been made available by way of a sub-lease to the respondent. If this be so, then the payment to Bharat Shah could hardly be a deposit. The stand of the respondent is completely belied by Bharat Shah's statement made pursuant to the summons under section 131 of the Act. Learned counsel for the assessee had made available to us a note prepared with regard to the transaction, which according to him was also made available to the Tribunal. It appears to us that the Tribunal has, hook, line and sinker, accepted all that is stated therein without critical examination. What transpired thereafter is also of interest. After the assessment order was made on March 2, 1992, the assessee must have realised th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e one does not expect hard-nosed businessmen to part with an amount of Rs. 70 lakhs without even recording an agreement under which it is paid, nor without agreeing upon the precise terms of the lease. The story rings false from beginning to end, and yet, the Tribunal accepted it by saying, "as regards the bona fides of the transaction, in our opinion, there is nothing to suspect the same." The Tribunal says, "there is a transparency about the entire transaction which nullifies any attempt to make out the transaction as something unusual and out of the ordinary." That diamonds are not transparent, that they dazzle with a brilliance that blinds the eye, seems to have escaped the notice of the Tribunal, It undiscerningly accepted the glib explanation of the assessee, though teeming with improbabilities and strenuous on credulity. We, therefore, are of the view that the Tribunal's conclusions on this issue are perverse and need to be interfered with. We affirm the conclusions arrived at by the Assessing Officer and the appellate authority to the effect that Rs. 70 lakhs were lent to Bharat S. Shah for substantial periods during the previous years pertaining to the relevant assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rming a part of, the ordinary capital." The meaning of the expression "founder" highlighted by learned counsel is with reference only to an institution of eleemosynary. Eleemosynary is a charitable object intended to provide relief from distress to humans based on Christian values. In the case of the assessee, it is not recognised as a "charity" because of the element of eleemosynary; it is recognised as a "charity" because of the extended meaning ascribed to the concept of charity under the Act as its predominant object is an "object of general public utility". The test to ascertain the founder of an institution for eleemosynary need not be valid to ascertain the founder of an institution of other kinds. In our view, the term "founder of the institution" used in section 13(3)(a) means no more nor less than what it says. The expression "founder" means what is understood in ordinary parlance -the originator or the person responsible for the establishment of the institution. The Concise Oxford Dictionary, new seventh edition, page 388, defines the expression "founder" as "one who founds an institution" and the verb "found" to mean "lay base of; be original builder, begin building o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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