Madras High Court
Director Of Income Tax Exemptions vs M/S.Shanmuga Arts on 24 June, 2021
Tax Case Appeal No.1059 of 2014
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Reserved Date : 24.06.2021
Pronounced Date : 02.07.2021
CORAM
THE HON'BLE MR.JUSTICE M. DURAISWAMY
AND
THE HON'BLE MRS.JUSTICE R. HEMALATHA
Tax Case Appeal No.1059 of 2014
Director of Income Tax Exemptions,
Chennai ... Appellant
Vs.
M/s.Shanmuga Arts, Science,
Technology & Research
Academy(SASTRA) No.5,
Main road,
Dr. Subbaraya Nagar,
Kodabakkam,
Chennai-24. ...Respondent
PRAYER: Tax Case Appeal filed under Section 260A of the Income
Tax Act, 1961 against the order of the Income Tax Appellate Tribunal,
Chennai "B" Bench, dated 20.07.2011 passed in
I.T.A.No.1531/mds/2010 for the assessment year 2007-2008.
For Appellant : Mr.J. Narayanaswamy
Senior Standing Counsel
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For Respondent : Ms.Pushya Sitaraman
Senior Counsel
for Ms.J. Sree Vidya
JUDGMENT
(Judgment of the Court was delivered by R.HEMALATHA, J.)
This appeal is filed against the order dated 20.07.2011 in
ITA.No.1531/MDS/2009 of ITAT Chennai, Bench-B.
2. The respondent/assessee is a Trust registered under Section
12AA of the Income Tax Act, 1961 vide C.No.1146/III/106/84 dated
03.07.1985. The Trust had filed the return of income for assessment year
2007-2008 on 02.11.2007 for Rs.60,76,26,276/- and claiming exemption
for Rs.6,65,60,886/- being the amount of donation made by it under
Section 11 of the Act. The Assessing Officer had issued a notice
u/s.143(2) of the Act on 21.08.2008 through which the details of
donations made during the period were called for and according to the
Assessing Officer, there was no explanation offered for many donations
made by the Trust as to whether they were for activities in conformity
with the objects of the Trust. Therefore, all the donations were treated as
not exempted and a demand was reworked by the Assessing Officer.
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Consequently, the capital expenditure claimed for Rs.21,00,56,146/- was
not considered as the assessee was being taxed in the status of AOP
(Association of persons) whereas an unclaimed depreciation of
Rs.10,09,67,711/- was allowed for the same reason of status of AOP. It
was also observed by the Assessing Officer that out of a total amount of
Rs.6,70,21,273/- paid as donations, the assessee had claimed only
Rs.6,65,60,886/- in its return explaining that two items of Rs.39,613/-
and Rs.5,00,000/- were given to Charities for Tsunami and to political
parties, individuals and others, out of which Rs.5,00,000/- was recovered
back during the same financial year from the founder
Mr.S.Ramachandra Iyer. The assessee Trust themselves had removed that
amount from the list of donations.
3. The Respondent/Trust, aggrieved over this order, approached
the Commissioner of Income Tax (Appeals) XII, Chennai, who in a 33
page order discussed threadbare as to how the Assessing Officer was
incorrect in concluding that the respondent/Trust was not eligible for the
exemption for the donations made by it. A remand report was called for
by the Commissioner of Income Tax (Appeals) from the Assessing
Officer and the remand report dated 25.05.2010 was also discussed in
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Tax Case Appeal No.1059 of 2014
his order. The Assessing Officer in his remand report had once again
reiterated that the assessee being a deemed University and having
objects solely educational in nature had definitely deviated from the
objects of the Trust deed by making donations to activities which were
not covered by the ambit of the Trust-deed. The Commissioner of
Income Tax (Appeals) concluded that the Trust-deed had empowered the
Trustees to apply the trust funds to anyone or more of the specified
objects of the Trust and the Assessing Officer cannot interfere in the
discretion of the Trustees. Furthermore, it was also held by the
Commissioner of Income Tax (Appeals) that the Assessing Officer ought
to have referred the matter to Commissioner of Income Tax for
withdrawal of the Registration u/s. 12(AA) (3) of the Act and only upon
the receipt of the order of the Commissioner, the denial of exemption
u/s.11 could have been proceeded with. Thus the lack of jurisdiction on
the part of Assessing Officer was also pointed out in that order. It was
further observed that
“out of the total sum of Rs.6,65,60,886/- disbursed by the
appellant towards “Charity and Donations” during the
previous year 2006-07 relevant to the Assessment Year
2007-08, the Assessing Officer has accepted an amount
of Rs.6,50,66,000/- as donations made in pursuant of the
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objects of the Appellant. According to the Assessing
Officer, the balance of Rs.14,94,886/-, constituting 0.34%
of the total expenditure of the appellant, are not in
accordance with the objects of the appellant trust, though
the donations were made for charitable purposes. Hence,
exemption u/s.11 of the Income Tax Act, 1961 was
denied by the Assessing Officer. The appellant had
submitted that the donations specified by the Assessing
Officer were also permitted by the objects of its Trust
Deed dated 19.04.1984.”
4. The Commissioner of Income Tax (Appeals) also relied on the
order of the Andhra Pradesh High Court in the Trustees of H.E.H. the
Nizam's Pilgrimage Money Trust Vs. CWT/IT (171 ITR 323), which
held that
“if any part of the income of the trust has been
applied to charitable or religious purposes in India in the
assessment year 1974-75 or is accumulated or is set
apart for application to such purposes in India, the
income to that extent is entitled to be dealt with under
Section 11 (1) (a) and exemption granted in accordance
with the said section”.
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5. According to the Commissioner of Income Tax (Appeals), it is
immaterial whether the Charitable and religious purposes for which the
Trust is created are confined to the objects of the Trust and what is
required is that the income must be applied or accumulated for
application or set apart for application as per the provisions of the
Income Tax Act, 1961. Thus it was observed that even assuming that the
objects of the Trust do not empower the Trustees to spend any part of the
income of the Trust property for a particular purpose, still if they do
spend any part of the income for charitable or religious purpose in India,
it would be entitled for exemption u/s.11 (1) (a) of the Act for that year.
The Commissioner of Income Tax (Appeals) gave a verdict in favour of
the assessee.
6. The Revenue filed an appeal before the Income Tax Appellate
Tribunal, Chennai Bench – B in ITA.No.1531/MDS/2010. The Income
Tax Appellate Tribunal in its order found that the Assessing Officer in
his remand report had finally accepted almost all the donations except
Rs.14,94,886/- constituting 0.34% of the total expenditure. However, the
Assessing Officer erred in claiming that the application of funds by the
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Trust was contrary to the objects of the Trust. The Income Tax Appellate
Tribunal held that the application of the income was more relevant even
if the objects of the Trust do not empower the Trustees to spend a part of
the income for a particular purpose and that any such expenditure for
charitable or religious purpose would be entitled for exemption u/s.11
(1) (a) of the Act for that year as held by the Andhra Pradesh High Court
in Trustees of H.E.H. the Nizam's Pilgrimage Money Trust Vs.
CWT/IT (171 ITR 323), which was also confirmed by the Apex Court.
It was also concluded by the Income Tax Appellate Tribunal that the
Trust was a Public Charitable Trust as evidenced in the Trust deed dated
19.04.1984 and the supplementary deeds dated 06.05.2000 and
19.01.2001. The Income Tax Appellate Tribunal has upheld the order of
the Commissioner of Income Tax (Appeals).
7. Now the present appeal is filed on the following substantial
questions of law and additional substantial question of law:
Substantial Questions of law:
“1. Whether on the facts and in the circumstances
of the case, the Income Tax Appellate Tribunal was right
in holding that the trust deed dated 19.04.1984 alone
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would be relevant to conclude about the objects and
activities of the trust?
2. Whether on the facts and in the circumstances of
the case, the Income Tax Appellate Tribunal was right in
holding that the income of the trust need not be applied
towards the objects of the trust and it is suffice that
income be applied or accumulated as per the Act
irrespective of the object of the trust deed whether
charitable/religious purpose and thereby holding that the
assessee is entitled for exemption under Section 11?
3. Whether on the facts and in the circumstances of
the case, the Tribunal was right in holding that the
assessee trust is to be treated as a public charitable trust
with the activity of education when the assessee had
amended the trust deed with the main object of education
and the assessee trust is running an educational
institution as a deemed university?
4. Whether on the facts and the circumstances of
the case, the Tribunal was right in holding that the
assessee trust running educational institution by
charging fee can be treated as a public charitable trust
as per Section 2 (15)?
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5. Whether on the facts and in the circumstances of
the case, the Tribunal was right in holding that the
expenditures and donation made by the assessee trust to
related individuals, political parties and others, in
contravention to the objects of the trusts can be ignored
while considering the applicability of exemption under
Section 11?
Additional Question of Law:
“ Whether on the facts and the circumstances of
the case the order of the tribunal is not perverse and
right in holding that the expenditures and donation made
by assessee trust to related individuals, political parties
and others, in contravention to the objects of the trusts,
can be ignored while considering the applicability of
exemption under Section 11”
8. Mr.J.Narayaswamy, learned Senior Standing Counsel for the
Appellant/Revenue argued that the Tribunal was wrong in holding that
the assessee was entitled for the exemption u/s.11 of the Act. According
to him, the Tribunal also erred in interpreting the contents of the Trust-
Deed while declaring the Trust as Public Charitable Trust. It was also
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contended that the Tribunal accepting the view of the Commissioner of
Income Tax (Appeals) that the Assessing Officer was not empowered to
deny exemption u/s.11 of the Act without referring the case to the
Commissioner of Income Tax for withdrawal of Registrations u/s.12AA
(3) of the Act was also erroneous. It was also argued by the Learned
Counsel that the Commissioner of Income Tax (Appeals) as well as the
Tribunal did not reasonably answer the question as to whether the
payments of donations by the Trust were in consonance with the objects
of the Trust. Therefore, his contention was that the Assessing Officer
was right in declaring the donations which were not in conformity with
the objects of the Trust as not entitled for exemption u/s.11 of the Act.
He also contended that the order of both Commissioner of Income Tax
(Appeals) and Income Tax Appellate Tribunal are perverse and liable to
be set aside.
9. Per contra, Ms.Pushya Sitaraman, learned counsel for the
respondent/assessee made certain arguments which are listed below.
(i) The Assessing Officer though in her original report had
declared all the donations to the tune of Rs.6,65,60,886/- as not entitled
for exemption took a complete u-turn in her remand report accepting
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most of the donations as permissible barring a few totalling to
Rs.14,94,886/-
(ii)The Assessing Officer's interpretation that the Trust was
granted Registration under Section 12AA of the Act only based on the
objects of the Trust which were solely educational in nature and any
donations/contribution to activities other than educational purposes were
violative and not entitled for exemption was hypothetical and against the
various rulings of the Courts.
(iii) When there is no violation of provisions of Section 13 of the
Act, exemption u/s.11 cannot be denied.
(iv) Relying on the following decision in Commissioner of
Income-Tax Vs. Rama Krishna Jewellers, the learned counsel for the
assessee contended that concurrent findings of the Commissioner of
Income Tax (Appeals) and Income Tax Appellate Tribunal on factual
issues should not be re-appreciated on appeals unless it is shown to be
ex-facie perverse.
(v) There is no substantial question of law to decide in the instant
case and the findings of both Commissioner of Income Tax (Appeals)
and Income Tax Appellate Tribunal are based on proper reasoning and
analysis.
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10. We have carefully perused the facts of the case, rival
submissions, relevant records including the Assessing Officer's order,
remand report, Commissioner of Income Tax (Appeals)'s order and
Income Tax Appellate Tribunal's order. On a thorough reading of the
Section 11 of the Income Tax Act, it is evident that there is no bar for the
charitable or religious trust to claim the exemption as long as it is applied
in India for such charitable or religious purposes.
Section 11 (1) (a) reads as under:
“Income derived from property held under Trust
wholly for charitable and religious purposes, shall be
exempted -
1) to the extent such income is applied in India for
such purposes and
2) where any such income is accumulated or set
apart for such application to such purpose in
India, t the extent to which the income re-
accumulated or set apart is not in excess of 15% of
the income from such property.
Therefore, it is clear that as per Section 11(1)(a) exemption of
15% of income is unfettered and not subject to any conditions.
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11. The Respondent/Trust is a Public Charitable Trust and doing
educational services. It is not the case of the Appellant that the entire
amount claimed as donations was liable to be disallowed. The remand
report had categorised all the donations made by the Trust into those
which were satisfactorily explained and those which were not. A cursory
glance of the list of beneficiaries would only show that there have been
donations to charitable and religious institutions only and that
philanthropy has been the essence of all the donations.
12. The Commissioner of Income Tax (Appeals) as well as the
Income Tax Appellate Tribunal disagreed with the contention of the
Assessing Officer that withdrawal of registration u/s.12AA is not a pre-
requisite for the denial of exemption under Section 11 of the Act.
13. Section 13 of Income Tax Act, 1961, specifies the
circumstances where exemption under Sections 11 and 12 would not be
available for a Trust. The reasons where Section 13 would be invoked
are
1. Income not for the benefit of Public - Section 13 (1) (G)
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2. Income from Trust for the benefit of a particular religion or caste
( if trust created after 01.04.1962)
3. Any income of the Trust which benefits certain person
4. Income or property used for the benefit of a person.
14. The compliance of the following main condition is essential
for claiming exemption under Section 11:
a) Trust must have been created for any lawful purpose
b) Such trust/institution must be for charitable/religious purposes.
15. According to Section 2(15), charitable purpose includes relief
of the poor, education, yoga, medical relief, preservation of environment
and preservation of monuments or places or objects of artistic or historic
interest and the advancement of any other object of general public
utility.
16. Trust/institution covered under advancement of any other
object of general public utility can do commercial activities upto 20% of
its total receipts [Proviso to section 2(15)]
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17. The advancement 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, unless,—
i) such activity is undertaken in the course of
actual carrying out of such advancement of any
other object of general public utility; and
ii) the aggregate receipts from such activity
or activities, during the previous year, do not
exceed 20% of the total receipts, of the trust
or institution undertaking such activity or
activities, for the previous year.
18. In the instant case, the Assessing Officer had first disallowed
the entire exemption and subsequently scaled it down to Rs.14,94,886/-
though reiterating that the Respondent/Trust had acted in violation of its
own object set out in the Trust deed. If the Assessing Officer had
objection regarding the entire amount of donation, then her remand
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report should not have accepted any of the donations with valid reasons.
19. Moreover, Charity is clearly defined as relief of the poor,
education, yoga, medical relief, preservation of environment, etc., Thus
public charitable trust donating to activities other than education cannot
be denied exemption u/s.11 of the Act. Therefore, the conclusion of the
Assessing Officer is totally unwarranted.
20. In view of the aforesaid submissions, we do not see any reason
to interfere with the order of the Commissioner of Income Tax (Appeals)
and Income Tax Appellate Tribunal. We reject the grounds of appeal
taken by the Revenue. There is no iota of perversity in their orders.
Therefore, all the substantial questions of law and additional substantial
question of law are answered against the Appellant/Revenue.
21. In the result, the appeal is dismissed. There shall be no order as
to costs.
Index : Yes/No [M.D., J.] [R.H., J.]
Internet : Yes 02.07.2021
gv
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To
1.Director of Income Tax Exemptions,
Chennai.
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M. DURAISWAMY, J.
and
R. HEMALATHA, J.
gv
Pre-delivery Judgment
in
Tax Case Appeal No.1059 of 2014
02.07.2021
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