Karnataka High Court

Pr. Commissioner Of vs M/S. Embassy Charitable Trust on 27 January, 2022

Bench: Alok Aradhe, M.G.S. Kamal

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 IN THE HIGH COURT OF KARNATAKA AT BENGALURU

       DATED THIS THE 27TH DAY OF JANUARY 2022

                        PRESENT

         THE HON'BLE MR. JUSTICE ALOK ARADHE

                          AND

         THE HON'BLE MR. JUSTICE M.G.S. KAMAL

                 I.T.A. NO.458 OF 2019

BETWEEN:

PR. COMMISSIONER OF
INCOME TAX EXEMPTIONS
UNITY BUILDING ANNEXE
MISSION ROAD
BANGALORE-560027
                                            .... APPELLANT
(BY MR. E.I. SANMATHI, ADVOCATE)

AND:

M/S. EMBASSY CHARITABLE TRUST
ROYAL OAKS, EMBASSY GOLF LINKS BUSINESS PARK
OFF INERMIDIATE RING ROAD
BANGALORE-560037.
                                          ... RESPONDENT
(BY MR. SURYANARAYANA T, SR. COUNSEL FOR
   MRS. TANMAYEE RAJKUMAR, ADVOCATE)
                          ---

      THIS I.T.A. IS FILED UNDER SEC. 260-A OF INCOME TAX
ACT 1961, ARISING OUT OF ORDER DATED 15.03.2019 PASSED
IN ITA NO.110/BANG/2019, PRAYING TO
      (i) DECIDE THE FOREGOING QUESTION OF LAW AND/OR
SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY
THE HON'BLE COURT AS DEEMED FIT.
      (ii) SET ASIDE THE APPELLATE ORDER DATED 15.03.2019
PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, 'A' BENCH,
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BENGALURU (ANNEXURE-A) IN APPEAL PROCEEDINGS NO.ITA
NO.110/BANG/2019 AS SOUGHT FOR IN THIS APPEAL AND TO
GRANT SUCH OTHER RELIEF AS DEEMED FIT IN THE INTEREST OF
JUSTICE.

     THIS I.T.A. COMING ON FOR HEARING,                   THIS   DAY,
ALOK ARADHE J., DELIVERED THE FOLLOWING:

                          JUDGMENT

This appeal under Section 260-A of the Income Tax

Act, 1961 (hereinafter referred to as 'the Act', for short) has

been filed by the revenue. The appeal was admitted on the

following substantial questions of law:

"1. Whether on the facts and in the circumstances of the case, the Tribunal is right in directing the Commissioner of Income Tax to grant registration under section 12A and consequently under section 80G of the Act as well ignoring the fact that though the assessee- trust was formed predominantly for carrying out commercial activities such as construction and development, ignoring that no charitable activities were carried on by it till the date of application for approval under section 12A as well as 80G of the Act?

2. Whether on the facts and in the circumstances of the case, the Tribunal is right in not appreciating the fact that the assessee has failed to prove with financial

statements and activities carried out earlier, that they are charitable in nature as provided under Rule 11AA(3) of the Rules, 1962?

3. Whether on the facts and in the circumstances of the case, the Tribunal is right in not considering the fact that satisfaction on the part of the authority granting approval for recognition under section 12A and 80G is necessary in terms said provisions of the Act read with Rule 11AA of the Act?

4. Whether on the facts and in the circumstances of the case, the Tribunal is right in not following the decision of the jurisdictional High Court in the case of Ganjam Nagappa & Son Trust (supra). Wherein, it has been held that "grant of exemption or renewal is not automatic in character", in allowing the assessee's appeal?"

2. Facts leading to filing of this appeal in a nutshell are

that pursuant to a registered deed of trust dated 21.02.2018,

the assessee came into existence. The assessee filed an

application for registration under Section 12AA of the Act on

20.03.2018 and also filed an application seeking approval

under Section 80G(5)(vi) of the Act. The Commissioner of

Income Tax, by an order dated 18.09.2018, rejected the

application inter alia on the ground that primary object of the

assessee is erection, construction and maintenance of

townships and housing which is commercial in nature and not

charitable in nature. It was further held that clause 3(v) of

the Trust Deed promotes industrial and commercial activities

and is therefore not charitable in nature. It was also held

that clause 5 of the Trust Deed gives an absolute discretion

to the trustees to sell and convert trust funds and properties

into other properties.

3. The assessee thereupon filed an appeal before the

Tribunal. The Tribunal, by an order dated 15.03.2019, inter

alia held that primary object of the Trust is undoubtedly for a

charitable purpose and each of the activities and incidental

objects are to be read along with primary object of the Trust.

It was further held that there is no material on record to hold

that objects of the Trust are either not charitable in nature or

its activities are not genuine. The Tribunal accordingly

granted registration to the assessee under Section 12AA of

the Act as well as held that the assessee is entitled to

benefits under Section 80G of the Act. In the aforesaid

factual background, this appeal has been filed.

4. Learned counsel for the revenue submitted that the

Tribunal ought to have appreciated that primary object of the

Act was not charitable and the Trust was engaged in the

erection and construction of building which was a commercial

activity. It is further submitted that the Tribunal while

passing the impugned order, has failed to take into account

the Trust Deed in its entirety and has misread the provisions

of the Trust Deed. It is also urged that since the assessee is

not engaged in systemized schooling, therefore, its activities

are not covered within the ambit and scope of the expression

'education' within the meaning of Section 2(15) of the Act.

It is also urged that dominant nature underlying the setting

up of the Trust has not been considered by the Tribunal and

therefore, the matter deserves reconsideration by the

Tribunal. In support of aforesaid submission, reliance has

been placed on the decisions in 'SOLE TRUSTEE, LOK

SHIKSHANA TRUST Vs. COMMISSIONER OF INCOME

TAX' 101 ITR 234 'AGRAWAL SABHA Vs.

COMMISIONER OF INCOME TAX-I' 365 ITR 244 (ALL)

AND 'ANANDA SOCIAL AND EDUCATIONAL TRUST Vs.

COMISSIONER OF INCOME TAX AND ANR.' 426 ITR 340

(SC).

5. On the other hand, learned Senior counsel for the

assessee submitted that the Tribunal has recorded a finding a

fact that primary object of the assessee is for charitable

purpose and the aforesaid finding of fact has not been

demonstrated to be perverse. Therefore, no substantial

questions of law arises for consideration. It is further

submitted that since the object of the Trust is education,

therefore, the nature of activity of the assessee being

commercial or for business, cannot be gone into as the object

of the assessee is not for advancement of any other object of

general public utility. It is further submitted that since the

activities of the Trust have not yet commenced, therefore, no

inference with regard to its nature of activity can be drawn.

It is also urged that at the time of registration of the Trust,

the Commissioner should not go into the genuineness of its

activity. It is also pointed out that decision of the Supreme

Court in SOLE TRUSTEE, LOK SHIKSHANA TRUST, supra

is no longer a good law. In support of aforesaid submission,

reliance has been placed on the decisions in 'ADDITIONAL

COMMISSIONER OF INCOME TAX Vs. SURAT ART SILK

CLOTH MANUFACTURERS ASSOCIATION' (1979) 2

Taxman 501 (SC), 'SUDARSHAN SILK AND SAREES Vs.

COMMISSIONER OF INCOME TAX' (2008) 161 Taxman

321 (SC), 'DIRECTOR OF INCOME TAX Vs. GARDEN

CITY EDUCATIONAL TRUST' (2010) 191 Taxman 238

(KAR) AND 'ANANDA SOCIAL AND EDUCATIONAL

TRUST Vs. COMMISSIONER OF INCOME TAX' (2020)

114 Taxmann.com 693 (SC).

6. We have considered the submissions made by the

learned counsel for the parties and have perused the record.

The Act provides for exemption of income of charitable

institutions under Section 11 of the Act. Section 2(15) of the

Act defines the expression 'charitable purpose' and includes

the relief of the poor, education, yoga, medical relief,

reservation of environment (including water sheds, forest

and wild life) and preservation of monuments or places or

objects of artistic or historic interest and the advancement of

any other object of general public utility. It is well settled in

law that where the purpose of a Trust is education, the

requirement of definition of 'charitable purpose' would be

satisfied even if an activity of profit is carried on in the

course of actual carrying out of the primary purpose of the

Trust or the Institution. If a Trust's claim for charitable

purpose is covered under the head of 'advancement of any

other object of general public utility', the question would

arise whether the purpose of Trust or Institution involves the

carrying on of any activity of profit. However, it would not

be relevant where the purpose of the Trust is relief of the

poor, education or medical relief, etc. (See:

DHARMADEEPTI Vs. CIT' (1974) 114 ITR 454).

7. Section 12AA of the Act provides for procedure for

registration. The Commissioner of Income Tax is required to

satisfy himself about the objects of the Trust and

genuineness of its activities and has to grant registration only

if it is so satisfied. The scope of examination is confined in

ascertaining whether the Trust is constituted genuinely for

carrying on charitable activities or whether it has the capacity

to carry out its professed objects. It is also well settled legal

proposition that at the time of grant of registration,

Commissioner of Income Tax is not required to examine the

application of income and has to examine whether the

objects of the Trust are charitable and whether the

application is made in consonant with requirements of

Section 12A of the Act read with Rule 17F of the Income Tax

Rules. The genuineness of the activities of the Trust is not a

matter to be looked into at the time of dealing with the issue

of registration of the Trust under Section 12AA of the Act.

(See: 'DIRECTOR OF INCOME TAX Vs. GARDEN CITY

EDUCATIONAL TRUST' (2010) 191 Taxman 238 (KAR)

AND 'ANANDA SOCIAL AND EDUCATIONAL TRUST Vs.

COMMISSIONER OF INCOME TAX' (2020) 114

Taxmann.com 693 (SC)).

8. In the backdrop of aforesaid well settled legal

propositions, we may advert to the facts of the case in hand.

Clauses 2, 2(b), 3(1) and 3(2), 5, 6, 11, 13 and 8 of the

Trust Deed are reproduced below for the facility of reference:

2. xxxxx

(b) Subject to the provisions of sub-

clause (a) of clause 2, the Trustees shall hold the Trust Funds upon Trust so that as far as practicable the corpus shall always remain intact and only the income thereon shall be used, but with liberty to the Trustees at their discretion to use the corpus from time to time either wholly or in part or parts on such public educational purposes including

(i) Spiritual activities which are beyond any specific religion;

(ii) Research in the region of raising human consciousness and such practices as to aid such activities;

(iii) Well being, welfare, recreation and education of children and adults, mentally retraded , normal, invalid, or handicapped;

(iv) Research in the region of collective and community living in harmony, unity and peace and growth of human consciousness to higher levels of spirituality;

(v) Any purpose that the law and the provisions of the Income Tax Act, 1961 regard as educational purpose; and in such manner as the Trustees may think fit and for one or more of the aforesaid purposes to the exclusion of other or

other or others as the Trustees may think fit. Provided that income as well as capital as well as corpus shall be applied only towards educational purpose as aforesaid and nay accumulation of income shall also be applicable to such educational purposes as aforesaid.

3. Without prejudice to the generality of the foregoing objects or purposes and without limiting the scope of the Trust which is to carry out any activity for the purpose of education, but subject as aforesaid, IT IS DECLARED that the Trustees shall each year apply the income of the Trust Fund and may at their discretion at any time and from time to time apply also the Trust Fund or any part or parts of the Trust Fund in or towards any one of more of the following specific educational objects or purposes (which according to taxation law be educational objects or purposes) to the exclusion of the other or others of them in such proportion and manner in all respect as the Trustees may in their absolute discretion think proper, that is to say:

      (i)     To      establish,    erect,     equip       and
maintain      or     contribute,        or   aid,    towards
establishment,              erection,         construction,

maintenance of research centres, and/or spiritual centres, bodies, and establishments, townships,

halls and housings, needed for such pursuits, to assist activities such as farms, workshops, schools, meditation halls, reading rooms, libraries, homes, gardens, furnishings, to provide for physical and other needs or such spiritual life, facilities to provide for publications producing needs of the establishments and inmates and to aid in general any non-religious spiritual activity aimed at raising human consciousness, meditation, yogic practices, yogic centres for development of health, hygiene and body, experiment in peaceful, harmonious, truth seeking human life on this earth to aid any individual or institute or organization following similar objectives or helping or aiding others to promote such a life;

         (ii)        To         establish,     erect,     equip      and
maintain             or         contribute      or      aid,   towards
establishment,                      erection,             construction,
maintenance               of     townships,      research      centres,

communities, bodies of people, experimenting for community living and collective living irrespective of caste, religion, sex, or age or country, but aspiring for community living for higher spiritual pursuits, for a life in harmony, peace, and unity and for achieving a growth of consciousness towards divine, and contribute towards

maintenance and support of the inmates of such centres, to assist such activities and provide, meditation halls, reading rooms, libraries, homes, gardens, nurseries, furnishings, equipment yoga centres for development of health, hygiene and body and in general to provide for facilities and physical needs of such life, to provide for publications, printing facilities, or contribute towards publication expenses of such activities, and to aid in general any individual institution, or organization, or group of individuals, promoting or aiding or assisting others, to lead aforesaid community life leading towards higher goals of spirituality, human consciousness, unity, harmony and peace;

XXX

(v) To assist, to establish, to promote any industrial and commercial activity or activities, whose entire proceeds are utilized for supporting for the benefit of activities in 3(i) and 3(ii)

(vi) To establish, erect, equip and maintain or contribute towards establishment, erection equipment and maintenance of colleges, schools, kalamandirs, libraries and free reading rooms.

      XXX




            (xi)    To    establish,     promote,       assist
      educational    institutions    encouraging    literature,

arts, medicine, science, crafts, history, technology education in all branches.

            XXX
            (xiii) To    give   endowments     to    boarding
      houses and hostels;
            XXX
            (8)     The Trust property or any part thereof

shall not be applied for any of the purposes mentioned in this Deed which are not or cease to be educational objects and purpose but only to such of the objects and purpose as may be educational objects or purposes in law and such other objects and purposes of the educational nature as the Trustees may think fit and proper.

9. From conjoint reading of the aforesaid clauses of the

Trust Deed, it is axiomatic that primary purpose / objects of

the assessee enumerated in the Trust Deed are charitable in

nature. The other clauses of the Trust Deed had to be

necessarily read in the context of the aforesaid clauses. The

Tribunal, after taking into account the relevant clauses of the

Trust Deed in paragraphs 5 to 10, has recorded a finding of

fact that the primary object of the Trust is charitable in

nature. Even otherwise, the activities of the assessee as set

out in the Trust Deed are covered within the ambit of

charitable purpose being primarily for education. The

aforesaid finding by the Tribunal has not been assailed as