Punjab-Haryana High Court
Tilok Tirath Vidyawati Chuttan vs Commissioner Of Income Tax on 17 January, 2025
Author: Sanjeev Prakash Sharma
Bench: Sanjeev Prakash Sharma
Neutral Citation No:=2025:PHHC:007264-DB
CWP-350-2000 (O&M) AND
CWP-1311-2000 (O&M) -1-
IN THE HIGH COURT OF PUNJAB AND HARYANA AT
CHANDIGARH
204
Judgment reserved on: December 12, 2024
Judgment pronounced on: 17-01-2025
1. CWP-350-2000 (O&M)
Tilok Tirath Vidyavati Chhuttani Trust
. . . Petitioner
Versus
Commissioner of Income Tax, Chandigarh and another
. . . Respondents
2. CWP-1311-2000 (O&M)
Tilok Tirath Vidyavati Chhuttani Trust
. . . Petitioner
Versus
Union of India and others
. . . Respondents
CORAM: HON'BLE MR. JUSTICE SANJEEV PRAKASH SHARMA
HON'BLE MR. JUSTICE SANJAY VASHISTH
Present: Mr. Shantanu Bansal, Advocate
for the petitioner - Trust.
Mr. Varun Issar, Senior Standing Counsel,
for the respondents - Revenue.
****
SANJAY VASHISTH, J.
1. By this common order Civil Writ Petitions Nos. 350 and 1311,
both of 2000, would get disposed of, as the broad facts and issues involved
therein are similar. In fact, in both the cases, petitioner - Trust has been
denied the renewal benefit of tax relief under Section 80-G of the Income
Tax Act, 1961.
For brevity, facts are being referred from CWP No. 350 of
2000.
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2. By virtue of Trust Deed/Memorandum of Association dated
31.03.1972, Tilok Tirath Vidyavati Chhuttani Charitable Trust (hereafter
referred to as 'petitioner-Trust') came into being. As per Article 4 of the
Trust Deed, the objects of the petitioner-Trust are as under:-
"4. The objects of the Trust are affording medical relief, and
encouraging medical research and for that purpose:-
i) to assist, contribute and augment the development and
maintenance of the Post Graduate Institute of Medical
Education and Research, Chandigarh, grant research
stipends, scholarship or provide help to deserving faculty
members, trainees and/or patients therein;
ii) to maintain, establish, finance, subsidise, exclusively or
partly, or give grants-in-aid, recurring or otherwise for
the maintenance of hospitals, clinics, dispensaries,
nursery schools or other establishments of like nature;
and
iii) to assist, subsidise, contribute foreign travel in
furtherance of or advance of medical sciences (research)
in all its branches;
Provided that the funds made available to the said Post-
graduate Institute or any other society may be subject to such
conditions as to accounting or for being spent on specified
objects as the Trustees may from time to time think fit to
impose.
Provided, however, that any contribution by the Trustees
to any other Trust, society, institutions, fund, scheme, or
project, having as its sole objects all or any of the aforesaid
objects shall mean furtherance of the objects of this Trust.
Provided, always, that no part of the income or corpus of
the Trust shall be applied directly or indirectly for the benefit of
the Founders or their relatives or other persons specified in
section 13 of the Income-tax Act, 1961, as amended from time
to time or in any other law governing Trusts.
Provided, always, that should any of the objects above
mentioned fall outside the scope of exemption from income-tax
under the law for the time being in force in India or of the
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provisions of any other tax law relating to public trusts, the
Founders in their life time and thereafter the Trustees may, by a
supplementary deed, delete any of the objects, or any part of
them from the object of the Trust, so, however, that the nature
of the Trust is not substantially altered."
3. On 17.08.1973, petitioner-Trust applied for registration under
Section 12-A(a) of the Income Tax Act, 1961 (hereafter referred to as 'the
1961 Act'), which was allowed by the Commissioner of Income-tax, Patiala,
vide Certificate dated 12.02.1976 (Annexure P-1). Thereafter, pursuant to
application dated 16.01.1997 made by the petitioner-Trust, another
Certificate dated 19/21.05.1997 (Annexure P-2), was issued by the
Commissioner of Income-tax, Patiala, to the effect that the petitioner-Trust
will be eligible for the tax relief under Section 80-G of the 1961 Act, in the
hands of the donors subject to the limits and conditions prescribed in the
said section. It was further stipulated that the said exemptions will be valid
for the period ending 31.03.1993 to 31.03.1997 (relevant to the Assessment
Years 1993-94 to 1997-98). While granting exemption under Section 80-G
of the 1961 Act, following notes were also inserted in the certificate dated
19/21.05.1997 (Annexure P-2):
"NOTE:
1. Receipts issued to the donors should bear the number and
date of this order should state clearly that this certificate is
valid upto 31.3.1997.
2. Statements of accounts, receipts and expenditure and
balance sheets should be submitted annually to the Income Tax
Officer, Ward-10, Chandigarh.
3. The Amendments, if any, made to the constitution should
be intimated to this office immediately.
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4. If any further renewal is required, an application has tobe
made to the concerned Assessing Officer together with
statements of accounts of receipts and expenditure."
Further, while endorsing copy of the certificate dated
19/21.05.1997 (Annexure P-2), to the Income-tax Officer, Ward-10,
Chandigarh, it was mentioned as under:-
"2. The Income-tax Officer, Ward-10, Chandigarh. He
should verify and satisfy himself with the annual statements
which will be submitted by the applicant that it continues to
fulfill the conditions of section 80-G and, instructions issued by
the Board from time to time."
4. While considering the application for renewal of exemption
under Section 80G of the 1961 Act and the income tax returns for the
Assessment Year 1996-97, the Commissioner of Income-tax, Chandigarh
(respondent No. 1 in CWP-350-2000) issued a show cause notice dated
17.02.1999 (Annexure P-21), to the petitioner-Trust, inter alia, mentioning
therein that it was noticed that the petitioner-Trust was not working for the
objects for which it was created, as a hospital was being run on the 4 th floor
of SCO 52-54, Sector 17, Chandigarh and on the first floor of the said
building an organisation by the name of 'Chandigarh Medical Center' was
being run, wherein a large number of doctors were carrying out their private
practices by using the facility, building and manpower of the Trust and in
return they used to pay to the Trust either a fix amount per month or fixed
percentage of their receipt. This arrangement between the doctors and the
petitioner-Trust amounted to take the premises of the Trust on rent and
carrying private practice. Thus, no charitable work was being carried out.
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In the said show cause notice, it was further pointed that the
petitioner-Trust had donated Rs. 29,00,000/- to a society, namely, Sardarni
Uttam Kaur Charitable Society, and its objects (as per Trust Deed of said
society) were not in any way connected with the objects of the petitioner-
Trust. Apart this, by citing details of other donations made by the petitioner-
Trust to other Societies and PGI etc., it was concluded that the petitioner-
Trust was utilizing the interest income of its corpus fund in making
donations to the Trusts/Societies not connected in any way to its objects, and
no charitable work was being done and no medical research was undertaken.
5. Responding to the show cause notice dated 17.02.1999
(Annexure P-21), the petitioner-Trust filed a detailed reply dated 23.02.1999
(Annexure P-3), wherein it has been explained that Chuttani Medical Center
was functioning in the basement, 2nd, 3rd and 4th floors of the building,
whereas Chandigarh Medical Center, was functioning on the first floor,
which was set up by Dr. P.N. Chuttani after his retirement in 1978.
Petitioner-Trust has been providing medical facilities by arranging the
consultant doctors under one roof and doing charitable work. Admitted that
the consultant charge their fees and pay rent for the accommodation
provided to them or permit deduction for certain percentage out of their fees.
It was disclosed that a sum of Rs. 15,000/- per month was being paid by
them to the Trust for maintenance of the first floor.
In the said reply, it was pointed out that the petitioner-Trust
runs Operation Theatres and Nursing Home on the 2 nd and 3rd floor of the
building complex, and no hospital is being run by it on the 4 th floor, where
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an out patient is being run with investigative facilities like E.C.G. and
Endoscopic examination. The fee charged from the patients is very
reasonable and nominal for conducting various examinations, as compared
to the charges at other Medical Centers/Nursing Homes. In fact, for
providing all the facilities, the petitioner-Trust suffer loss, which is met from
the income from other sources. Besides this, the petitioner-Trust engage the
services of Junior Doctors, two Specialist of Medical and Radiology, nurses
and other staff for running its center.
Further, it was submitted that the petitioner-Trust approached
the PGI for establishing the Center for Tropical Medicines and
Communicable Diseases and for this purpose proposed to provide a sum of
Rs. 50,00,000/- per annum to the PGI. This proposal was under
consideration of the PGI and Ministry of Health, Government of India.
So far as giving of donation to Sardarni Uttam Kaur Education
Society, Village and Post Office Sarai Naga, Faridkot, it was explained that
the said organization is duly registered and recognized by the Income-tax
Department under Section 12A and it has also been granted certificate under
Section 80G of the 1961 Act. The donation was given to it for the purpose
of setting up an Educational Institution, which is covered under Clause 4(ii)
of the Objects of the petitioner-Trust.
Thus, it was requested by the petitioner-Trust not to take any
action for cancellation of registration under Section 12A of the 1961 Act.
6. Respondent No. 1 (in CWP-350-2000) sought further
information and documents from the petitioner-Trust, vide letter dated
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01.03.1999 (Annexure P-4), to which a detailed reply dated 09.03.1999
(Annexure P-5), was furnished by the petitioner-Trust. However, not
satisfied with the reply, again a show cause notice dated 19.03.1999
(Annexure P-6) was issued calling upon the petitioner-Trust as to why
registration under Section 12A of the 1961 Act be not cancelled. Reply to
the show cause notice was filed on 24.03.1999 (Annexure P-7) by the
petitioner-Trust by highlighting that the activities being performed by it are
in consonance with the objects. In support of the submissions made in its
reply, the petitioner-Trust placed reliance on the judgments in the cases of
M.A. Namzie Endownment v. CIT, (1998) 174 ITR 58, 72 & 73; Bihar
Institute of Mining and Mine Surveying v. CIT, 208 ITR 608; Nachimuthu
Industrial Association v. CIT, 235 ITR 190; CIT v. Bar Council of
Maharashtra, (1981) 130 ITR 28; CIT v. Rajan Lal Misra, (1966) 131
Taxation 263, 267; Umaid Charitable Trust v. CIT, (1980) 125 ITR 55
(Raj.); CIT v. Nehru Pasvula Santha and Gramabhivrudhi Sangam, (1975)
Tax LR 246, 250 (AP); Aditnar Educational Institution v. Additional
Commissioner of Income Tax, (1977) 210 ITR 310, 318B; Sreenarayam
Chandrika Trust v. CIT, (1966) 224 ITR 445; CIT v. Chandrika Educational
Society, (1966) 224 ITR 449; Chandrika Educational Trust v. CIT, (1966)
224 ITR 453; CIT v. J.K. Charitable Trust, (1992) 196 ITR 31, 44 (All); and
CIT v. Andhra Chamber of Commerce, (1965) 55 ITR 722 (SC).
7. After noticing the replies and the documents submitted by the
petitioner-Trust, as also the material collected by concerned Assessing
Officer, the Commissioner of Income-tax, Chandigarh, passed a detailed
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order dated 24.09.1999 (Annexure P-8), thereby rejected the application of
the petitioner-Trust for continuation of approval of exemption under Section
80G of the 1961. Concluding para of the order dated 24.09.1999 (Annexure
P-8), which is subject matter of challenge in CWP-350-2000, reads as
under:-
" In this background, it has now been seen as to whether
the assessee Trust deserves to be granted continuation of
approval for exemption u/s 80G. From the evidence brought on
record by the Assessing Officer as also from the facts as
narrated above, it comes out that the applicant Trust has not
done anything towards achieving the objects of the Trust i.e. it
has neither afforded medical relief nor it has encouraged
medical research in any manner. The renewal for exemption
u/s 80G is given for the future, i.e. for the period yet to come
and that is to enable the Institution/Trust to carry on with the
activities. From the evidence on the record, it has been
established that the applicant in the previous years has not
devoted itself either for charitable work or for the furtherance
of the objects of the trust. In fact, the income of the Trust was
subjected to tax for the year 1996-97. Since the trust has not
applied itself for furtherance of objects in earlier years and
keeping this in view, the continuation of approval of exemption
u/s 80G is denied and the application of the applicant is,
therefore, rejected."
8. By filing a written statement, respondents defended the
impugned order dated 24.09.1999 (Annexure P-8), asserting that
predominate objects of the petitioner-Trust was to earn profit and it has not
done anything charitable in nature. The impugned order has been passed in
accordance with law only after issuing show cause notices and affording due
opportunity of hearing. Throughout, the petitioner-Trust failed to adduce
any evidence to establish that it has been providing low cost medical aid to
the public of Chandigarh and surrounding States of Himachal, Punjab and
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Haryana. Not a single rupee was spent by the petitioner-Trust on medical
research. Only in one year, it has donated a sum of Rs.30,000/- to the PGI,
Chandigarh, whereas donation to the tune of Rs.29,00,000/- and
Rs.25,00,000/- respectively were made to Sardarni Uttam Kaur Education
Society during two financial years i.e. 1994-95 and 1995-96 (Assessment
Years 1995-96 and 1996-97), which have been utilised by Sardarni Uttam
Kaur Education Society for further financing in the companies
owned/belonging to the family members of the President & Vice-President
of the said society. It has also been pointed out that the trustees of the
Sardarni Uttam Kaur Education Society are indirectly related to the trustees
of the petitioner-Trust. For example, Miss Babli Brar, President of Sardarni
Uttam Kaur Education Society, is the daughter of Mrs. G.K. Brar, who was
Chairperson of another society, i.e. Cancer Society of North India, in which
Dr. P.N. Chuttani, Dr. I.C. Pathak and Dr. Y.N. Mehra, were also trustees
and they are also trustees in the petitioner-Trust. Specific stand taken in the
written statement is that Sardarni Uttam Kaur Education Society, in fact, has
been created only to be used as a conduit for passing on of the funds of the
petitioner-Trust, for the benefit of Brar Group of Companies.
Claim of the petitioner-Trust that it run into losses by providing
medical relief or encouraging medical research, has also been denied. It has
been pointed out that petitioner-Trust had paid rent ranging from Rs.
5,66,077/- to Rs. 7,39,200/- per annum during four years to the owners of
the building, which includes the founder trustee, namely, Late Shri P.N.
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Chuttani. The rent alone constituted 12.01% to 25.84% of the total
expenditure during four years.
Main reason for rejection of the claim of the petitioner-Trust for
continuation of the exemption under Section 80G of the 1961 Act, is that it
failed to carry out its object, thus, not entitled to claim the benefit under said
provision of law, and there is no illegality or perversity in passing the
impugned order dated 24.09.1999 (Annexure P-8).
Challenge in CWP-1311-2000
9. By filing separate petition i.e. CWP No. 1311 of 2000, the
petitioner-Trust has sought quashing of notice dated 31.08.1999 (Annexure
P-10), issued by the Income Tax Officer, Ward 2(1), Chandigarh,
mentioning that the income chargeable to tax for the assessment year 1995-
96 of the petitioner-Trust has escaped assessment within the meaning of
Section 147 of the 1961 Act, therefore, it was proposed to assess/re-
assess/re-complete the income/loss/depreciation allowance for the said
assessment year. The petitioner-Trust was asked to file a return in the
prescribed form, within 30 days from the date of service of said notice.
Other than this, the petitioner-Trust also challenged another
show cause notice dated 11.01.2000 (Annexure P-13), as to why donation
made to Sardarni Uttam Kaur Educational Society by the petitioner-Trust be
not disallowed.
10. We have examined the record before us, and also heard the
counsel from both the sides.
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11. Vide registration Certificate No.Judl/Reg.CR/73-74/6-T/37157,
dated 12.02.1976, petitioner - Trust was issued a registration certificate by
the Commissioner of Income Tax, Patiala, under Section 12-A(a) of the IT
Act.
Looking at the object of this Trust, it was exempted from the
purview of Income Tax Act under Section 80-G for the year 1993 to 1997.
Object of the Trust was to provide quality, but with low cost medical aid to
the public of Chandigarh and surrounding States i.e. Punjab and Haryana. It
is also contended that the object was to provide basic as well as specialized
medical care under one roof, so as to provide free/subsidized medical aid
and diagnostic facilities to the deserving patients, who were not in a capacity
to pay the higher expenses. In the premises of the petitioner - Trust and to
achieve its object one Chhuttani Medical Centre was also running there to
provide quality and low cost medical aid to the patients at no profit and no
loss basis. As per the contention, it had been running in losses also.
12. From the pleadings, we find that on raising questions by the
respondents in the year 1999 certain explanations were submitted by the
Trust explaining therein its activities and the funds being used to achieve the
objects as detailed in clause 4 of the petitioner - Trust, and none of the
expenditure is being used for one's personal benefits. After being satisfied,
the registration of the certificate under Section 12-A(a) of the IT Act was
never cancelled and was continued by the respondents.
13. In regard to the exemption under Section 80-G of the IT Act,
one notice dated 17/21.09.1999 was issued by the petitioner - Trust and in
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response thereto, the request sent by the petitioner - Trust for continuation
of the registration under Section 80-G of the IT Act. However, vide
impugned order dated 24.09.1999, application of the petitioner - Trust for
extension of the exemption under Section 80-G of the IT, was declined.
14. Case before us is not of cancellation of the registration, rather,
it is declining the grant of exemption under Section 80-G of the IT Act for
the future period also.
To our mind, the impugned action of the respondents is in self
contradiction, because on one hand the objects of the petitioner - Trust
explained in clause 4, is the part of the registration and based upon the said
object, exemption under Section 80-G of the IT Act, was granted for
Assessment Year 1998-1999 to 2000-2001. However, in the impugned
order, basically two grounds have been taken for declining the exemption,
i.e.;
(a) The Trust has not provided facility of space to the
Doctors of various specialties under one roof;
(b) The Trust has given donations to various organizations.
15. While examining both the issues, respondents have discussed
the donations of Rs.26,12,500/- and Rs.29,51,871/-, which were given to the
institution namely; Sardarni Uttam Kaur Educational Society. In this view,
Assessing Officer (A.O.) has noticed that object of the Trust do not permit
the trustees to apply the income for donations to other trusts and thus, action
of the trustees was held to be illegal. Only on this basis, the Assessing
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Officer drew its' conclusion that neither any charitable work was done by
the Trust nor any medical relief or encroachment of medical research has
been provided for the last many years. While saying so, it took note of
donations made during the Assessment Year 1992-93 to 1997-98 and found
that except two donations for the Assessment Year 1995-96 and 1996-97. In
all other areas, the donations are very meager. Thus raised its demand about
these two donations only. Probably, while raising suspicion, the Assessing
Officer failed in noticing the amount of the cross receipt during these years,
which are Rs.3,54,46,069/- and Rs.59,83,090/-, respectively.
16. The gross amount received and the donations made by the
petitioner - Trust, as discussed in the impugned order is as under:-
Cross Receipt Donation
Asstt. Year (Amt. in Rs.) (Amt. in Rs.)
1992-93 11,42,062/- 21,626/-
1993-94 17,30,549/- 41,043/-
1994-95 22,56,884/- 64,558/-
1995-96 3,54,46,069/- 26,12,500/-*
1996-97 59,83,090/- 29,51,871/-*
1997-98 99,91,384/- 15,000/-
17. We find that for drawing such a conclusion, the order is based
only on assumptions and there is not supportive evidence, collective or
discussed in that regard.
For the impugned action, we are also unable to find that until
some action is taken by the respondents by saying that it does not deserve
any registration because of failure to meet out the objects mentioned in
clause 8 of the registration, targeting the donations alleging the same to be
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against the object, would not satisfy us. There would not be any dispute to
the effect that the petitioner - Trust runs only one "Chhuttani Medical
Centre". Therefore, the donations made to it cannot be doubted merely for
the reason that the donations in other years are of smaller amount.
Respondents have not taken note of the fact that the petitioner - Trust had
been making donations to Sardarni Uttam Kaur Charitable Society, which is
also registered under Section 12-A of the IT Act and had been granted
exemption under Section 80-G of the IT Act. Neither from the record, nor
anything pointed out by the respondents that their action is in pursuance to
the complaint from any person/organization/society, to which the medical
services are being provided by the petitioner - Trust.
Actually, the respondents were required to convince itself, as to
whether the petitioner - Trust is meeting out its charitable purpose or not ?
Once the foundation of registration under Section 12-A of the IT Act is not
questioned, the ancillary expenses to achieve the object of the Trust, as
enshrined in the Memorandum of Object and Terms, there is no point of
raising mere suspicion on the donations, which many a times are ancillary in
nature and though directly or indirectly meet out the object of its
registration. The case of Sonepat Hindu Education and Charitable Society v.
Commissioner of Income Tax and another, (2005) 278 ITR 262 (P&H) :
Law Finder Doc Id #684789, objection of the CIT, which was based merely
on technical ground, was found unsustainable. The relevant finding
recorded therein is as under:-
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"16. We are of the opinion that, in view of the fact that the
petitioner had enjoyed approval under section 80G of the Act
from the year 1991 to March 31, 1999, i.e., even after the
amendment of its objects on September 17, 1999, and after the
insertion of clause (vi) with effect from October 1, 1991, the
Commissioner was not justified in holding that either fresh
registration under section 12A(a) of the Act was required or
the memorandum should have been amended as per the
procedure laid down in section 92 of the Code of Civil
Procedure. In Radhasoami Satsang v. Commissioner of
Income Tax, (1992) 193 ITR 321 their Lordships of the
Supreme Court, inter alia, observed that though strictly
speaking, res judicata does not apply to income-tax
proceedings, where a fundamental aspect permeating through
the different assessment years has been found as a fact one
way or the other and parties have allowed that position to be
sustained by not challenging the order, it would not be, at all,
appropriate to allow the position to be changed in a subsequent
year. We feel that these observations are quite apposite in the
present case. The ratio of the decision of the apex court in
Nizam's case (2000) 243 ITR 676 is not attracted in this case.
17. As regards the question whether the petitioner's income
would be liable to be included in its 5 / 6 LAW FINDER
Submitted By: Hon'ble Mr.Justice Sanjay Vashisth PDF
downloaded from the online archives of Chawla
Publications(P) Ltd. total income under the provisions of
sections 11 and 12 of the Act, a bare perusal of the said
provisions would show that there are various factors, like the
nature of contributions ; the quantum of income set apart and
accumulated for application in future for specified purposes
which would require consideration to determine whether the
income derived by such trust or society would be liable to be
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included in the total income. It will thus be not possible, to
determine on the date when a donation is made for deduction
under section 80G, as to what will be the position as on the
end of the relevant previous year of the society or the trust,
who had sought approval under section 80G of the Act. We
have no hesitation in holding that the scope of enquiry by the
Commissioner, while dealing with the application under
section 80G(5)(vi) of the Act, extends to eligibility to
exemption under various provisions of the Act, referred to in
that sub-section, but not to actual computation of income
under the Act, particularly when a society or a trust is claiming
exemptions under sections 11 and 12 and not under section 10
of the Act. It needs little emphasis that the enquiry for the said
purpose relates to whether the applicant is registered under
section 12A ; whether it is a trust wholly for charitable
purposes and whether the income received by it is liable to be
considered under section 11 of the Act. The enquiry whether at
the end of the previous year, the donor will be able to sustain a
claim because of non-fulfilment of some conditions by him
would depend at the close of the relevant previous year, as it is
not possible to predicate these conditions in praesenti when the
donation is made.
18. In so far as exemption under section 10(23C) of the Act
is concerned, for the view we have taken above on the
application of sections 11 and 12 of the Act, exemption under
the said provision would not be necessary to make the
petitioner eligible for approval under section 80G. None the
less, it is stated that the application for claiming exemption
under the said provision is also pending for the past few years.
19. For the foregoing reasons, we are of the view that the
impugned order of the Commissioner refusing approval to the
petitioner-society under section 80G of the Act is founded on
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irrelevant considerations and, therefore, cannot be sustained.
Consequently, we allow the writ petition ; make the rule
absolute, quash the impugned order and direct the
Commissioner to take a fresh decision on the petitioner's
application in accordance with law. There will, however, be no
order as to costs."
18. Similarly, Delhi High Court, in the case of Kirti Chand
Tarawati Charitable Trust v. Director of Income Tax (Exemptions) and
others, (1998) 232 ITR 11, observed as under:-
"12. It follows that while dealing with a tax law the realities,
and not devices and subterfuges, have to be seen. The vision
cannot be permitted to be blurred by the blinkers of colourable
devices and dubious methods.
13. Shri C.S. Aggarwal, learned counsel for the petitioner,
submitted that for the purpose of determining charitable
purpose of the Trust, the respondents should have confined
their attention and scope of scrutiny only to the purposes as set
out in the deed of Trust without digressing to actual activities
carried on by the Trust. It was also submitted that the scheme
underlying the relevant provisions of the Income-tax Act
shows that the legislative intent is to grant the donations made
to a charitable trust exemption from payment of income tax
and if a donor makes donations to a trust with charitable
purpose as spelled out from the objects set out in the deed of
trust then the donations must enjoy exemption though in the
event of the donation being misused or misutilised for
purposes other than charitable, the Trust may be liable to
assessment under the appropriate provisions and may also face
penal consequences; however, this has nothing to do with the
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grant of recognition under Section 80G of the Act, submitted
the learned counsel. We are not impressed.
14. It is not disputed that the objects of the Trust as set out
in the deed of declaration are charitable. However, on-the-spot
enquiry conducted by the respondents has revealed the Trust
being engaged mainly in the construction of a religious temple
wherein no charitable activity was being carried on. It is also
not disputed that the donations received by the Trust and
enjoying exemption under Section 80G were invested by the
petitioner and the income derived therefrom was utilised for a
religious purpose.
15. For the purpose of construing the purpose of a Trust,
one need not remain necessarily confined to the objects of the
Trust as set out in the deed of declaration. The real purpose of
establishment of a Trust has to be found out and spelled out.
'Purpose' means that which one sets before him to accomplish
or attend, an intention or aim object, plan, project; Term is
synonymous with the ends sought and an object to attain, an
intention, etc. (see Black's Law Dictionary, 6th Edn, page
1236). Purpose must obviously be construed as real purpose
and not a purpose as it outwardly appears to be. Any other
interpretation would permit a fraud being played on the law
permitting exemption from taxation. If the argument of the
learned counsel for the petitioner was to be accepted then a
trust may be established with a purpose as set out in the deed
of declaration which appears to be highly charitable but the
Trust may in fact be engaged in such activities which cannot
even remotely be called charitable, and yet the donations made
to the Trust would enjoy exemption. The authority conferred
with power to grant exemption is not debarred from finding
out the real purpose as distinguished from the ostensible
purpose and if it may find that the purpose of the trust was
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other than charitable then nothing debars the authority from
denying the approval.
16. Once a trust has approval from the Commissioner, the
trust can persuade the donors into making donations. The
donors would be persuaded to make such donations influenced
by the approval unmindful of the fact that their donations were
going to be utilised for religious purpose as distinguished from
charitable purpose- the distinction which the Parliament has
chosen to keep in view while framing Section 80G. Purpose of
establishment- the real purpose as distinguished from the
ostensible purpose- is germane to the enquiry which the
Commissioner has to hold while granting approval under
Section 80G(5)(vi). We are not prepared to place any such
interpretation on the language implied in Section 80G so as to
uphold an obligation on the part of the Commissioner to grant
an approval to a trust merely by looking at the instrument
creating the Trust and shutting its eyes towards the activities
actually carried out by it.
17. The second contention of the learned counsel for the
petitioner also deserves to be discarded. Having received
donations for charitable purposes, instead of being spent on
charity, are utilised for investing so as to earn the returns
thereon and utilise the same for purposes other than charitable
(religious in the case at hand). Obviously the donations are
being utilised for purposes other than charity though indirectly.
18. We are, therefore, of the opinion that no fault can be
found with the impugned order of the respondent denying
renewal of recognition under Section 80G of the Income-tax
Act, 1961 to the petitioner Trust for the period 1.4.1996
onwards. The petition is devoid of merit and liable to be
dismissed. It is dismissed accordingly though without any
order as to the costs."
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19. We also find that recently, Hon'ble Apex Court while
considering the requirement of continuing the registration for an Educational
Trust, in the case of M/s New Noble Educational Society v. Chief
Commissioner of Income Tax-1 and another, (2023) 6 SCC 649, proceeded
to hold that the word 'solely' would also mean that the ancillary work,
which may be carried out by the Society for the purpose of enhancing
education, would also be treated as work for charitable purposes. The
relevant finding recorded therein, is as under:-
"69. This court is of the opinion that the findings in the
impugned judgment on this aspect are sound. The requirement
of registration of every charitable institution is not optional.
Aside from the fact that the consequences of non-registration
are penal, which indicates the mandatory nature of the
provisions of the A.P. Charities Act, such local laws provide
the regulatory framework by which annual accounts, manner of
choosing the governing body (in terms of the founding
instrument: trust, society, etc.), acquisition and disposal of
properties, etc. are constantly monitored. Entry 32 of List II of
the Seventh Schedule to the Constitution reads as follows:
"32. Incorporation, regulation and winding up of
corporations, other than those specified in List I, and
universities; unincorporated trading, literary, scientific,
religious and other societies and associations;
cooperative societies."
By Entry 28, List III of the Seventh Schedule, the states
have undoubted power to enact on the subject of
charities:
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"28. Charities and charitable institutions, charitable and
religious endowments and religious institutions."
The A.P. Charities Act provides a statutory regulatory
framework in regard to activities of charitable
institutions in the state. Sections 72-74 deal with surplus
funds and their treatment; Sections 75-77 deal with
properties of trusts and charitable institutions and
restrictions on transfers. These and other provisions
enable the State, which is concerned in the proper
administration of such organizations, to ensure that they
are managed efficiently without misfeasance. They also
contain provisions to protect the interests of trusts,
especially funds and properties.
70. In view of the above discussion, it is held that charitable
institutions and societies, which may be regulated by other state
laws, have to comply with them-just as in the case of laws
regulating education (at all levels). Compliance with or
registration under those laws, are also a relevant consideration
which can legitimately weigh with the Commissioner or other
concerned authority, while deciding applications for approval
under Section 10 (23C).
71. This reasoning equally applies especially in Section
11(4A) which speaks of profits incidental which specifies that
exemption in relation to income or trust of an institution which
are profits or means of business cannot be exempted `unless the
business is incidental, trust or as the case may be institution and
separate books of accounts are maintained by such trusts or
institution in respect of such business '. Thus, the underlying
objective of seventh proviso to Section 10(23C) and of Section
11(4A) are identical. These have to be read in the light of the
main provision which spells out the conditions for exemption
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under Section 10(23C) - the same conditions would apply
equally to the other sub-clauses of Section 10(23C) that deal
with education, medical institution, hospitals etc.
72. What then is `incidental' business activity in relation to
education? Imparting education through schools, colleges and
other such institutions would be per se charity. Apart from that
there could be activities incidental to providing education. One
example is of text books. This court in a previous ruling in
Assam State Text Book Production & Publication Corpn. Ltd.
v. Commissioner of Income Tax (2009) 17 SCC 391 has held
that dealing in text books is part of a larger educational activity.
The Court was concerned with State established institutions
that published and sold text books. It was held that if an
institution facilitated learning of its pupils by sourcing and
providing text books, such activity would be `incidental' to
education. Similarly, if a school or other educational institution
ran its own buses and provided bus facilities to transport
children, that too would be an activity incidental to education.
There can be similar instances such as providing summer
camps for pupils' special educational courses, such as relating
to computers etc., which may benefit its pupils in their pursuit
of learning.
73. However, where institutions provide their premises or
infrastructure to other entities, trusts, societies etc., for the
purposes of conducting workshops, seminars or even
educational courses (which the concerned trust is not actually
imparting) and outsiders are permitted to enrol in such
seminars, workshops, courses etc., then the income derived
from such activity cannot be characterised as part of education
or `incidental' to the imparting education. Such income can
properly fall under the other heads of income.
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74. In R.R.M Educational Society's appeal before this court,
the charitable status of the appellant within Section 10(23C)
was denied inter alia on the ground that the institution was not
merely imparting education but also was running hostels. It is
clarified that providing hostel facilities to pupils would be an
activity incidental to imparting education. It is unclear from the
record whether R.R.M Educational Society was providing
hostel facility only to its students or to others as well. If the
institution provided hostel and allied facilities (such as catering
etc.) only to its students, that activity would clearly be
`incidental' to the objective of imparting education.
75. The last ground urged was with respect to the refusal by
the Commissioner to register certain institutions who had
amended their objectives. This court is of the opinion that the
impugned judgment cannot be faulted with in rejecting the
challenge by the appellant societies and trusts, because the
requirement of trust or societies applying for registration or
approval under the provisos to Section 10(23)(C) spell out a
specific time (before 30 September). As the High Court has
observed, there is no provision to extend such a deadline. In the
circumstances for the concerned year, the reasoning of the High
Court in refusing to interfere with the concerned authorities
decisions to approve or reject the registration of the institution,
is hereby affirmed.
76. The conclusions of this court are summarized as follows:
a. It is held that the requirement of the charitable
institution, society or trust etc., to `solely' engage
itself in education or educational activities, and not
engage in any activity of profit, means that such
institutions cannot have objects which are
unrelated to education. In other words, all objects
of the society, trust etc., must relate to imparting
education or be in relation to educational
activities.
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b. Where the objective of the institution appears to be
profit-oriented, such institutions would not be
entitled to approval under Section 10(23C) of the
IT Act. At the same time, where surplus accrues in
a given year or set of years per se, it is not a bar,
provided such surplus is generated in the course of
providing education or educational activities.
c. The seventh proviso to Section 10(23C), as well as
Section 11(4A) refer to profits which may be
`incidentally' generated or earned by the charitable
institution. In the present case, the same is
applicable only to those institutions which impart
education or are engaged in activities connected to
education.
d. The reference to `business' and `profits' in the
seventh proviso to Section 10(23C) and Section
11(4A) merely means that the profits of business
which is `incidental' to educational activity - as
explained in the earlier part of the judgment i.e.,
relating to education such as sale of text books,
providing school bus facilities, hostel facilities,
etc.
e. The reasoning and conclusions in American Hotel
(supra) and Queen's Education Society (supra) so
far as they pertain to the interpretation of
expression `solely' are hereby disapproved. The
judgments are accordingly overruled to that extent.
f. While considering applications for approval under
Section 10(23C), the Commissioner or the
concerned authority as the case may be under the
second proviso is not bound to examine only the
objects of the institution. To ascertain the
genuineness of the institution and the manner of its
functioning, the Commissioner or other authority
is free to call for the audited accounts or other
such documents for recording satisfaction where
the society, trust or institution genuinely seeks to
achieve the objects which it professes. The
observations made in American Hotel (supra)
suggest that the Commissioner could not call for
the records and that the examination of such
accounts would be at the stage of assessment.
Whilst that reasoning undoubtedly applies to
newly set up charities, trusts etc. the proviso under
Section 10(23C) is not confined to newly set up
trusts - it also applies to existing ones. The
Commissioner or other authority is not in any
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manner constrained from examining accounts and
other related documents to see the pattern of
income and expenditure.
g. It is held that wherever registration of trust or
charities is obligatory under state or local laws, the
concerned trust, society, other institution etc.
seeking approval under Section 10(23C) should
also comply with provisions of such state laws.
This would enable the Commissioner or concerned
authority to ascertain the genuineness of the trust,
society etc. This reasoning is reinforced by the
recent insertion of another proviso of Section
10(23C) with effect from 01.04.2021.
77. In a knowledge based, information driven society, true
wealth is education -and access to it. Every social order
accommodates, and even cherishes, charitable endeavour, since
it is impelled by the desire to give back, what one has taken or
benefitted from society. Our Constitution reflects a value which
equates education with charity. That it is to be treated as neither
business, trade, nor commerce, has been declared by one of the
most authoritative pronouncements of this court in T.M.A Pai
Foundation (supra). The interpretation of education being the
`sole' object of every trust or organization which seeks to
propagate it, through this decision, accords with the
constitutional understanding and, what is more, maintains its
pristine and unsullied nature.
78. In the light of the foregoing discussion, the assessees'
appeals fail. It is however clarified that their claim for approval
or registration would have to be considered in the light of
subsequent events, if any, disclosed in fresh applications made
in that regard. This court is further of the opinion that since the
present judgment has departed from the previous rulings
regarding the meaning of the term `solely', in order to avoid
disruption, and to give time to institutions likely to be affected
to make appropriate changes and adjustments, it would be in
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the larger interests of society that the present judgment operates
hereafter. As a result, it is hereby directed that the law declared
in the present judgment shall operate prospectively. The
appeals are hereby dismissed, without order on costs."
20. After going through the law laid down by the Hon'ble Apex
Court and the facts examined by us, we find that the action of the
respondents is not tenable, because same is not based upon any substantial
evidence. Therefore, impugned orders are hereby set-aside and
consequently, the writ petitions are allowed.
Since, writ petitions have been decided all other pending civil
miscellaneous application(s), if any, shall stand disposed of accordingly.
(SANJEEV PRAKASH SHARMA) (SANJAY VASHISTH)
JUDGE JUDGE
January 17, 2025
J.Ram
Whether speaking/reasoned? Yes/No
Whether reportable? Yes/No
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