TMI Blog1998 (8) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... to deal with same for the purpose of the trust. 6. To lease or otherwise for charitable purpose and to construct buildings thereon." It is stated that pursuant to the said objects, the petitioner has been contributing to the welfare of the poor and needy right from its inception and has also constructed houses for the poor and the needy in rural areas. Further it has been conducting several medical camps such as eye camps, dental camps, cancer detection camps, etc., every year free of cost. It is stated that the petitioner-trust is given the benefit of exemption under section 80G of the Income-tax Act, 1961, from its inception and that as per section 80G, if any donation is made to any fund or any charitable institution, certain deductions are allowed from the total income of the persons making such donations for the purpose of computing his taxable income. To get the benefit of section 80G of the Income-tax Act, the trust or fund has to make an application to the Commissioner of Income-tax. If the Commissioner of Income-tax is satisfied that the applicant has complied with the conditions laid down in sub-section (5) of section 80G, exemption certificate will be granted. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, and that it has been granted exemption certificate under section 80G of the said Act. The petitioner's further case is that in view of these documents issued under the Central Income-tax Act, the respondents should have notified the petitioner-trust as contemplated under section 9(2) of the Kerala Agricultural Income-tax Act, 1991, to encourage the assessees under the said Act to make donations to the trust and to avail of the benefit provided under the said Act. It is stated that the only condition for issuing the notification is that it should be a charitable institution which is clear from exhibits P-2 to P-7 certificates issued under the Income-tax Act, 1961. The grievance of the petitioner is that the second respondent rejected the request made by the petitioner without assigning any reason. A counter-affidavit is filed on behalf of the respondents. It is stated that in order to get the benefit of section 9(2), the trust should have been registered under the Agricultural Income-tax Act, 1991, and that since the petitioner-trust was not registered under the said Act, the Government was fully justified in rejecting the application for issuance of the notification. The stand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not arise. It is also stated that under section 16 of the Act exemption from income is granted to a trust or any charitable institution, but under section 9(2) the exemption is granted to any assessee making contribution to any trust or charitable institution provided the trust or institution is notified by the Government in the Official Gazette. It is stated that the provisions of sections 16 and 9(2) are different and are mutually exclusive. It is also stated that section 9(2) of the Act does not contemplate the application of section 16(10). It is further stated that the statement made in the counter affidavit that the Deputy Commissioner made enquiry and reported that the trust does not have any office at Killarackal Buildings is false and is denied. It is stated that exhibits P-1 and P-3 to P-7 communications were issued to the petitioner in the said address and the same was received by the petitioner. Further, exhibit P-9 order dismissing the application for notification was also communicated to the office of the petitioner and that too received at its office at Kallarackal Buildings, Miss East Road, Kottayam. Sri Ramesh Cheriyan John, learned counsel appearing for the pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that in the absence of such an intention expressed in section 9(2) itself, the Government was not justified in taking the view that a registration under section 16(10) is necessary for making an application under section 9(2) of the Act. In support of his contention, learned counsel relied on the decision of the Delhi High Court in CIT v. Cement Distributors Ltd. [1994] 208 ITR 355. He also relied on the decision of the Supreme Court in Keshavji Ravji and Co. v. CIT [1990] 183 ITR 1, and also the Law of Income Tax by Sampath Iyengar, 9th edition., volume 1, page 158, in support of the above. The learned Government Pleader appearing for the respondents submitted that section 16 of the Agricultural Income-tax Act, 1991, is the relevant provision which deals with charitable trusts and institutions and that the said section not only deals with charitable trusts and institutions which are assessees under the Act but also deals with such institutions which are entitled to other benefits available under the Act. He further submitted that the machinery for adjudication of the question as to whether a trust or institution is a charitable one or not is provided only in section 16 and tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons paid to them are eligible for deduction under section 9(2) of the Agricultural Income-tax Act, is not acceptable to Government. The reason for such rejection is explained only in the counter-affidavit filed on behalf of the respondents. The reason stated is that in order to enable the Government to issue a notification as contemplated under section 9(2) of the Act the petitioner has to get the trust registered as contemplated under section 16(10) of the Act and that since the petitioner has not got itself registered as above, it is not eligible for the notification under section 9(2) of the Act. It is also stated in the counter-affidavit, as already mentioned, that an enquiry was conducted in the matter through the Deputy Commissioner of Sales Tax and that it has been found that the petitioner-trust does not have any office at Kallarackal Buildings, M. E. Road, Kottayam, and that it does not have any landed property and, therefore, the bona fides of the petitioner-trust also are doubted. In order to enable this court to enter a finding on the legality of exhibit P-9 communication, it is necessary to refer to the relevant provisions of the Act. Section 9(2) of the Act providin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case referred to in clause (ii) so much of the agricultural income applied to such purposes in the State during the previous year immediately following the previous year in which the agricultural income was derived as does not exceed the said amount, may, at the option of the person in receipt of the agricultural income [such option to be exercised in writing before expiry of the time allowed under sub-section (1) or sub-section (2) of section 35 whether fixed originally or on extension for furnishing the return of agricultural income], be deemed to be agricultural income applied to such purposes during the previous year in which the agricultural income was derived ; and the agricultural income so deemed to have been applied shall not be taken into account in calculating the amount of agricultural income applied to such purposes, in the case referred to in clause (i), during the previous year in which the agricultural income is received or during the previous year immediately following, as the case may be, and, in the case referred to in clause (ii), during the previous year immediately following the previous year in which the agricultural income was derived. (2) Where any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anation.---For the purposes of sub-clause (ii), 'scheduled bank' means the State Bank of India constituted under the State Bank of India Act, 1955, a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959, a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980, or any other bank, being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934. (4) Any agricultural income referred to in sub-section (3) which--- (a) is applied to purposes other than charitable or religious purposes as aforesaid or ceases to be accumulated or set apart for application thereto, or (b) ceases to remain invested in any security referred to in sub-clause (i) or deposited in any account referred to in sub-clause (ii) or sub-clause (iii) of clause (b) of that sub-section ; or (c) is not utilised for the purpose for which it is so accumulated or set apart during the period referred to in sub-clause (a) of that sub-section or in the year immediately following the expiry thereof, shall be deemed to be the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome or property of the trust or institution shall, for the purposes of that clause, be deemed to have been used or applied for the benefit of a person referred to in sub-section (8),--- (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 (8) for any period during the previous year without either adequate security or adequate interest or both ; (b) if any amount is paid by way of salary, allowance or otherwise during the previous year to any person referred to in sub-section (8) out of the resources of the trust or institution, for services rendered by that person to such trust or institution and the amount so paid is in excess of what may be reasonably paid for such services ; (c) if a substantial portion of the income or property of the trust or institution is diverted during the previous year in favour of any person referred to in sub-section (8) ; (d) if any funds of the trust or institution are, or continue to remain, invested for any period during the previous year in any concern in which any person referred to in sub-section (8) has a substantial interest. (8) The persons refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty per cent. of the profits of such concern. (10) Any trust or institution created for charitable or religious purposes may make an application in the prescribed form and in the prescribed manner to the Deputy Commissioner of Agricultural Income-tax within six months from the date of commencement of this Act or from the date of creation of the trust or institution, whichever is later, along with a copy of the instrument creating the trust or the bye-law of the institution, as the case may be, for registration : Provided that the Deputy Commissioner may admit an application for registration presented after the above date if he is satisfied that there was sufficient reason for not presenting an application in time. (11) The Deputy Commissioner may, on receipt of the application if he is satisfied that the trust or the institution is created for religious or charitable purposes and not for avoiding or reducing the tax payable under this Act, grant registration to such trust or institution : Provided that before passing an order rejecting an application for registration the applicant shall be given an opportunity of being heard. (12) If the Deputy Commissioner is satisfied th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of section 16 of the Act which has been quoted herein above. Section 16 of the Act deals with charitable trusts and institutions. Sub-section (1) of section 16 deals with exclusion of agricultural income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in the State and also the mode of application of the said income to get the benefit of exclusion. Sub-sections (2) to (9) are related to the said sub-section. Sub-section (9) of section 16, clause (a) thereof defines a "trust" as meaning a trust created for charitable purposes and includes any other legal obligations. Clause (c) of sub-section (9) of section 16 defines "charitable purposes" as including relief of the poor, education, medical relief and the advancement of any other object of public utility. Section 16(10), in that context, provides that any trust or institution created for charitable or religious purposes may make an application in the prescribed form and in the prescribed manner to the Deputy Commissioner of Agricultural Income-tax within six months from the date of commencement of the Act or from the date of creation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section has application only to a charitable trust which is an assessee to agricultural income-tax and not to any other trusts. Hence, the requirement of registration contemplated under sub-section (10) of section 16 will not apply to a trust applying for issuance of a notification contemplated under section 9(2) of the Act. In the instant case, the petitioner-trust does not hold any agricultural properties and is not an assessee to agricultural income-tax. According to the petitioner, it is a trust established for charitable purposes and was registered with the Commissioner of Income-tax as a charitable trust. For the purpose of getting donations from assessees to agricultural income-tax, the petitioner applied to the Government for issuance of a notification as contemplated under sub-section (2) of section 9 of the Act. The advantage of the petitioner being notified by the Government in the Gazette as a trust established for charitable purposes is that the assessees to agricultural income-tax who make donation to the said trust will get a deduction of the amount paid to the said trust to the extent specified in sub-section (2) in the computation of the total agricultural incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1961, can be safely applied for deciding the question whether the petitioner-trust is one established for charitable purposes. Some of the decisions are Addl. CIT v. Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1 (SC) and Gangabai Charities v. CIT [1992] 197 ITR 416 (SC). The Government, in the instant case, has rejected the request as per communication dated September 30, 1996 (exhibit P-9), stating that the request made by the petitioner is not acceptable to the Government. The Government has not assigned any reason whatsoever for taking such a view. However, in the counter-affidavit filed on behalf of the respondents they have taken the stand that before applying for issuance of a notification as contemplated under section 9(2) of the Act, the petitioner-trust should have got itself registered as provided under section 16 of the Act and that the trust did not comply with the said provision. The respondents have taken the further stand that the Deputy Commissioner of Sales Tax, Kottayam, had conducted an enquiry and reported that the trust does not have any office at Kallarackal Buildings, M. E. Road, Kottayam, and that it does not have any landed propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, informed the Government that the petitioner-trust does not have any office at Kallarackal Buildings, M. E. Road, Kottayam, and that it does not have any landed property. The petitioner's case is that exhibit P-1 and P-3 to P-7 communications issued to the petitioner in the said address were received by it and further the communication, exhibit P-9 was also received in the said address. If the material furnished in the report of the Deputy Commissioner was put to the assessee, it would have immediately informed the Government of the said facts. If the petitioner were afforded an opportunity in the matter, the petitioner would have explained all the circumstances and would have furnished any further documents required for adjudication of the issue. In the instant case, it is not seen either from the communication exhibit P-9 or from the counter-affidavit filed by the respondents that the Government had considered the question as to whether the petitioner-trust is one established for charitable purposes. The Government, it would appear, was influenced by the report of the Deputy Commissioner and the fact that the petitioner has not obtained registration as contemplated under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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