TMI Blog2021 (2) TMI 739X X X X Extracts X X X X X X X X Extracts X X X X ..... The entire object clauses of the assessee as well of the donee are reproduced by ld. CIT(A) in its appellate order. The Residuary clause M is also towards the attainment of main object of the assessee to establish and run hospitals, nursing homes , welfare homes , rest houses for the good and benefit of the people, - Thus, in our considered view the act of donating/contributing ₹ 72, 00, 000/- as donation by the assessee to donee viz. Roman Catholoc Diocose Private Limited , was ultra vires the object clause of the donor and does not comply with the mandate of Section 11(1)(a). It is true that the assessee can either itself carry out charitable activities or it can contribute to other trust or institution who is carrying on the activities which are also the same/similar as per assessee s object clause in Memorandum of Association. The assessee s Memorandum of Association permit carrying on activities to establish and run hospitals , nursing homes, welfare homes , rest houses for the good and benefit of the people and the assessee infact is engaged in running hospital and school of nursing at Allahabad, while the donee entity namely Roman Catholic Diocese Private Limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e through virtual court. 2.The grounds of appeals raised by assessee in memo of appeal filed with Income- Tax Appellate Tribunal, Allahabad (hereinafter called the tribunal ) reads as under:- 1. BECAUSE considering the facts and circumstances of the case contribution of ₹ 72, 00, 000/- made by Nazareth Hospital Society to Roman Catholic Diocese of Allahabad Private Limited (RCD) , both being charitable institutions and registered u/s 12A of the Act , is application of income for charitable purposes as per the provisions of section 11(1)(a) of the Income-tax Act, 1961 . The said contribution is liable to be deduction from the income for the purpose of computation of taxable surplus in the assessment of the appellant institution. 2. BECAUSE considering the facts and the circumstances of the case the CIT(Appeals) has erred in law to hold that the said contribution is not application of income for charitable purpose by the appellant institution on the ground that objects of appellant institution and RCD are not the same. The decision of the authorities below is against the provisions of Section 11(1)(a) as well section 2(15) of the Act. Section 2(15) has define ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given by one charitable institution to another charitable institution is to be treated as application of income u/s 11 and is exempt from income-tax. The AO rejected the contentions of the assessee by holding that object of the donor and the donee society are not same, as can be seen from their Memorandum of Association, and hence said amount cannot be considered as application of income for charitable purposes. The AO observed that main object of the donor viz. assessee society is medical relief and running of hospitals , while main object of the donee society was education. The AO was of the view that when the assessee contributes a fund as donation to the donee society who is engaged in different activities , then assessee society is not fulfilling its objects for which assessee society was established. The AO was of the view that the said amount of donation of ₹ 72, 00, 000/- made by assessee society to Roman Catholic Diocese Private Limited cannot be exempt from income-tax. The AO relied upon judgment of Hon ble Allahabad High Court in the case of J K Charitable Trust (1992) 196 ITR 31(All. HC) , and brought to tax the said donation of ₹ 72, 00, 000/- as income i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able properties of all descriptions useful for any purpose of the Society. C. To construct, equip, operate, endow, maintain and from time to time altar, improve, extend, close down. Demolish or dispose off suitable sites, buildings, offices, institutions, model farms, small industries, laboratories, x-rays, amenities and facilities deemed necessary of useful for any purpose or purposes of the society. D. To initiate, encourage, promote, organize, operate, advise, help cooperative societies, credit unions, housing projects, legal aid societies, clubs, community services or other institutions, bodies, persons, as from time to time seem necessary or appropriate for any purpose or purposes of the Society. E. To print, publish, issue and exhibit any films, journals, periodicals, books, papers, pamphlets, advertisements, reports, lecturers and other reading matters for the diffusion of medical, agricultural, technical, moral, philosophical, cultural and other useful knowledge for the promotion benefit and advancement of charitable ideals, institutions, works and activities of the Society. F. To engage, employ and procure the assistance of and to suspend, discharge, and dismis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same. L To use the property and assets of the Society and all income form the property and assets, moveable and immovable or from the works of the Society as such whensoever derived from the objects of the Society as set forth in the Memorandum of the Association, provided that no portion thereof is distributed among the members by way of profits, dividends, bonuses or by any other form except remuneration for services rendered to the Society. M. To do or to cause to be done any or all such acts or things as shall be in keeping with the objects of the Society, provided such things or acts be not contrary or inconsistence with the spirit and principles of the laws under which this Society has been organized and registered. Thus, the main object for which the appellant society is established as a charitable organization is to establish and run hospital and nursing homes. Infact, the society is running a hospital in the name of Nazareth Hospital. 11. The objects of the M/s Roman Catholic Diocese Pvt. Ltd. are as under The Objects for which the Company is founded are Objects (a) To acquire and take over all o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any bequest or foundation whether subject to any special trust or not for any one of more of the objects of the Company, and to accept the office of and act as trustees, managers, and administrators whether solely or jointly with others or another for or in respect of any gift or any other property whether vested in the company or otherwise and whether subject to any trusts, managements, and administration would involve the exercise by the Company of powers not specifically mentioned in these presents To take gifts and accept trust i.To establish, promote, or assist in establishing or promoting, and to subscribe to or become a member of any other association whose objects are similar, or in part similar, to the objects of the Company, or the establishment or promotion of which may be beneficial to this Company. To promote associations j. To administer or manage local or parochial funds of churches or parishes directly or through Juntas or fabricas or churchwardens, and to administer, manage, or control religious institutions and establishments. k. To invest and deal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing objects similar or allied to any of the objects of the Company. (s) To do all such other lawful things as are incidental or conductive to the attainment of the above objects and to the religious, moral, educational, and physical welfare of people in India. To do things incidental Though, the object clause of M/s Roman Catholic Diocese Pvt. Ltd. makes mention of maintaining hospital in a passing manner, Intact theSociety is not maintaining/ running any hospital since its inception till date. The Society is running educational institutions and no hospital or any work relating to medical relief is being done by M/s Roman Catholic Diocese Pvt. Ltd. It is also a fact that the donation received from Nazareth Hospital Society has been utilized by the donee society (M/s Roman Catholic Diocese Pvt. Ltd.) in its charitable purposes of running a charitable educational institution and not for running any hospital. 12. In view of the above, it is clear that the charitable activity in which M/s Nazareth Hospital Society is engaged is clearly distinct from the charitable activity in which M/s Roman Catholic Diocese P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 12A r.w.s. 2(15) of the IT. Act. The gist of the judgment is given as under Section 11, read with sections 12 and 12A, of the Income -tax Act, 1961 - Charitable or religious trust, Exemption of income from property held under (Application of income) - Assessment year 2006-07 - Whether assessee would be entitled to exemption under section 11(1)(a), only if income is applied for charitable purpose for which properties are held in trust - Held, yes - Whether if assessee's activities are outside scope of its objects, it would not be entitled to exemption even if such activities are charitable in nature - Held, yes - Whether conditions imposed under section 12A are in addition to conditions or exemptions as specified under sections 11 and 12 and, thus, notwithstanding that an assessee has been granted a registration under section 12A, it would be necessary for assesses to comply with conditions of section 11 in order to claim any benefit under provisions of that section and it is necessary for Assessing Officer to examine whether income derived from property held in trust has been applied for object of trust - Held, yes [Paras 26 to 29] [In favour of assessee] Section 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... society can be treated as exempt in terms of Section 11(1)(a) which are utilized for fulfillment of objects of this society i.e. running of charitable hospital. However, this society has made donation of ₹ 72 lacs to another charitable society, namely, M/s Roman Catholic Diocese Pvt. Ltd. whose objects are clearly distinct from the objects of donor society. The donation make by donor society of ₹ 72 lacs has admittedly be utilized by the donee society in fulfilling objects of running of educational institutions. Thus, it is clear that the donation of ₹ 72 lacs has not been utilized by the donee society for fulfilling the objects of M/s Nazareth Hospital Society, which is maintaining hospital and medical relief. 16. The appellant has further argued that the decision of the Allahabad High Court in the case of J.K. Charitable Trust is binding for lower authorities within the territorial jurisdiction of the Allahabad High Court. There is no doubt that the decision of the jurisdictional High Court is binding upon the lower authority within territorial jurisdiction of that High Court. However, the ratio-decidendi of case law has to be properly understood in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lling the charitable objects of donor trust. However, in the present case the donor trust i.e. the appellant whose objects are running maintaining hospital and nursing school have made donation to another charitable trust namely M/s Roman Catholic Diocese Pvt. Ltd., whose objects are clearly different from the objects of the donor trust and who have admittedly utilized the donations not on running and maintaining any hospital but educational institutions maintained by it. Thus, this donation is clearly not utilized by donee trust for the purposes of objects of the donor trust and, accordingly, in the light of the provisions of the Income Tax Act and also in the light of the decision of Hon'ble Delhi High Court in the case of Mool Chand Khairati Ram Trust (supra), it is held that donation of ₹ 72 lacs made by the M/s Nazareth Hospital Society has not been utilized for the purposes of appellant trust. 19. In view of the above discussion, I find no fault in the order of the A.O. and the addition made by him of ₹ 72 lacs is confirmed and these grounds of appeal failed. 5. Aggrieved by appellate order dated 27th February 2018 passed by ld.CIT(A), the assessee file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ole. It was submitted that Section 12 of the 1961 Act does not prohibit grant of donation to other trust and then it is to be treated as application of income. The ld. Counsel for the assessee also relied upon written submissions filed by assessee , containing 11 pages which are part of paper book filed by assessee and the same is placed in file. The ld. Counsel for the assessee in the aforesaid paper book containing in all 50 pages has also relied upon three case laws namely Hon ble Allahabad High Court decision in the case of CIT v. J.K.Charitable Trust (1992) 196 ITR 31(Alld. HC) ; Hon ble Delhi High Court decision in the case of Mool Chand Khairati Ram Trust v. Director of Income Tax( Exemption), (2015) 377 ITR 650(Del. HC) and decision of Hon ble Gujarat High Court in the case of CIT v. Sarladevi Sarabhai Trust No. 2 reported in (1988) 172 ITR 698(Guj.HC) The ld. DR on the other hand relied upon appellate order passed by ld. CIT(A) and drew our attention to Section 11(1) , 11(2) read with Explanation, 11(3)(d) and 11(3A) of the 1961 Act. The ld. DR drew our attention to decision in the case of J K charitable Trust(supra), Sarladevi Sarabhai(supra) . It was submitted that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year under consideration. The short question which has arisen in this appeal for our consideration is as to whether contribution/donation of ₹ 72, 00, 000/- made by assessee who is a charitable origination engaged in the field of medical relief and running hospitals and school of nursing and registered u/s 12AA of the 1961 , to another charitable organization namely Roman Catholic Diocese Private Limited who is also registered u/s 12AA of the Act but was engaged in educational activities by running educational institutions, can be treated as application of income within the meaning of Section 11(1)(a) of the 1961 Act. It is also an admitted position that donee entity namely Roman Catholic Diocese Private Limited did not apply donation of ₹ 72 lacs received by it from the assessee for the activities of medical relief or for running hospitals , but the said donation received by it was applied for its educational activities and for running educational institution. Both the authorities below have concurred that since donation/contribution of ₹ 72 lacs was made by assessee to an charitable entity engaged in different object, it can not be said that the assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use of trust deed and trustees are required to carry on their activities as specified and authorized by its object clause, else their activities shall be declared as ultra vires , as the trustees are acting in a fiduciary capacity while dealing with the trust funds. Similar is the case with society as well by Section 25 Companies. The trust deed , byelaws and Memorandum of Association, as the case may be, are Public Document and public at large has notice of the objects for which the said trust, society or Section 25 Company is formed. The voluntary contribution/donation made by Public to said entities is normally for the purposes of carrying on the activities as specified in the object clause of trust deed, bye laws and Memorandum of Association , and any deviation beyond approved object clause shall be ultra vires and is diversion of fund which will tantamount to breach of trust by trustees who are holding fiduciary position as to trust money. Hence, the assessee whose activities are medical relief and running of hospital can make donation to another charitable entity engaged in education , and any diversion of funds to another charitable entity who is engaged in activity of e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmissioner has to be satisfied as to the objects of the tax-payer being charitable in nature as also as to genuineness of the activities of the trust or institution , before granting registration u/s 12AA of the 1961 Act. Further, it is provided u/s 12AA(3) of the 1961 Act that in case the activities of the trust of institution are not genuine or are not carried out as per objects of the trust or institution, as the case may be, the Commissioner shall then pass an order in writing cancelling the registration of such trust or institution. Thus, the 1961 Act itself provided that the activities of the trust or institution, as the case may be, has to be carried out as per objects of the such trust or institution, otherwise consequences by way of cancellation of registration of the said charitable organization is provided for. The said Sub-section 12AA(3) is reproduced hereunder: Procedure for registration. 12AA. (1)*** (1A) *** (2)*** [(3) Where a trust or an institution has been granted registration under clause (b) of subsection (1) [or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No. 2) Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould have used the words that the income is applied for charitable or religious purposes instead of using the word such purposes which , in our considered view , shall relate back/refer to the income derived from property held under trust wholly for charitable or religious purposes , as the tax-payer will be granted exemption u/s 11(1)(a) of the 1961 Act of the income derived from property held under wholly for charitable or religious purposes and its utilization for such purposes in India, as per the language used in Section 11(1)(a) itself. The ld. CIT has already made enquiry/satisfaction as to genuineness of the activities of the trust and of its objects , before granting registration u/s 12AA of the 1961 Act. Thus, the utilization of voluntary contribution/donation received by trust/institution has to be for such purposes as are intra-vires to its object clause and it cannot be extended to cover each and every object which is charitable or religious in nature which otherwise is ultra-vires to its object clause. It is well established principle of interpretation that every word used by lawmakers in the statute has to be taken into effect while interpreting statute and no w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ighty-five] per cent of the income referred to in clause (a) or clause (b) of sub-section (1) read with the Explanation to that sub-section is not applied, or is not deemed to have been applied, to charitable or religious purposes in India during the previous year but is accumulated or set apart, either in whole or in part, for application to such purposes in India, such income so accumulated or set apart shall not be included in the total income of the previous year of the person in receipt of the income, provided the following conditions are complied with, namely:-] (a) such person specifies, by notice in writing given to the [Assessing] Officer in the prescribed manner, the purpose for which the income is being accumulated or set apart and the period for which the income is to be accumulated or set apart, which shall in no case exceed ten years; [(b) the money so accumulated or set apart is invested or deposited in the forms or modes specified in sub-section (5)]:] [Provided that in computing the period of ten years referred to in clause (a), the period during which the income could not be applied for the purpose for which it is so accumulated or set apart, due to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in accordance with the provisions of clause (b) of sub-section (2) cannot be applied for the purpose for which it was accumulated or set apart, the [Assessing] Officer may, on an application made to him in this behalf, allow such person to apply such income for such other charitable or religious purpose in India as is specified in the application by such person and as is in conformity with the objects of the trust; and thereupon the provisions of sub-section (3) shall apply as if the purpose specified by such person in the application under this sub-section were a purpose specified in the notice given to the 5[Assessing] Officer under clause (a) of sub-section (2):] [Provided that the Assessing Officer shall not allow application of such income by way of payment or credit made for the purposes referred to in clause (d) of sub-section (3) of section 11:] [Provided further that in case the trust or institution, which has invested or deposited its income in accordance with the provisions of clause (b) of sub-section (2), is dissolved, the Assessing Officer may allow application of such income for the purposes referred to in clause (d) of sub-section (3) in the year in which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... table/religious purposes, derived from voluntary contributions and applicable solely to charitable or religious purposes, shall be exempt. Sub-section (2) dealt with a case where a charitable/religious trust received contributions from another religious/ charitable trust, to which section 11 applied. The sub-section said that such contributions shall, in the hands of the recipient-trust, be deemed to be income derived from property for the purposes of section 11 and all the provisions of section 11 shall apply accordingly. It would be appropriate to set out section 12 in its entirety, as obtained prior to 1-4-1973: Income of trusts or institutions from voluntary contributions.-(1) Any income of a trust for charitable or religious purposes or of a charitable or religious institution derived from voluntary contributions and applicable solely to charitable or religious purposes shall not be included in the total income of the trustees or the institution, as the case may be. (2) Notwithstanding anything contained in sub-section (1), where any such contributions as are referred to in sub-section (1) are made to a trust or a charitable or religious institution by a trust or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r and competence of the income of the trust for the advancement of any other object or general public utility as the trustees may, in their absolute discretion, deem fit and in such way as they may consider most advantageous to the recipients . We are inclined to agree with it. A charitable purpose may be served in more than one way. One is to directly contribute for the promotion of that cause, the other is to contribute money to another charitable organisation which advances that cause. In the absence of allegations of device and or mala fides, the amount contributed to other charitable institutions out of the income accumulated under sub-section (2) is outside the mischief of subsection (3) of section 11. In other words, such contribution does not amount to application of the income for purposes other than charitable or religious. (Emphasis supplied by us) 7. A good amount of controversy, however, arises as to the position where such contributions are made, not out of the income accumulated under sub-section (2), but out of contributions received by the assessee- trust. We have already set out section 12 as it obtained prior to 1-4-1973 and also as it obtains with effect f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Hon ble High Court further observed that tribunal relied upon sub-clause (k) of clause 2 of the deed of the trust which , inter-alia , empowers the trustees to apply the income of the trust for the advancement of any other object of general public utility as the trustees may in their absolute discretion deem fit and in such way as they may consider most advantageous to the recipients . The Hon ble High Court agree with the findings of the tribunal. The clause 2(k) of the trust deed in the case of J. K. Charitable Trust (as extracted from judgment of Hon ble High Court) is reproduced hereunder: (2)(k) And generally for the benefit of the poor and the incapacitated and/or such deserving persons including the marriage of poor women and the advancement of any other object of general public utility as the trustees may in their absolute discretion deem fit and in such way as they may consider most advantageous to the recipients. Then Hon ble jurisdictional High Court went on to hold that charitable purpose may be served in more than one way .One is to directly contribute for promotion of that cause ; the other is to contribute money to other charitable organization, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on ble Delhi High Court considered this issue of applying the income for the objects of the trust and held as under: 19. At the outset, it would be necessary to refer to clause (a) of sub Section (1) of Section 11 of the Act which reads as under:- 11. (1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income- (a) 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 India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of fifteen per cent of the income from such property; 20. A plain reading of Section 11(1)(a) of the Act indicates that for income to be excluded under the said clause the following conditions must be met:- (a) That the income is derived from property held under Trust wholly for charitable purposes; and (b) The income is applied for such purposes in India. Income from the property, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /162 Taxman 235 (Delhi) and NBIE Welfare Society (supra). In these decisions, the Court affirmed that if income is accumulated for applying towards the object of the Trust, which is wholly charitable or religious, the exemption under Section 11(2) of the Act would be available to the Assessee, provided the conditions as specified under Section 11(2) of the Act are met. Although these decisions were rendered in the context of Section 11(2) of the Act, the same would also be applicable while interpreting Section 11(1)(a) of the Act, as Section 11(2) of the Act also uses the expression such purposes which has been interpreted to mean the charitable/religious objects for which the properties are held in Trust. At this stage, it is necessary to refer to Section 11(2) of the Act, which reads as under:- 11(2) Where eighty-five per cent of the income referred to in clause (a) or clause (b) of sub-section (1) read with the Explanation to that sub-section is not applied, or is not deemed to have been applied, to charitable or religious purposes in India during the previous year but is accumulated or set apart, either in whole or in part, for application to such purposes in India, suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution unless the following conditions are fulfilled, namely:- . . . .'' 29. The opening words of Section 12A(1) of the Act clearly indicate that the conditions imposed under that section are in addition to the conditions or exemptions as specified under Sections 11 and 12 of the Act. Thus, if the conditions as specified under Section 12A(1) of the Act are not met, then the exemption available under Section 11 of the Act would not be available to the Assessee. This does not mean that if a trust is registered under Section 12A of the Act, exemption under Section 11 and Section 12 of the Act would necessarily follow. The provisions of Section 12 of the Act do not curtail or in any manner dilute the mandatory requirements of Section 11 of the Act. Thus, notwithstanding that an Assessee has been granted a registration under Section 12A of the Act, it would be necessary for the Assessee to comply with the conditions of Section 11 of the Act in order to claim any benefit under the provisions of that Section. Thus, the Hon ble Delhi High Court has held that to avail exemption u/s 11(1)(a), income derived from property held under trust wholly for charitable or religious pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its hands for all or anyone or more of the charitable purposes mentioned in the trust deed dated 29-3-1963 under which the H.C. J. Charitable Trust was created. The question was whether such type of utilisation of net income of Jadi Trust the donor trust could entitle the donor trust to the benefit of section 11. The Commissioner contended before the Bombay High Court that provision of section 11 would not be satisfied in such a case. Repelling this contention and placing reliance on a decision of the Chancery Division in IRC v. Helen Slater Charitable Trust Ltd. [1980] 1 All. E.R. 785 wherein Slade, J., spoke for the Court of Chancery the Division Bench of the Bombay High Court quoted with approval the following observation of Slade, J., in the case of Helen Slater Charitable Trust Ltd. (supra)rendered in the context of a parallel statutory scheme reflected by section 360(1) of the Income and Corporation Tax Act, 1970 and section 35(1) of the Finance Act, 1965 as in force in England at the relevant time: Any charitable corporation which, acting intra vires, makes an outright transfer of money applicable for charitable purposes to any other corporation established exclusivel ..... X X X X Extracts X X X X X X X X Extracts X X X X
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