Delhi high court recent orders on charitable trust taxation
THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 27.07.2015
+ ITA 141/2013
MOOL CHAND KHAIRATI RAM TRUST
The only controversy that remains to be addressed is whether the AO
and the Tribunal were justified in holding that the Assessee had applied its
income for purposes other than its objects. A plain reading of the objects indicates
that it includes “devising
means for imparting education and improving Ayurvedic system of
medicine and preaching the same”. It is also expressly clarified that the
Assessee is not prohibited to take help from the English, Unani or any other system
of medicine for its object. Further, it is also expressly provided that
according to the need, one or more Ayurvedic hospitals may be opened. It
is at once clear that the object does not prohibit running of an Allopathic
hospital or drawing from any the other system of medicine for improving
the Ayurvedic system of medicine. The Assessee’s endeavour of running a
hospital providing modern techniques and treatment which would also be a
source for improving Ayurvedic system of medicine would, plainly, be an
activity towards the objects as specified. Merely because, running of an
Allopathic hospital is not specifically mentioned, it does not necessarily
mean that the same would be ultra vires the objects, as establishment of an
Allopathic hospital does assist the Assessee in its object of improving the
Ayurvedic system and taking assistance from the Allopathic system of
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 1
medicine. Any activity reasonably incidental to the object would not be
ultra vires the objects. As explained by the Assessee, the modern
investigation techniques are equally utilized for treatment under Ayurvedic
system.
In Lakshmanaswami Mudaliar v. Life Insurance Corporation: AIR
1963 SC 1185, the Supreme Court had observed as under “(13) Power to
carry out an object, undoubtedly includes
power to carry out what is incidental or conducive to the
attainment of that object, for such extension merely permits
something to be done which is connected with the objects to
be attained, as being naturally conducive thereto.”
37. Although the above observations were made in the context of
interpretation of the Object Clause of a Memorandum of Association of a
Company, the principle would also be applicable to determine whether any
activity is ultra vires the purpose of a Trust. Thus, in our view, the AO and the
Tribunal erred in concluding that
the Assessee’s activities were in excess of its objects. Running an
integrated hospital would clearly be conducive to the objects of the
Assessee. The trustees have carried out the activities of the trust bonafide
and in a manner, which according to them best subserved the charitable
objects and the intent of the Settlor. Thus the activities of the Assessee
cannot be held to be ultra vires its objects.
The next issue to be addressed is whether it was open for the AO to
take a view different from the one that has been accepted by the Revenue
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 2
for the past several decades. It is well established that each year is a
separate assessment unit and the principles of res judicata are not
applicable. However, in this case, it would be appropriate to note that the
activities carried out by the Assessee have been accepted as being amenable
to exemption under Section 11 of the Act for the past several decades. In
the past period, the Assessee has been granted exemption under Section 11
of the Act and also under Section 10(22)/10(22A) or Section 10(23C) of the
Act. Concededly, the exemptions granted to the Assessee for past several
decades would not be available if the activities of the Assessee were
considered by the concerned AOs/Authorities to be ultra vires its objects.
40. In the circumstances, it would not be apposite to permit the Revenue
to challenge a position that has been sustained over several decades without
there being any material change. Thus, in the circumstances, where the views are
mistaken and
apparently erroneous, it would not be apposite to compel the Revenue to
follow the same on the principle of estoppel or of consistency. However, in
cases, where two views are plausible, it would be, plainly, whimsical to frame
an assessment contrary to the position accepted in earlier years. This
would render the exercise of assessment highly subjective; clearly, an
Assessee cannot be subjected to such vagaries. Indisputably, the powers of
AO are wide but its exercise cannot be undisciplined. In cases where there
is a palpable mistake or the position accepted by the Revenue in earlier
years is apparently erroneous, the AO would not be bound to accept the
view of his predecessors. However, in cases - such as the present case where the Assessee’s claim for exemption has been accepted for several
decades, it would not be open for AO to think of new grounds, which at
best raise contentious issues, to cast a wider net of tax. It is trite law, that if
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 3
two views are possible, the one favoring the Assessee must be adopted.
This rule would apply a fortiori in cases where the Assessee’s claim has
been consistently accepted by the Revenue in the past. Thus, in cases where
the claim of an Assessee has been accepted in earlier years, unless the claim
of an Assessee is found to be devoid of any basis or plainly contrary to law,
it would not be open for the AO to take a view contrary to the position
which has been accepted by the Revenue in earlier years and has been
permitted to sustain for a significant period of time. In the facts of the present
case, it is not possible to accept that grant
of exemption to the Assessee for the past several decades was palpably
erroneous and successive AOs were wrong in accepting that the activities
of the Assessee were in furtherance of its charitable objects, entitling the
Assessee to escape the levy of income tax. However, the first question is answered
in the
negative and in favour of the Assessee and in our view, the Tribunal was
not justified in allowing the Revenue’s appeal and denying the Assessee’s
claim under Section 11 of the Act.
Refer:Radhasoami Satsang; Parashuram Pottery Works Co. Ltd. v. ITO: (1977)
106 ITR 1; Excel Industries etc.
IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 18.03.2015
Pronounced on: 18.09.2015
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 4
HAMDARD LABORATORIES INDIA AND ANR
Analysis and Conclusions
52. As noted at the outset of this Court‟s judgment, the focal point of the six writ
petitions involved here is the nature of the objects and activities carried out by
Hamdard. Indeed, this Court‟s determination as regards Hamdard‟s entitlement
to exemption under Section 10(23C)(iv) of the Act has a direct bearing on the
outcome in W.P.(C) 3599 of 2013 (reopening of assessment for AY 2005-06) and
WP (C) Nos. 5715, 5716, 5718 and 5729 of 2013 (validity of CIT(A)‟s orders
dated 10.07.2013). Therefore, this Court proceeds to examine this issue first.
This brings the court to the crucial issue to be considered i.e. whether
Hamdard‟s objects fall within either or all of first three heads of „charitable
purpose‟ stated in Section 2(15) or within the residual category. While
examining Hamdard‟s objects, the DGIT(E) noted that its primary mode of
expenditure on charitable activities is through HNF, and that its direct expenditure
on charitable objects is negligible. Further, it was stated that HNF carries out its
charity through four Section 12A registered entities, viz. Jamia Hamdard
University (education), Hamdard Education Society (HES) (education and residual
category), Business and Employment Bureau (BEB) (residual category), All India
Unani Tibbi Conference (AIUTC) (residual category) and through Saeda Hospital.
It was held that since Hamdard does not have control over the charitable activity of
HNF, as it may choose to spend on activities falling within the residual category as
opposed to the first three categories of charitable purpose in Section 2(15),
Hamdard ought to be classified under the residual category. Hamdard‟s direct
charitable activities were held to be insignificant to have a bearing on the
determination of its objects. As regards HNF‟s direct charitable activities (which
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 5
constituted3.6% of HNF‟s total charity), it was held that 64% of direct charity
outlay was for scholarship schemes and the remaining 36% was held to be on „core
charity‟, i.e., falling within the first three heads of „charitable purpose‟ under
Section 2(15).
Hamdard‟s contention, both before the DGIT(E) and this Court, is that this Court
in Hamdard Dawakhana (Wakf) (supra) had held the objects of Hamdard to be
falling within the first three categories of Section 2(15). However, the DGIT(E), in
our opinion, rightly rejected this contention. Although the revenue in that case had
urged that the objects fell within the residual category, the Court did not render a
finding on this issue. The Court, while applying the test laid down in Surat Art Silk
(supra), held that Hamdard applied the surplus generated from its business for
charitable purposes, and therefore, it was not „involved in carrying an activity for
profit‟. If anything, it may be contended that the Court considered Hamdard‟s
objects to be falling within the residual category, for, if the objects fell within the
first three heads of charitable purpose, Hamdard would have been entitled to
exemption from tax “even if an activity for profit [was] carried on in the course of
the actual carrying out of the primary purpose of the trust” (Ref. Surat Art Silk)
and the Court would not have been required to delve into the issue of whether
Hamdard was involved in carrying an activity for profit. However, this Court
does deem it appropriate to go so far as to infer this from the said decision.
Now, coming to an examination of Hamdard‟s objects, Clause 44 (a) of the Deed
dated 28.08.1948 lists out objects of public charity to include „relief of the poor,
education, medical relief and the advancement of any other object of general public
utility not involving the carrying on of any activity of profit‟. At first look, it
would appear that the object is to promote charity generally, as opposed to limiting
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 6
to any specific class of charitable objects. However, clause 45 of the Deed
specifies the heads of charity, which may be classified under „education‟ (subclauses 45(1) and 45(2)) and „medical relief‟ (sub-clause 45(3)). Clauses 46 and
47 permit Hamdard to engage in other activities which would qualify under the
head of „relief for the poor‟. While Hamdard may pursue charitable activities
for the advancement of objects of general public utility (owing to the
generality of clause 44), clauses 45, 46 and 47 indicates that Hamdard‟s
objects fall within the first three categories of „charitable purpose‟ spelt out
in Section 2(15), and not in the residual category. Here, this Court relies on
the Supreme Court‟s ruling in Dharmadeepti (supra), where the Court
construed a general provision concerning charitable object in the trust deed in
light of a specific clause.
In light of the decisions in Sarladevi Sarabhai Trust (supra) and Shri Ram
Memorial Foundation (supra), it is well established that an entity carrying out
its chartiable activities through another charitable institution is entitled to
exemption under the Act. For instance, a trust may donate its surplus to another
trust, which runs and manages an educational institution, or transfers the surplus
received to another educational institution. The above decision of the Gujarat High
Court was concurred in Shriram Memorial Foundation (supra) by a Division
Bench of this Court. It is settled, therefore, that the trust which donates the surplus
at the first instance would be qualified for exemption under Act, for its activities
would be charitable in nature. While determining the head of „charitable purpose‟
under which the said trust falls, it would be inharmonious to not relate it to the
nature of activity carried out by the donee trust, or the third set of trust/institution
to which the donee trust transfers its surplus. Therefore, if the donee trust is
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 7
engaged in managing an educational institution, the first trust‟s charitable activity
would also fall under the category of „education‟.The Revenue urges that
Hamdard had been enjoying enormous profit margins year after year, generating
considerable surplus and consequently, its activities cannot be considered as those
of a charitable organisation. However, this submission runs afoul a plethora of
Supreme Court decisions, the most recent being Queen‟s Educational Society
(supra), where, following the law laid down in Surat Art Silk (supra), Aditanar
Educational Society (supra) and American Hotel and Lodging Association v.
CBDT, (2008) 301 ITR 86, the Court held that merely because an educational
institution is generating surplus does not imply that it ceases to enjoy the benefit of
exemption under Section 10(23C)(iii-ad) of the Act. The next issue to be examined
is whether Hamdard applied and accumulated its surplus towards its objects. The
DGIT(E) found that Hamdard had been applying its surplus and accumulated
income towards fixed assets and ongoing projects relating to Hamdard‟s business.
These included Hamdard‟s new factories at Okhla and Manesar, Herbs and
Medicinal Plants Cultivating Project, Muffadarat Plant Ghaziabad and Multi
Speciality Hospital and Medical College (Jamia Hamdard University‟s project).
The DGIT(E) held that only the Multi Speciality Hospital and Medical College
project was charitable in nature, while the others were in furtherance of Hamdard‟s
business and not its objects. Insofar as the former was concerned, since it was a
project of Jamia Hamdard University, the DGIT(E) held that Hamdard could not
claim application of funds towards that project as application for charitable
purposes. This Court finds that the DGIT(E) misconstrued the nature of
Hamdard‟s activities, inasmuch as it held them to be in the nature of business. This
Court has already held above that Hamdard‟s objects are charitable in nature, and
its activities relating to manufacture and sale of unani medicines and other allied
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 8
businesses are only meant to act as a source of funds for its charitable activities. It
is undisputedly a case of a business held in trust, and Hamdard has been
consistently applying the proceeds of its activities for charitable purposes. In light
of the above, this Court holds that the decision in Abul Kalam Azad Islamic
Awakening (supra), where it was held the application of income derived from
investment in commercial property to be the determining factor, is squarely
applicable. Here, too, Hamdard, in accordance with its Trust Deed, has been
applying and accumulating its income from business activities for charitable
purposes. Hamdard has rightly placed reliance on this Court‟s decision in DIT
v. Eternal Science of Man‟s Society, (2007) 290 ITR 535, where the Court
allowed acquisition of moveable and immoveable property if it achieved the
objects of a charitable trust. Therefore, this Court holds that Hamdard did
not fail to apply or accumulate its income/surplus towards its objects.
The DGIT(E) concluded that Section 11(4A) is applicable to Hamdard, even
though it is admittedly a business held in trust. In so holding, the DGIT(E) relied
on the Supreme Court‟s decision in ACIT v. Thanthi Trust (2001) 247 ITR 785,
and ruled that the Court therein had rejected the distinction between a business
held in trust and a business carried on by the trust insofar as the applicability of
Section 11(4A) was concerned. Hamdard relied upon this Court‟s decision in CIT
v. Mehta Charitable Prajnalay Trust, (2013) 357 ITR 560, where it was held that
Section 11(4A) of the Act would not apply to a business held under trust.
However, the DGIT(E) refused to follow Mehta Charitable Prajnalay Trust
(supra) since it was a case of a trust doing business, as opposed to business held in
trust; since both Thanthi Trust (supra) and the instant case involve the latter, the
decision in Thanthi Trust (supra) was held to be applicable. This Court rendered a
clear finding in the above terms regarding the exclusion of a business held under
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 9
trust from the scope of Section 11(4A), that too upon an overall consideration of
the decision in Thanthi Trust. In such circumstances, we hold that the DGIT(E)‟s
refusal to follow Mehta Charitable Prajnalay Trust (supra) is erroneous. The
distinction drawn by the DGIT(E) on facts, viz. that in Mehta Charitable Prajnalay
Trust (supra) the business was not held in trust, which is admittedly the case
herein, is immaterial, given that the Court‟s ruling therein was on the precise issue
which fell for determination before the DGIT(E) in the instant case. Therefore,
Section 11(4A), and consequently, condition (c) and the seventh proviso to
Section 10(23C) are not applicable in Hamdard‟s case Given the above
finding, Hamdard‟s failure to maintain separate books of accounts is not fatal to
its case, since such an obligation would have existed only in the event of
applicability of condition (c). This Court‟s ruling in PHD Chamber of
Commerce & Industry (supra) also supports this conclusion. In that case, the
Court held that the services performed by a trade, professional or similar
association, such as a chamber of commerce and industry, could not be held to
be in pursuit of a business or trade with a profit motive and would not qualify
as a business activity. Thus, Section 11(4A) of the Act would be inapplicable to
such associations and they are not required to maintain separate books of
accounts to avail exemption from tax. This Court, upon an examination of
Hamdard‟s objects, has already concluded that it is not carrying on a
business of the nature envisaged in condition (c) of the order of
exemption/seventh proviso to Section 10(23C). Consequently, it is not required
to maintain separate books of accounts
Did Hamdard cease to be a charitable institution with effect from 01.04.2009?
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 10
This Court holds that arguendo if Hamdard‟s objects were to be construed to be
falling within the residual category of „charitable purpose‟ with the result of
attracting the applicability of the first proviso, it would not cease to be a charitable
organisation with effect from 01.04.2009. The interpretation of first proviso put
forward by the DGIT(E) would exclude all entities advancing an object of general
public utility from the definition of „charitable purpose‟ if such entities carry on
any activity of trade, commerce or business, irrespective of the nature of
application of surplus generated from such activity. This unduly broad
interpretation has been rejected by this Court in Institute of Chartered Accountants
of India (supra), where the Court held that while determining whether an assessee
is carrying on business, the dominant purpose test laid down in Surat Art Silk
(supra), albeit in a different context, would continue to apply. More recently, this
Court in India Trade Promotion Organization v. Director General of Income-tax
(Exemptions), [2015] 371 ITR 333, while adjudicating upon the constitutional
validity of the first proviso to Section 2(15), read down the said proviso when
applied in the context of Section 10(23C)(iv) and reiterated the dominant purpose
test discussed in Institute of Chartered Accountants of India (supra). The objects of
the assessee therein fell under the residual category of Section 2(15), and the
Revenue withdrew the exemption granted to the assessee under Section
10(23C)(iv) with effect from 01.04.2009 in light of the insertion of the first
proviso. The Court held that the assessee‟s activities could not be said to be within
the nature of a business, Affirming the dominant purpose test applied in Institute of
Chartered Accountants of India (supra) in the context of first proviso to Section
2(15), the Court noted:
“From the said decision, it is apparent that merely because a fee or some other
consideration is collected or received by an institution, it would not lose its
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 11
character of having been established for a charitable purpose. It is also important
to note that we must examine as to what is the dominant activity of the institution
in question. If the dominant activity of the institution was not business, trade or
commerce, then any such incidental or ancillary activity would also not fall within
the categories of trade, commerce or business…” This Court has already held
above that Hamdard‟s dominant purpose is charitable in nature, and it is not
guided by the motive of profit-making. Therefore, the first proviso to Section 2(15)
does not alter the charitable status of the organisation. This outcome is also in
consonance with the rationale for the insertion of first proviso to Section 2(15),
which was noted by this Court in M/s. GS1 India v. DGIT, [2014] 360 ITR 138,
citing a CBDT Circular of 2008, as follows: 102. It has thus been established
that Hamdard is by no means a mask or a device to conceal any income
generated from any of its activities.
IN THE HIGH COURT OF DELHI AT NEW DELHI 17. + ITA 269/2015
BHAGWAN SHREE LAXMI NARAINDHAM TRUST
07.09.2015
Some of the objects of the Trust as set out in the Trust Deed are as under: (i) To
establish, promote, set-up, run, maintain assist finance, support and/or help in
setting up and/or maintaining and/or running schools, and other institutions
orphanages, widow home, poor houses or other establishments of relief and/or help
to the poor, old and infirm people. .... .... .... .... .... (vii) To arrange, establish,
manage and supervise orphanages, old age homes, night shelters, hospitals,
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 12
dharmshala, nariniketan and mahila ashram etc. (viii) To give spiritual lectures to
mental disturbed person and spiritual lecture to all kinds of human beings. .... .... ....
.... .... (xi) To do all other activities for the interest of the human beings to help in
physical, mentally and financially.
(xii) To give provide and/or render food, medicine and other help and/or
assistance in any shape or form to the poor deserving and needy person. To give
provide and/or render monetary and/or other help and assistance for the relief of
persons and animals affected by natural and other calamities such as food, fire,
famine, cyclone, earthquake, storm, accident, pestilence drought, cyclone,
epidemic and the likes to give donations, subscriptions or contributions to
institutions, establishments centres of persons doing relief work on such
occasions. .... .... .... .... .... (xiv) To open found, establish, manage, promote, setup, run, maintain, assist, finance, support and/or help in the setting up and/or
maintaining and/or running schools, colleges, arts and science medical, para
medical and technical, lecture halls and other establishments or institutions etc.
for advancement of education and knowledge in arts, science, literature,
humanities and all other useful subjects in all their manifestation. .... .... .... .... ....
(xvii) To promote, organize, administer, establish support maintain and/or grant
and to person institution or society or organization is ever having for the objects
of charitable purpose and to incur expenditure in connection therewith.”
The central question to be considered is whether the ITAT erred in holding that the
Revenue had wrongly applied Section 115 BBC of the Act to the case of the
Assessee and erred in accepting that the Assessee-Trust was carrying out various
religious activities? It was submitted by Mr. Kamal Sawhney that none of the
activities stated in Clause 5 of the Trust Deed can be said to be a purely religious
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 13
activity. In other words charitable activities enumerated therein could not be said to
be 'religious activities'. According to Mr. Sawhney, even giving of spiritual
lectures would not strictly qualify as a religious activity. The question posed arises
in the context of the anonymous donations received by the Assessee Trust and the
view of the AO that such donations would not be exempt within the scope of
Section 115 BBC of the Act since the activity of the Trust was 'spiritual' and not
'religious'. It is useful in this context to recapitulate the CBDT Circular No. 14 has
explained the scope of Section 115 BBC, introduced with effect from 1st April
2007, as under: "25.2. With a view to prevent channelisation of unaccounted
money to these institutions by way of anonymous donations, a new Section
115BBC has been inserted to provide that any income of a wholly charitable trust
or institution by way of anonymous donation shall be included in its total income
and taxed at the rate 0 30 per cent. Anonymous donation made to wholly charitable
and religious trusts of institutions, i.e. mixed purpose trusts of institutions shall be
taxed only if it is for any university or other educational institution or any hospital
or other medical institution run by them. Anonymous donation to wholly religious
trusts or institutions will not be taxed." 11. Therefore, it becomes necessary to
examine whether the ITAT was on the facts of the present case justified in coming
to the conclusion that the Assessee would be entitled to the benefit of Section 115
BBC as far as the anonymous donations received by it were concerned. As rightly
pointed out by the ITAT itself, the above question cannot be addressed within the
narrow scope of the specific wording of some of the clauses of the Trust Deed but
in the overall context of the actual activities in which the Trust is involved in
including imparting spiritual education to the persons of all castes and religions,
organizing Samagams, distribution of free medicines and clothes to the needy and
destitute, provision of free ambulance service for needy and destitute patients and
so on. What can constitute religious activity in the context of the Hindu religion
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 14
need not be confined the activities incidental to a place of worship like a temple.
The Supreme Court in The Commissioner, Hindu Religious Endowments,
Madras v. Sri Lakshmindra Thirtha Swamiar 1954 AIR 282 SC held that “a
religious denomination or organization enjoys complete autonomy in the matter of
deciding as to what rites and ceremonies are essential according to the tenets of the
religion they hold and no outside authority has any jurisdiction to interfere with
their decision in such matters.” It examined the scope of the protection under
Article 25 and 26 of the Constitution and observed as follows: “14. We now come
to Article 25 which, as its language indicates, secures to every person, subject to
public order, health and morality, a freedom not only to entertain such religious
belief, as may be approved of by his judgment and conscience, but also to exhibit
his belief in such outward acts as he thinks proper and to propagate or disseminate
his ideas for the edification of others.
17...What then are matters of religion? The word "religion" has not been defined in
the Constitution and it is a term which is hardlysusceptible of any rigid definition.
A religion undoubtedly has its basis in a system of beliefs or doctrines which are
regarded by those who profess that religion as conducive to their spiritual well
being, but it would not be correct to say that religion is nothing else but a doctrine
of belief. A religion may not only lay down a code of ethical rules for its followers
to accept, it might prescribe rituals and observances, ceremonies and modes of
worship which are regarded as integral parts of religion, and these forms and
observances might extend even to matters of food and dress.”
14. This position was reiterated by the Supreme Court in Ratilal Panachand
Gandhi v. The State of Bombay AIR 1954 SC 388. In the case of Sastri
Yagnapurushadji v. Muldas Bhudardas Vaishya AIR 1966 SC 1119 the Supreme
Court pointed out that what constitutes a religious activity under the Hindu faith is
very broad in nature. It held: “29. When we think of the Hindu religion, we find it
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 15
difficult, if not impossible, to define Hindu religion or even adequately describe
it.... It may broadly be described as a way of life and nothing more.”
15. It might well be that a Hindu religious institution like the Assessee is also
engaged in charitable activities which are very much part of religious activity. In
carrying on charitable activities along with organising of spiritual lectures, the
Assessee by no means ceases to be a religious institution. The activities described
by the Assessee as having been undertaken by it during the AY in question can be
included in the broad conspectus of Hindu religious activity when viewed in the
context of the objects of the Trust and its activities in general. 16. For the
aforementioned reasons, the Court finds no legal infirmity in the conclusion of the
ITAT that for the purpose of Section 115 BBC (2) (a) anonymous donations
received by the Assessee would qualify for deduction and it cannot be included in
its assessable income.
DIT(Exemption) vs Keshav Social and Charitable
Foundation (2005) 278 ITR 152 (Delhi) wherein their lordships held as
under:“To obtain the benefit of the exemption u/s 11, the assessee
is required to show that the donations were voluntary. In the
present case, the assessee had not only disclosed its donations,
but had also submitted a list of donors. The fact that the complete
list of donors was not filed or that the donors were not produced,
does not necessarily lead to the inference that the assessee was
trying to introduce unaccounted money by way of donation
receipts. This is more particularly so in the facts of the case
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 16
where admittedly more than 75 per cent of the donations were
applied for charitable purposes.
Section 68 has no application to the facts of the case
because the assessee had in fact disclosed the donations of
Rs.18,24,200 as its income and it cannot be dispute d that all
receipts, other than corpus donations, would be income in the
hands of the assessee. There was, therefore, full disclosure
income by the assessee and also application of the donations for
charitable purposes. It is not in dispute that the objects and
activities of the assessee were charitable in nature, since it was
duly registered under the provisions of s. 12A.of the Act.”
IN THE INCOME TAX APPELLATE TRIBUNAL,
MUMBAI BENCH “G”, MUMBAI
ITA No.3466 & 3467/M/2012
Assessment Year: 2007-08 & 2008-09
Gurudev Siddha Peeth
Date of Pronouncement : 22.7.2015
The section 115BBC has been inserted by Finance Act, 2006 w.e.f.
01.04.07. A perusal of the above section reveals that this section is basically
meant to check the movement of black money into the system in the name of
anonymous donations. However, certain donations which cannot be said to be
made to avoid the identity of the donor for any illegal purposes e.g. black
money etc. The same have been excluded from the purview of sub section (1)
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 17
of section 115BBC. Sub section (2) in this respect provides that the provisions
of sub section (1) shall not apply to any anonymous donations received by (a)
an institution established for religious purposes (b) to any trust or institution
created or established for religions and charitable purposes other than any
anonymous donations made with a specific direction that such donation is for
any universities, educational institutions, hospital or medical institution etc. A
careful reading of the entire section of 115BBC reveals that the provisions
have been meant to check the inflow of black money/unaccounted money into
the system/institutions such as universities, educational institutions, medical
institutions etc. and it has been provided that the record of the donor along with
name and address etc. should be maintained. Sub section (2) specifically
excludes anonymous donations received by an institution which are other than
any anonymous donations made with a direction that such donation is for
university, medical institution etc. When we read clause (a) and clause (b) of
sub section (2) in harmony and in conscience with each other then it becomes
clear that the provisions of sub section (1) will not apply to the donations like
that has been received by the assessee in donation boxes from numerous
devotees who have offered the offerings on account of respect, esteem, regard,
reference and their prayer for the deity/siddha peeth. Such type of offerings
are made/put into the donation box by numerous visitors and its generally not
possible for any such type of institutions to make and keep record of each of
the donor with his name address etc. Even sometimes the donors out of their
esteem, respect and regard and selflessness they do not want that their name be
registered as a donor before the deity for whom them make the prayer in the
belief that the deity is the ultimate giver of all the worth and virtues of their
life. Now reverting to the definition of anonymous donations under sub
section (3) of section 115BBC, we find that it has been mentioned that
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 18
anonymous donations means voluntary contributions where the person
receiving such contributions does not maintain a record of the identity
indicating the name and address of the person making such contribution and
such other particulars as may be prescribed. In the case of a religious or charitable
trust as in the case of the assessee as we have observed above, it is
generally not only difficult but also not possible to maintain such type of
record. A perusal of the entire section 115BBC shows that the provisions of
said section are not applicable to the institutions like that of assessee trust as
the same are meant to check the inflow of unaccounted/black money into the
system with a modus operandi to make out as a part of the accounts of the
institutions like university, medical institutions where the problem relating to
the receipt of capitation fees, etc. is generally highlighted. Under such
circumstances, we do not find any justification on the part of the Ld. CIT(A) in
taxing the offerings received in the hundis/donation boxes as income of the
assessee under section 115BBC.
HYDERABAD BENCH ‘B', HYDERABAD I.T.A. No. 1179/Hyd/2014 – A.Y.
2007-08
M/s. Vaishnavi Educational
Society
Date of pronouncement: 07.11.2014
12. We have heard both parties and perused the material on record. We find that
the names of the donors along with their addresses were furnished before the
Investigation Wing of the department and were also recorded in the books
produced by the assessee before the Assessing Officer. Hence such donations
cannot be classified as "anonymous donations" as per the provisions of
section115BBC(3) of the Act. 13. Hence, we are of the opinion that the only
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 19
requirement u/s. 115BBC(3) is that the names and addresses of the donors are to be
recorded. The learned CIT(A) has wrongly applied the provisions of section 68 in
the case of the assessee by stating that the recipient society should also be in a
position to identity the donors and establish the capacity to give a donation of th
amount mentioned against their names. In this context, reliance is placed on the
decision of the Delhi Bench of this Tribunal in the case of Hansraj Samarak
Society (133 ITD 530) .
Other related orders
IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX
APPELLATE TRIBUNAL DELHIBENCH ‘ BENCH ‘ BENCH ‘B’ : NEW
DELHI ’ : NEW DELH ITA No.1027/Del/2012 Assessment Year : N.A. M/s
Devki Devi Foundation, Date of pronouncement : 31.03.2015 31.03.2015
31.03.2015
There could not be any exhaustive list of such tests but the following may be
found relevant to decide the issue along with other tests that may be relevant :- (i)
Whether the society/trust was running its activities in accordance with the
objects of the society/trust as has been given at the time of registration of the
society/trust; (ii) Whether the conditions provided in the lease deed of the land
allotted or any other benefit derived by the society/trust from the government or
semi-government or from any section of the society have been complied with in
letter and spirit; (iii) The element of profit earned by the society/trust whether
reasonable with regard to the total volume of activities undertaken by it; (iv) The
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 20
activities whether they are charitable in nature or not; (v) Whether any siphoning
of funds is present in the payments made by the society/trust to any person
whether connected with the assessee or not; (vi) Whether the activities of such
society/trust were genuine; (vii) Whether the society/trust exists for the relief of
the poor or the society at large or whether it exists for the benefit of its
author/trustees or persons in whose favour it has created undue obligations
against the interest of its own society/trust; (viii) Whether the activities of the
trust are being conducted on commercial lines by charging at a maximum amount
by the society/trust from its constituents; (ix) The dominant object of the society,
whether charitable and not to earn profit; (x) Whether society/trust was
supported wholly or in part by voluntary contributions from the society or its
members; (xi) Whether charitable purpose has an element of public benefit or
philanthropy; 37. We find that if the above tests for finding out whether the
assessee is a genuine charitable society are applied in the present case, the
assessee-society has failed in the tests laid down above.It is a matter of common
knowledge that even educational institutions or hospitals are being sold like
vegetables these days.
IN THE HIGH COURT OF DELHI AT NEW DELHI Date of decision:
December 03, 2014
+ ITA 67/2003
M/S. NBIE WELFARE SOCIETY, NEW DELHI.
“Whether the ITAT was correct in holding that by mentioned (sic. mentioning)
“Further utilization” in Form No. 10 read with Rule 17 of the Income Tax Rules,
1962 the Assessee has fulfilled its obligation as required under Section 11 (2) of
the Act”.
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 21
It is obvious that the purpose and objective behind Section 11 (2) of the Act is to
curtail long term accumulation of income by charitable institutions without
specifying the purpose for which the funds were being accumulated. The
accumulation is permitted provided the assessee specifies the purpose or
purposes for which accumulation is required and necessary. The question
whether and in which cases declaration regarding purpose of examined by the
Delhi High Court in Commissioner of Income Tax v. Hotel and Restaurant
Association (2003) (261) ITR 190 (Delhi). The contention raised by the
revenue in the said case was that the Tribunal had failed to appreciate
that in the prescribed form, the assessed has failed to indicate the
specific purpose for which the income was sought to be accumulated
and therefore, the assessee had violated Section 11 (2) of the Act. The
contention was rejected.
The decision in Hotel and Restaurant Association (supra) was referred to in
another decision of the Delhi High Court in Bharat Kalyan Pratishthan v. Director
of Income Tax (Exemption) (2008) 299 ITR 406 Delhi and it was observed that in
the Hotel and Restaurant Association case (supra) this court
had observed that if accumulation was for one or more
purposes and these purposes were the objects of the institution,
then it is permissible for the assessed to accumulate income for
utilization of these objects. Reference was also made to the Director of
Income Tax (Exemption) v. Daulat Ram Education Society (2005) 278 ITR 260
(Delhi) wherein, the assessee had specified eight purposes under Section
11 (2) of the Act. This it was held was permissible.
In the case of The Director of Income Tax v. Mamta Health Institute and Children
(2007) 293 ITR 380 (Delhi), the High Court referred to the objectives for which the
society was formed which had seven clauses. Revenue had alleged that in the
Form No.10, the assessee had failed to indicate the specific purpose for which the
income was sought to be accumulated, but this submission was rejected by
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 22
observing that the assessee had placed a copy of the annual report in which
he has specified the items for which the money was accumulated.
In the present case, the assessing officer himself had noted in the assessment
order that the aim and objective of the assessee was to work for the welfare of
the employees of New Bank of India. This undoubtedly was the purpose and
objective of the society. Therefore, during the course of assessment proceeding
as is apparent from the appellate proceedings, the assessee has clarified and
stated that the money in question would only be used for the purpose of making
payments to the members or their legal representatives in case of their death,
retirement or permanent disability In view of the factual background, the
substantial question of law in terms of the decisions of this court has to be
answered in favour of respondent assessee and against the appellant.
(also refer 303 ITR 111)
IN THE INCOME TAX APPELLATE TRIBUNAL
LUCKNOW BENCH “B”, LUCKNOW
ITA No.601/LKW/2011
Assessment Year:2008-09
M/s The Upper India Chamber of Commerce
Date of pronouncement: 05 11 2014
This appeal is preferred by the Revenue against the order of the
ld. CIT(A) on a solitary ground that the ld. CIT(A) has erred in law and on
facts in deleting the addition of Rs.43,78,588/- made by the Assessing
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 23
Officer on account of capital gain arisen out of sale of property at
Rs.1,22,58,888/- by applying the provisions of section 50C of the
Incometax
Act, 1961 (hereinafter called in short “the Act") without appreciating the
facts brought on record by the Assessing Officer during the course of
assessment proceedings.
Having given a thoughtful consideration to the rival submissions and
from a careful perusal of the orders of the authorities below, we find that
undisputedly the assessee is a charitable society and is registered under
section 12A of the Act. The question of applicability of provisions of section
50C of the Act on transfer of capital asset in the case of a charitable
society
was examined by the Tribunal in the case of ACIT vs. Shri. Dwarikadhish
Temple Trust, Kanpur in I.T.A. No. 256 & 257/LKW/2011, in which the
Tribunal has held that where the entire sale consideration was invested in
other capital asset, provisions of section 50C of the Act should not be
invoked. We have also carefully examined the order of the ld. CIT(A) and
we
find that the ld. CIT(A) has also adjudicated the issue in the light of the
legal provisions and various judicial pronouncements while holding that
section 11(1A) of the Act which lays down a complete system of taxability
of capital gains in respect of an institution approved by the CIT under
section 12A of the Act is a complete code.
(4. In the case of a Trust and for the purpose of Sec. 54F where
question of utilization of the funds in case of sale of an asset arises it
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 24
would be the available funds with the assessee and not the deemed
income. This is on the ground that what is, not available with the
assessee can never be invested. Even otherwise the language used in section 54F
and 11(1A) regarding the meaning of "net consideration" is same and it has been
held that it shall prevail over provisions o£ section 50C)
IN THE INCOME TAX APPELLATE TRIBUNAL
“SMC” BENCH : BANGALORE
ITA No.664/Bang/2015
Assessment year : 2011-12
Public Education Society,
Date of Pronouncement : 25.08.2015
I have considered the rival submissions and perused the record. The
issue herein is with regard to the meaning of expression “such income” in
section 11(1)(a) of the Act. Identical issue was considered by the Apex
Court (supra) which was also applied by the Special Bench of the ITAT
Mumbai by holding that the expression “such income” means gross income
and not the net income after deducting the administrative expenditure.
Such being the case, by respectfully following the decision of the Special
Bench, I hold that the claim of assessee is in accordance with law. Since
the expenditure incurred by the assessee was more than 93% of the gross
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 25
receipts, no part of the gross receipts are liable to be taxed in the year
under consideration, since the balance amount was set apart forapplication
in the next year. With these observations, the appeal filed by
the assessee-trust is allowed.
IN THE INCOME TAX APPELLATE TRIBUNAL,
KOLKATA ‘A’ BENCH, KOLKATA
I.T.A. No. : 1156/ Kol . / 2011
Assessment year : 2006-07
M/s. Belvedere Estates Tenants Association Date of pronouncing the order :
October 19, 2012
On the facts of the present case, we have noted that there is no
finding by any of the authorit ies below that services are rendered to
non-members. There is a reference to the services rendered to the
outsiders in the orders of the authori ties below, but it is in the context
of analysis of judicial precedents, and, therefore, nothing turns on that.
As long as services are rendered to the members, even for a
remunerat ion, the same wil l be covered by the principles of mutual ity.
As far the allegat ion that members have deducted at source from
payments to the assessee and for this reason, the receipt is to be taken
as taxable receipt , it is only elementary that conduct on the part of the
person making payment cannot determine character of receipt in the
hand of recipient . That apart , it is also a fact of li fe that somet imes
taxpayers err on the side of excessive caution and deduct taxes as a
measure of abundant caut ion. The mere deduct ion of tax at source by
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 26
person making the payment in our humble understanding, cannot lead
to the conclusion that receipt was taxable in nature. It is too naïve to
the accepted or to be even given a serious consideration. The factors
relied upon by the authorit ies below, in rejecting assessee’s plea, are
not germane to the context and devoid of legally sustainable merits.
The plea of the assessee for tax exempt ion on the ground of mutuality,
therefore, must succeed. We uphold the same.
IN THE INCOME TAX APPELLATE TRIBUNAL
BANGALORE BENCH ‘ B ’
Canara Bank,
1476/Bang/2014
2012-13
12th August, 2015.
The learned counsel for the assessee reiterated the submissions put forth before the
learned CIT (Appeals) and assailed the impugned order of the learned CIT
(Appeals)
submitting that the learned CIT (Appeals) erred in upholding the orders of the
Assessing
Officer in charging the assessees interest under Section 201(1A) of the Act. The ld.
Counsel further submitted that the interest incomes which was received by KIADB
are not liable to be taxed in view of the Registration it enjoyed under Section 12A
of the Act vide order dt.20.4.1988 and while the registration was cancelled by the
Department under Section 12AA(3) of the Act, the co-ordinate bench of the
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 27
Tribunal set aside the orders of Revenue and restored the registration under
Section 12AA in order in ITA No.1095/Bang/2011 dt.31.1.2013. It is submitted
that on further appeal by Revenue, the Hon'ble Karnataka High Court in ITA
No.261/2013 dt.7.11.2014 dismissed Revenue’s appeal. It is contended that when
the interest income paid by the assessee to KIADB is not liable to tax, there is no
obligation on the part of the assessees to make deduction of tax at source. In
support of this proposition, the learned Authorised Representative placed reliance
on the decision of the Hon'ble High Court of Karnataka in the case of CIT V ITC
Hotels Ltd., in ITA No.477 and 478/2009 dt.15.6.2015. In view of the above, the
learned Authorised Representative prayed that the assessees appeals ought to be
allowed.
3.3 Per contra, the learned Departmental Representative strongly relied on the
impugned orders of the learned CIT (Appeals).
3.4.1 We have heard the rival submissions and perused and carefully considered
the
material available on record. In the instant case, the assessee bank had taken term
deposit from KIADB. The KIADB was entitled to interest on these term deposits.
These interest incomes which have received by KIADB are not liable to be taxed
in view of the Registration under Section 12AA enjoyed by KIADB. No doubt the
Registration was cancelled by the income tax authorities. However, the assessee
took up the matter before the Tribunal and Tribunal vide order in ITA
No.1095/Bang/2011 dt.31.1.2013 has set aside the order passed by the income tax
authorities cancelling the Registration to KIADB. On further appeal by the
Revenue under Section 260A of the Act, the Hon'ble High Court in ITA
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 28
No.261/Bang/2013 dt.7.11.2014 (copy enclosed on page 63 of the paper book filed
by the assessee) dismissed the Revenue’s appeal. Since the Hon'ble High Court has
confirmed the Tribunal’s order, the Registration which is granted to KIADB, the
recipient of the interest income was still in vogue. When the interest income is not
liable for taxation, there is no obligation on the part of the assessee bank to make
deduction of tax at source.
Since the interest income was not liable to be taxed in the hands of the recipient,
there is no obligation on the part of the assessees to deduct tax at source. However,
since the Hon'ble High Court judgment is rendered subsequent to the order of the
CIT (Appeals), the CIT (Appeals) did not have the benefit to peruse the same.
Therefore, we deem it appropriate to restore the issue for de novo consideration to
the file of the Assessing Officer. The Assessing Officer shall dispose the matter
expeditiously after affording reasonable opportunity to the assessee.
IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH:
KOLKATA I.T.A No.1127/Kol/2011 Date of pronouncement: 18.12.2014 M/s.
Gourishankar Bihani Assessment Year: 2007-
Only issue in this appeal of assessee is against the order of CIT(A), confirming
disallowance
of expenditure for non-deduction of TDS u/s. 194-I of the act, by invoking
provisions of section
40(a)(ia) of the act, on rent paid to Kolkata Port Trust (KPT). Brief facts are that
the assessee has claimed expenditure on account of rent paid to KPT at
Rs.54,21,256/-. The assessee has not deducted any tax at source on payment of this
rent to KPT.
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 29
The AO required the assessee to explain as to why expenditure claimed on account
of payment of
rent to KPT be disallowed by invoking provisions of section 40(a)(ia) of the Act for
non-deduction
of TDS u/s 194I of the Act. Accordingly, AO disallowed the expenditure debited on
account of rent
at Rs.54,21,256/- by invoking provisions of section 40(a)(ia) of the Act. Aggrieved,
assessee
preferred appeal before CIT(A), who also confirmed the action of AO. Aggrieved,
now assessee is
in second appeal before ITAT. We have heard rival submissions and gone through
facts and circumstances of the case.
Facts are admitted and no dispute on the same. Before us, Ld. Sr. Advocate Shri J.
P. Khaitan
argued that the assessee has paid rent to KPT, which is a Public Charitable Trust
registered u/s.12AA of the Act. His first argument is that income of Public
Charitable Trust registered u/s. 12AA
of the Act is exempt and once the income is exempted, assessee is not liable
to TDS. We find from
the order of Tribunal dated June, 8, 2007 passed in ITA No. 2011/Kol/2006 in the
case of Kolkata
Port Trust v. DIT(Exemption), Kolkata that Kolkata Port Trust is a charitable
institution eligible for
registration u/s 12A of the Act and such registration was directed to be granted
with effect from
April, 1, 2005. Hon'ble Tribunal in deciding Kolkata Port Trust’s case, placed
reliance, inter alia, on
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 30
the judgment of the Hon'ble Gujarat High Court in the case of CIT v. Gujarat
Maritime Board
(2007) 289 ITR 139 (Guj). The revenue’s appeal against the judgment of Hon'ble
Gujarat High
Court was dismissed by Hon'ble Supreme Court in CIT v. Gujarat Maritime Board
(2007) 295 ITR
561 (SC).
Section 11
under which Kolkata Port Trust was assessed, inter alia, for the assessment year
2007-08 falls under
Chapter III of the Act for “incomes which do not form part of total income’. We
find that when
income is not to be included in the total income, it is without a doubt, not
chargeable under the
provisions of the Act. In view of the above, we here referred to Section 2(45) of the
Act, which
defines “total income” and to mean the total amount of income referred to in
section 5, computed in
the manner laid down in the Act. Section 4 is the charging section and provides for
levy of income
tax on the total income, whereas, Section 5 lays down the scope of total income.
Both sub-sections
(1) and (2) of Section 5 of the Act start with the expression “subject to the
provisions of this Act”
and then go on to say what total income includes. Thus, where any income is not to
be included in
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 31
the total income, it is clearly not chargeable under the provisions of the Act. We
then went through
the provisions of section 194-I, which provides for deduction of tax from rent has
to be read in
conjunction with section 204(iii) of the Act. Section 194-I imposes the obligation to
deduct tax on
person “responsible for paying” income by way of rent. The expression “person
responsible for
paying” has been defined in section 204 of the Act. Clause (iii) of section 204 is
relevant in the
context of section 194-I. The obligation to deduct tax from payments to residents is
in respect of “sum chargeable under the
provisions of this Act.” Section 195 is applicable in respect of payments to nonresidents and also
stipulates deduction of income tax at source from “sum chargeable under the
provisions of this
Act.” Thus, the obligation to deduct tax would arise only when the amount is “sum
chargeable
under the provisions of this Act”, whether the payee is a resident or non-resident.
In respect of
payments to residents, each of the provisions requiring tax deduction at source
including section
194-I has to be read in conjunction with section 204 and no tax is required to be
deducted if the
amount payable is not chargeable under the provisions of the Act. The case of
payment to a nonresident
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 32
was considered by the Hon'ble Supreme Court inGE India Technology Centre P.
Ltd.v
CIT, (2010) 327 ITR 456 (SC), where it was held that provisions relating to tax
deduction at source
applied only to those sums which were chargeable to tax under the Act. The said
case dealt with
section 195 of the Act but the principle laid down therein is equally applicable
even in respect of
provisions relating to deduction of tax at source from payments to residents which
have to be read
along with section 204 of the Act. In the said case, the provisions of section 204 of
the Act did not
come up for consideration.
In term of the above, we are of the view that in the instant case no tax was
deductible at
source under section 194-I read with section 204 comprised in Chapter XVII-B
from the rent paid
by the assessee to KPT. This is because such rent was not to be included in the
taxable total income
of the KPT and was, therefore, not chargeable under the provisions of the Act. As
argued by Ld.
Senior Advocate that in the instant case no tax was at all payable by KPT for AY
2007-08. U/s 191
of the Act the person making the payment can be deemed to be an assessee in
default within the
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 33
meaning of sub-section (1) of section 201 only where the deductee/payee has also
failed to pay such
tax directly. This issue has been considered by Hon'ble Allahabad High Court in
the case of Jagran
Prakashan Ltd. V. DCIT (TDS) (2012) 345 ITR 288 (All) and by ITAT Kolkata
bench in the case of
Ramakrishna Vedanta Math v. ITO (2013) 55 SOT 417 (Kol). In the instant case,
KPT was not
required to pay any tax and in turn the assessee cannot be treated to be in default
within the
meaning of section 201(1). Accordingly, we are of the view that no disallowance
ought to have
been made under section 40(a)(ia) of the Act. In view of the above fact, we are of
the view that in the instant case no tax was deductible at
source under section 194-I read with section 204 comprised in Chapter XVII-B
from the rent paid
by the assessee to KPT. This is because such rent was not to be included in the
total income of the
KPT and was, therefore, not chargeable under the provisions of the Act. In the
case law referred by
Ld. Sr. DR the fact relating to the claim of exemption of the income of KPT was not
before
Tribunal or that issue was not raised but in the instant case, KPT was not required
to pay any tax
and in turn cannot be treated to be in default within the meaning of section 201(1).
Accordingly, we
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 34
are of the view that no disallowance ought to have been made under section
40(a)(ia) of the Act.
Bombay high court ORDERS
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO.656 OF 2012
Director of Income Tax (Exemption) ..Appellant
Versus
Maharashtra
Housing & Area Development
Authority (MHADA)
8thAugust, 2014
Mr. Malhotra appearing on behalf of the revenue submitted that the
order of the Commissioner of Income Tax (Appeals) and the Tribunal
raises a substantial question of law. In that the exemption under
section 11 of the Income Tax Act, 1961 cannot be granted in favour
of the respondentassessee Maharashtra Housing and Area
Development Authority because it I s a local authority in the eyes of
law. It cannot be said to be a Trust within the meaning of section 11
to 13 of the Income Tax Act. The property that has to be transferred
to a Trust must be irrevocable and in the present case, that is not the
position as the land and other assets are held by the MHADA from
the Government. For all these reasons, it is submitted that the appeal
deserves to be admitted.
On the other hand, Mr. Thakkar appearing on behalf of the
respondent submits that this very issue was raised by the revenue in
three
Income Tax Appeals No.655 of 2012, Income Tax Appeal
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 35
(Lodging)No.2044 of 2012 and Income Tax Appeal (Lodging)No.2045
of
2012 which were decided on 8th March, 2013. There, the revenue
approached this Court with identical arguments against another local
authority namely Slum Rehabilitation Authority which is an authority
under the Maharashtra Slum Areas (Improvement, Clearance and
Redevelopment) Act, 1971. However, the Division Bench of this Court
in
its order passed on 8th March, 2013 relied upon a judgment of the
Hon'ble
Supreme Court of India in the case of Commissioner of Income Tax
V/s.
Gujarat Maritime Board reported in (2007) 295 ITR 561.
Mr. Malhotra would submit that this order is clearly
distinguishable
inasmuch as Slum Rehabilitation Authority is put in incharge of
Rehabilitation of Slums, and therefore, is performing a
charitable purpose
and accordingly that was to promote the welfare of the general
public.
The Maharashtra Housing Area and Development Authority may
have
been claiming to be established under a statute and enacted by
the State
Legislative Assembly but it does not promote the general welfare
of the public and, therefore, it cannot claim the exemption.
After hearing both sides at some length, we are of the opinion
that on the strength of the above material and without anything
more, we cannot conclude that the respondentassessee
must be denied the exemption and unless requisite satisfaction
to the contrary is recorded. In the case of the Slum
Rehabilitation Authority as well this Court followed the
Hon'ble Supreme Court's judgment and allowed the
exemption under section 11 to it. We do not find that a
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 36
different course can be adopted or a different view can be
taken.
THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO.443 OF 2013
Director of Income Tax ..Appellant.
V/s.
M/s. Women's India Trust ..Respondent. DATED : 23RD MARCH, 2015
Mr.Malhotra appearing on behalf of the revenue
invites our attention to section 2(15) of the Income Tax Act,
1961 which defines the term “charitable purpose” and the
proviso thereto and thus urges that this appeal raises
substantial question of law. In his submission, the proviso
emphasises that 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. In other words, the proviso applies if the activity is in
the nature of trade or business generating income. In such
circumstances, the appeal be admitted.
We have with the assistance of Mr.Malhotra and
Mr.Dastur perused the order passed by the Director of the
Income Tax. In his order, he has held that the proviso is
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 37
applicable. That the proviso is applicable for the reasons that
he has assigned at the internal page 4 of the order passed by
him. Firstly, we must understand that the assessment
year in question is 2009-10. The definition of the word
'charitable purpose' in the proviso reads as under:“Section 2(15) 'Charitable Purposes' includes relief of the
poor, education, medical relief [preservation of
environment (including watersheds, forests and wildlife)
and preservation of monuments or places of objects of
artistic interest) and the advancement of any other
object of general public utility.
Provided that the advancement of any other object of
general public utility shall not be a charitable purpose, if
it involves carrying 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 any other consideration, irrespective of the
nature of use or application, or retention of the incomefrom such activity.
Provided further that the first proviso shall not apply if
the aggregate value of the receipts from the activities
referred to therein is ten lakh rupees or less in the
previous year. ”
In the present case, the undisputed facts are
that the assessee is a trust formed to carry out the object of
education and development of natural talents of the people
having special skills, more particularly the women in the
society. The assessee trains them to earn while learning. It
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 38
educates them in the field of catering, stitching, toy making,
etc. While giving them training, the assessee uses related
material which it buys from the open market. This is essential for carrying out the
assessee's object. In the process, some
finished product such as pickles, jam, etc. are produced and
which the assessee sells through the shops, exhibitions an personal contacts. The
motive of the assessee is not the
generation of profit but to provide training to the needy
women in order to equip or train them in these fields and
make them self confident and self reliant. There is nursing
training, which is also being managed and administered by
the assessee. The details of income and expenditure accounts
shows that the assessee had received donation of
`36,88,634/- and nursing school fees of `4,46,088/-. The
assessee pointed out that this nursing training provided at the
centre of the assessee at Panvel is free of costs. The charge is
levied for the mess but the accommodation and other
facilities are free of costs and apart from the community
development programmes, which are undertaken to educate
the rural women, teach them various skills and make them,
aware of how to live honourably. Thus, on these undisputed
facts, the Tribunal found that this is not an activity which
would fall within the proviso.
The Tribunal found
that the trust may be set up for advancement of any other
object of general public utility, but that will not cease to be
charitable purposes in this case, because, the activities in
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 39
which the trust is involved cannot be termed as carrying on of
trade, commerce or business. This is to impress upon the
women the need to be self reliant and self supporting and to
instill in them the confidence that they can make a livelihood
for themselves if they rely on the skills as afore-noted, that
the activity has been undertaken. It does not partake the
character of trade, commerce or business nor of rendering of
any service in relation thereto. It is only to teach or impart
skills and to instill confidence that the produced goods or
articles are sold. To that extent also deficit has occurred. In
the circumstances, the Tribunal took a view that occasional sales or the trust's own
fund generation are for furthering the
objects but not indicative of trade, commerce or business. In
the circumstances, the proviso does not apply. We are of the view that considering
the fact that
the trust has been set up and is functional for the past several
decades and it has not deviated or departed from any of its
state object and purpose, utilisation of the income, if at all
generated, does not indicate carrying on of any trade,
commerce or business. The Tribunal's view deserves to be
upheld. It is a possible view and cannot be termed as
perverse. The view is taken on an overall consideration and
bearing in mind the functions and activities of the trust. In
such circumstances, it is not vitiated by any error of law
apparent on the face of the record.
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 40
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO.693 OF 2013
The Director of Income Tax (Exemptions), Mumbai ..Appellant.
V/s.
M/s. Shri Vile Parle Kelavani Mandal DATED : 23RD MARCH, 2015
With regard to the first question, she invites our
attention to the various assessing officer's orders. She
submits that the exemption which has been claimed in respect
of the income under the head “Management Development Programme and
consultancy charges” was not admissible
because the requirement which is set out in sub-section (4A)
of section 11 of the Income Tax Act, 1961 has not been
satisfied. This provision is not made for the attainment of the
objects of the trust or the institution and separate books of
account are not maintained by the trust / institution in respect
of the said business.
The Tribunal has held that the “Management and
Development Program & Consultancy Charges' is part and
parcel of 'Narsee Monjee Institute of Management Studies'
which has been set up by the respondent-assessee. The
respondent-assessee is a trust and has set up 30 schools and
colleges. The Commissioner as also the Tribunal has found
that the element of business is missing in conducting
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 41
management courses. There may be some surplus generated
which itself is applied towards the attainment of the object of
the educational institute. The separate books of account cannot be insisted upon
because once this programme is part
and parcel of the activities undertaken and carried out by the
Narsee Moonjee Institute of Management Studies, then the
condition precedent set out in sub-section (4A) of section 11
of the I.T. Act is completely satisfied. Such finding of fact
cannot be termed as perverse and it is in consonance with the
factual aspect regarding activities of the trust and the object
that it is seeking to achieve. Similarly, in regard to income
from the hiring of the premises and advertisement rights, the
said question is also not substantial question of law. Letting
out of halls for marriages, sale and advertisement rights has
not been found to be a regular activity undertaken as a part of
business. The educational institutions require funds. The
income is generated from giving various halls and properties
of the institution on rentals only on Saturdays and Sundays
and on public holidays when they are not required for
educational activities, then, this cannot be said to be a
business which is not incidental to attain the objects of the
trust. This being merely an incidental activity and the income
derived from it is used for the educational institute and not for
any particular person, separate books of account are also
maintained, then, this income cannot be brought to tax. This conclusion is also not
perverse and given the facts and
circumstances which are undisputed.
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 42
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO.673 OF 2013
Director of Income Tax (Exemption) ...Appellant.
Vs.
Fellowship of Physically Handicapped.
DATE : 10th MARCH, 2015
The Respondent-Assessee is a Trust imparting education, medical help and
financial aid to the physically handicapped persons. The respondent-assessee
Trust has been granted registration under section 12A of the Act by the
Commissioner of Income Tax. Further the respondent – assessee also received
grand-in-aid from the Government of Maharashtra to fulfill its charitable purpose
of assisting physically handicapped persons. The Assessing Officer was of the
view that the respondent-assessee
was commercially exploiting its property inasmuch as it had rented out its
premises to Cell companies for the purposes of erection of cell towers as well as
renting out hall for holding of marriages, reception/ parties etc. In the above
view, the Assessing Officer concluded that the respondent-assessee was engaged
in business activities and therefore not entitled to the benefit of Section 11 in
view of Sub-section (4) thereof and assessed the petitioner to income of Rs.78.34
lakhs. In appeal, the Commissioner of Income Tax (Appeals) held that the
respondent-assessee is not conducting any commercial activities by renting out
its property and rent in any case should be appropriately taxed as 'Income from
House Property' and not as 'Income from business' and allowed the assessee's
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 43
appeal.
4. The Revenue carried the issue in appeal before the Tribunal. The
Tribunal by the impugned order held that the income earned by letting out the
property cannot be said to be business income. It also upheld the view of the
CIT (Appeals) that rent income cannot be assessed as business income but has to
be assessed as income from house property. The impugned order also records
that the amount received on account of letting out of property and service
charges aggregated to amount of Rs.21 lakhs as against receipts from the State
grant-in-aid for its charitable activities Rs.32.58 lakhs and fees of its training
centre Rs.20.35 lakhs. In the aforesaid circumstances, the impugned order
dismissed the Revenue's appeal.
5. The grievance of the Revenue is that letting out of property would
not amount to income from house property but is essentially in the nature of
business income, and therefore, the respondent – assessee is not entitled to
benefit of Section 11 of the Act. It is submitted in particular that installation of
cell towers etc. requires specific permission from various authorities besides
electrical connection etc. It is further submitted that in terms of Sub-section 4 of
Section 11, the provisions of Section 11 would not apply to income of a Trust
arising from business, unless the business is incidental to attainment of the
objectives of a Trust and separate books of account are maintained. It is
submitted by Mr.Malhotra, learned Counsel for the Revenue that in the present
facts, the business is not incidental to the objectives of the Trust and
respondentassessee
is not maintaining separate books of accounts. We
find that as two Authorities under the Act have concurrently come to a finding of
fact that the amounts received by the respondent-assessee on account of letting
out of its property is income taxable under the head “income from house
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 44
property”. Thus, no occasion to apply Section 11A (4) of the Act as canvassed by
the Revenue would not arise. In view of the concurrent findings of the fact
arrived at by the Authorities which is not shown to be perverse, no substantial
question of law arises for our consideration.
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO.817 OF 2013
Director of Income Tax (Exemption). ...Appellant.
Vs.
Bombay Panjrapole Trust. DATE : 10th MARCH, 2015
Briefly the facts are that the respondent - assessee is a charitable
Trust engaged in maintaining gaushalas and tending to other animals and birds. It
inter alia gives them food and shelter. So far as disabled animals and birds are
concered it also runs a hospital / health centre for them. The respondent assessee receives donations, from identified donors as also anonymous
donations. During the subject Assessment Year the Assessing Officer in his
assessment order dated 14 December 2009 after excluding identified donations
brought to tax the anonymous donations Rs.84.36 lakhs under Section 115BBC
of the Act. In appeal, the Commissioner of Income Tax (Appeals) on detailed
examination of the objects of the respondent – assessee Trust and the work
carried out, concluded that the respondent – assessee-Trust is a Trust which has
been established to fulfill charitable and religious purpose. In reaching the
aforesaid conclusion, the respondent-assessee's activity was examined in the
context of the decision of this Court in the case “Vallabhdas Karsondas Natha
Vs. Commissioner of Income Tax, Bombay, (1947 15 ITR 32 Bom)” and the
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 45
Gujarat High Court's decision in the case “C.I.T. Gujarat Vs. Swastik Textile
Trading Co.Pvt.Ltd., ((1978) 113 ITR 0852 (Guj))”. Being aggrieved, the Revenue
filed an appeal to the Tribunal. By
the impugned order the Tribunal upheld the findings of the Commissioner of
Income Tax (Appeals) by reiterating that the decision of this Court in the case of
“Vallabhdas Karsondas Natha” (supra) and the decision of Gujarat High Court in
the case of “Swastik Textile Trading Co.Pvt.Ltd.”, concludes the issue that the
feeding and taking care of weak animals is not only charitable purpose but also a
religious purpose. Accordingly, the appeal of the Revenue was dismissed.
This shows that the Trust was created / established for charitable purposes.
Thereafter, the Commissioner of Income Tax (Appeals) as well as the Tribunal
have decided the appeal before them by placing reliance upon the binding
decision of this Court in the case “Vallabhdas Karsondas Natha” (supra) wherein
the Court inter alia considered the issue whether supply of fodder to animals and
cattle would amount to a charitable and / or religious purpose. In the above
context, the Court observed that “that to a Hindu nothing can be of greater
religious merit than to relieve suffering of dumb cattle and animals by giving
them fodder. It is hardly necessary to emphasize that, according to Hindu
religion and philosophy, animals have the same soul as human beings have and
the spark of divinity is as much present in them as in human beings.” Thereafter,
concluded by holding that “supply of fodder to cattle and animals is not only a
good religious trust but it is also a good charitable trust.” Therefore, the
submissions of the Revenue is in the face of the decision of this Court in
“Vallabhdas Karsondas Natha” (supra) wherein taking care of animals is
considered to be a charitable as well as religious activity. We may also refer to
the decision of Gujarat High Court in the case of “C.I.T. Gujarat Vs. Swastik
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 46
Textile Trading Co.Pvt.Ltd.”(supra) wherein the issue for consideration was
whether establishing, maintaining, running and helping gaushalas, panjarapoles
and other similar institutions for animals, would be considered to be a charitable
and religious purpose. The Gujarat High Court placed reliance upon the decision of
this Court in the case “Vallabhdas Karsondas Natha” (supra) and inter alia
observed as under:In fact at times religious and charitable purposes may overlap. Charitable
activities in all cases arise out of compassion while most religion treat compassion
as a religious attribute.
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO.465 OF 2012
The Director of Income Tax(Exemption),
Mumbai ...Appellant
v/s
Samudra Institute of Maritime Studies
Trust, Mumbai 400 088
DATE : 7TH AUGUST 2014
4. We have perused the orders passed by the authorities
including the Tribunal. We have also perused the two decisions,
one of the Hon'ble Supreme Court and relied upon by both the
counsel and equally a short judgment of the Division Bench of
this Court in the case of Director of Income Tax (Exemptions) v/s
National Safety Council, reported in (2008) 305 ITR 257(Bom).
5. We are of the opinion that the Tribunal has applied
the correct test in concluding that the exemption under section
11 of the Act can be availed of by the Respondent – Assessee.
In doing so, the Tribunal referred to the objects as set out in the
Trust Deed of the Respondent – Assessee. They are to set up ,
administer and maintain technical training institution at various
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 47
places in India for presea
and postsea
training for the ships and
maritime industry as a Public Charitable Institute for education.
That is to provide onboard
and offshore training and continuing
technical education for Officers, both on the deck and engine side. One of the
object was to register with the Director General
of Shipping and obtain other necessary approvals at the State
and Central levels. In the present case, the Tribunal
in paragraph 9.6 of the impugned order concludes that the
Assessee is giving training in the above area to seamen. All the
courses may not be approved by the Director General of Shipping
but that by itself is no ground to hold that the purpose is not
charitable. The exemption under section 11 can be claimed and
bearing in mind the object of the Trust. We are of the opinion
that the Tribunal and the CIT (Appeals) have approached the
issue correctly and in the light of the definition so also the tests
laid down came to a factual conclusion that the Respondent is
entitled to exemption under section 11 of the Act. This is not a
case where the purpose can be said to run a coaching class or a
centre. This is an institution which imparts education in the area
of presea
and postsea
training to seamen so as to prepare them
for all duties. In such circumstances, we do not find that the concurrent
findings of fact are vitiated by error of law apparent
on the face of the record or perversity enabling us to entertain
this Appeal. There is no substantial question of law. The Appeal
is therefore dismissed with no order as to costs.
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH “A” NEW DELHI
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 48
ITA No. 386/Del/2012
U/s 12AA of the I.T. Act, 1961
Abul Kalam Azad Islamic Vs. Director of Income-tax(E),
Awakening Center,
Brief facts are: Assessee society was granted registration u/s 12A
vide DIT(E)’s order dated 23-5-2001 and benefit of exemption u/s
80G till 31-3- 2011. It is not disputed that the aims and objects of the
society remained the same and there is no change therein. The
society was formed mainly to promote the cause of education in
general and cause of the education of the Indian Muslim and other
minorities and backward sections of the country. During the course
of assessment for A.Y. 2005-06, AO found that assessee had
purchased a commercial property at Bangalore for Rs. 7,34,62,970/-.
The purchase amount was claimed by the Society to be
application of society’s income in the assessment. AO,
however, did not agree with the assessee and held that this
amount was applied for not charitable purpose and did not
amount to application of income of Society and made the
addition.
3.1. On the basis of the assessment order, DIT(E) issued a show
cause notice as to why Society’s registration 12A also should not be
withdrawn as the assessee had applied its income for non-charitable
purposes.
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 49
3.2. In reply, assessee, inter alia, pleaded:
(i) The bylaws of the Society permitted the activity of purchasing any
immo vable property and investment of surplus fund.
(ii) The management of the Trust was eligible to invest in any
immovable property including a commercial property which could
be let out on rent; the rent would be recurring income and the
investment and recurring income were for promotion of the objects
of the Trust….
3.3. DIT(E), however, did not agree with the same and observed that:
(i) The earning of rental income was not object of the Society. The
property purchased was shopping Arcade cum-office complex,
which indicated the intention of indulging in commercial activities.
(ii) The commercial property has not at all been used for
any of its objectives i.e. spreading education, as claimed
to be the object of the assessee Society.
(iii) The purchase of commercial property was not incidental to
attainment of any objective. The property being commercial,
without any use for its aims and objectives, the investment was for
non-charitable purposes.
3.4. On these observations, DIT(E) withdrew the registration u/s 12A.
“7. In the instant case, the society is earning from two
different heads i.e. rental income, from property and from sale
of shop. The purchase of commercial property by the society is
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 50
not incidental to the attainment of its aims and objects, but a
well thought out action to earn rent at higher rate, property
being commercial and to obtain higher appreciation of value of
the property in the near future. The contention of the society
that surplus funds of the society were invested in accordance
with Section 11(5) of the Act, is not acceptable as the
immovable property was commercial and not a property
purchased for establishment of School/ college or any other
educational institute, which is one of the main aims of the
society for which it was created.
8. Keeping in view the above facts and nature of income, it
is clear that the intention of the assessee society behind
investment in commercial property is to earn rental income
which is not an activity of “charitable purpose” specifically
after the amendment in proviso to Section 2(15) from AY 200910 onwards. To sum up, though the aim of the trust is to impart
education, one of the activities so far is centered around
generating surplus buying properties and renting out the same
to different parties. The properties purchased, namely, UB Plaza,
Bangalore and Sigma Softech Park, Ramagondanahalli
Village, Bangalore are out rightly commercial properties
located in a shopping Arcade cum-office Complex, and are not
such properties where education is generally imparted. This
would indicate that the assessee has no intention to utilize the
properties purchased for using the same for imparting
education. Investment properties to earn rental income and in
shops so that income can be earned by selling those subsequent
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 51
can by no stretch of imagination be construed as application of
funds/ money for charitable purposes by the society. Moreover,
the such investment cannot be treated as incidental to
attainment of its aims and objects as per MOA.
9. In view of amended provisions of Section 2(15) of the
Income tax Act, 1961, the activity of the society relating to
investment in purchase of commercial property does not fall
within the meaning of Charitable activity, as the investment in
commercial property and earning rental income as well as
income from sale of shop out of the property purchased are hit
by the provisions of the amended provisions of section 2(15),
Keeping in view, the above facts and that the assessee is
carrying out activities which are not charitable as per provisions
of Section 2(15) of the Act, the society is held to be not
qualifying for registration u/s 12A. Accordingly, registration
granted u/s 12A to the assessee society is cancelled from AY
2009-1- onwards.”
7.2. Clause (x) of Sub sec. (5) to sec. 11 prescribes one of the
modes of investment as “investment in immovable property”.
Thus, the surplus income can be applied to investment in
immovable property. The charitable purposes will include the
educational activities and acquiring the income yielding assets
to promote the educational objects of the Society.
Consequently, combined reading of these provisions make it
clear that the assessee can set apart or invest its income in an
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 52
“immovable property”. The word “immovable property” by
natural reading, will include any type of land, residential or
commercial property or any other form of property, which can be
termed as immovable property as defined in the Transfer of
Property Act. Thus, the society/ management is allowed to
invest its surplus in immovable property, including commercial
property. Thus, there cannot be a bar on management of Society
to invest its surplus funds in acquisition of a commercial
property as the law does not mandate any extra bar.
7.3. Coming to the other aspect that because the assessee is not
carrying out any educational activity in this commercial
property, therefore, the investment becomes for non-charitable
purposes and the assessee has endeavored to enter into
business operations. In our view the assessee’s charitable
objects include spreading education and opening of schools;
investment even in commercial property assets remains
charitable purposes so long as the income generated by it is
applied to charitable objects. It has not been demonstrated that
the assessee applied rent received from these
properties to any non-charitable purposes. Besides, it has not
been
demonstrated that the assessee’s intention was to enter in business
of purchase and sale of commercial property inasmuch as we are in
year 2012, the property was purchased in FY 2004-05 and the Trust
still retains this property. In these circumstances, we are unable to
hold that the assessee’s investment can be held non-charitable in
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 53
nature. 7.5. In view of the foregoings, we hold that assessee’s
registration u/s 12A should not have been cancelled, the same is
restored. Order of DIT(E) is reversed.
Approved by THE HIGH COURT OF DELHI AT NEWDELHI
% Judgment delivered on: 26.02.2013
+ ITA 80/2013 DIRECTOR OF INCOME TAX (EXEMPTION) ...
Appellant versus
ABUL KALAM AZAD ISLAMIC AWAKENING
We are of the view that the Tribunal had correctly appreciated the
law and has come to the conclusion that the respondent assessee was
entitled under Section 11(5)(x) to invest in immovable property out of the
funds which were surplus with it. The Tribunal has also concluded that
there was no evidence on the part of the department that the assessee had
applied the rent received from the commercial property for non-charitable
purpose. That being the case, the registration under Section 12 A could
not have been cancelled. We do not find any substantial question of law
which arises for our consideration.
Further to same effect is binding decision of Delhi
bench of ITAT in case of District 321A Lions Service Trust
Cillage-Khizrabad ( ITA No.2016/DEL/ 2011 (Assessment Year
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 54
:2005-06)) order dated 17/5/2013 where in on same and similar
facts it is held and espoused that;
7. Aggrieved, the Revenue is in appeal before us. At the outset, the
Ld. DR brought before us the facts of the case from the
assessment order and in view of the facts he submitted that
assessee was not involved into charitable activities, since only
20% of the income of hospital was received by assessee.
Therefore, the assessee was not spending 85% of the total
income for charitable activities. Quoting from agreement, the
Ld. DR submitted that out of six management executives four
were from company and two were from trust and, therefore,
assessee had no control over the functions. Clause
19 and clause 29 was read by Ld. DR and it was argued that
assessee was paid a fixed amount per month and the
agreement was for 15 years and in case of termination of
agreement the name of hospital will remain with the company.
In view of the above, the Ld. DR argued all the terms and
conditions of agreement has been settled on commercial basis
and there is no charitable activity on the part of the trust, in this
respect section 2(15) was also read. It was also argued that CIT
(A) did not go into the findings of AO
therefore, the order of CIT (A) order was illegal and against the
facts of the case. The Ld. DR further argued that books of
accounts and vouchers were not produced and in the absence
of the books and vouchers how CIT )A could hold that activities
were of charitable nature. It was further argued that CIT (A) had
not seen whether the income was being spent or was being
accumulated. 8. Continuing her arguments, the Ld. DR
submitted that the transaction
was purely of commercial nature and activities of the
assessee were not genuine 10. Continuing his arguments the
Ld. AR submitted that infact the assessee had rented out its property
consisting of hospital and Ld. CIT (A) had understood the whole
system and, therefore, had rightly deleted the addition made by AO.
In her rejoinder, the Ld. DR submitted that additions to assets in the
balance sheet shows that addition has been made in water cooler
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 55
and in typewriter etc. and in view of that she argued that how the
addition of these assets can constitute carrying out of charitable
activities.
We have heard the rival parties and have gone through the
material placed on record. We find that the trust had its hospital
and equipments but
due to financial difficulties and liabilities had entered into an
agreement with the company to run the hospital successfully and on
a sharing basis by which it was to receive Rs.1,00,000/- per month
plus 20% of the net surplus if any after expenses. Therefore, the
income of the trust consisted of only monthly rent plus share in
surplus. The AO has not brought out anything to highlight
that the amount so earned by trust was not spent on charitable
activities. From the income and expenditure account, we find that
trust had excess income over expenditure amounting to Rs.63,107/which it had spent for making additions to the fixed assets. There is
no adverse finding by AO regarding the correctness of accounts of
the assesee. As regards production of books of accounts, the
assessee had duly furnished the same relating to Eye Centre and
trust which AO himself had mentioned in the assessment Order.In
view of the above, we do not find any merit in the appeal filed
by Revenue the same is dismissed
We place for your kind consideration following
jurisprudence to support the alternate prayer:
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH : F : NEW DELHI
ITA Nos.2328,2329,2330/Del/2009
Assessment Years: 2003- 2004, 2004-05, 2005-06
Petroleum Sports Promotion Board, 27th July, 2012
The revenue has questioned first appellate orders on the
following common issues : i) Whether on the facts and in the
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 56
circumstances of the case, Ld. CIT(A) is justified in allowing deduction
of expenses which is an application of income and not expenditure
incurred for earning of income and ii) whether on the facts and
circumstances of the case, Ld. CIT(A) was justified in allowing
expenditure, when the assessee is not registered u/s 12A and is not
entitled for exemption u/s 11 and therefore only those expenses can
be allowed which are admissible as per chapter IV of the Income Tax
Act. Considering the above submission we find that before the
authorities below the respondent had claimed exemption on application of its
income on the basis that the amount has been spent
on its object and activities for promoting sports. It was pointed out
that till the assessment year 2002-03 it was enjoying exemption u/s
10(23C) of the Act and on omission of the provision u/s 10(23C) of the
Act it had applied for registration u/s 12A of the Act, the same could
not be allowed due to some technicalities . The appellant again filed
application for registration which has been granted w.e.f. 1.4.2005. It
was contended that entire sources at its command whether it has
received grant from the members or whether it has earned interest on
surplus funds, it was spent / laid out wholly and exclusively for the
purpose of promotion of sports. An additional ground was also raised
before the Ld. CIT(A) that on the principle of mutuality the income of
the assesses is outside the purview of levy of income. Reliance was
placed on the decision of Hon’ble Supreme Court in the case of
Chelmsford Club vs. CIT reported in 243 ITR89(SC). Ld. CIT(A) did not
agree with the submission of the respondent that principle of mutuality
is applicable in the present case. We however find that the AO has not
brought out any adverse material in assessment order that the
expenses details of which were submitted before the AO claimed to
have been incurred on sports activities, were not supported by
documentary evidence or were not relating to the activities of the
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 57
respondent. The Ld. CIT(A) has also recorded in paragraph No. 6 of the first
appellate order that during the course of assessment proceedings
the assessee had submitted the details of all expenditure incurred for
the purpose of sports activities as well as books of accounts. He has
noted further that the assessee had furnished complete particulars of
its income and expenditure and the nature of expenditure incurred in
the promotion of sports activities. Ld. CIT(A) has noted further that
expenditure depends upon the number of sports events organized by
the respondent every year, therefore the expenditure varies every
year. We thus find that the Ld. CIT(A) has not given any benefit of
exemption of income under the provisions of section 11 of the Act but
considering the genuineness of the claimed expenses incurred on
sports activities. It is not the case of the revenue that the expenses
claimed was not legitimate or it was not incurred on the activities of
sports for which the respondent has been constituted. The issues
raised in the appeals preferred by the revenue are thus not tenable.
The decision of Hon’ble Supreme Court in the case of UP Forest
Corporation vs. DCIT holding that registration of trust/ institution u/s
12A is a condition precedent for availing benefit u/s 11 & 12 of the Act
is not applicable in the present case as Ld. CIT(A) , as discussed above,
has not given any benefit to the respondent under sections 11 & 12 of
the Act in the present case. We thus do not find reason to interfere with the
finding of the Ld. CIT(A) in the present case. The same is uphold. Consequently
the appeals are rejected.
Above decision is approved IN THE HIGH COURT OF DELHI AT NEW
DELHI % Date of decision: 3rd March, 2014 + ITA 262/2013 + ITA
264/2013 + ITA 265/2013
PETROLEUM SPORTS PROMOTION BOARD
(ITR Volume 362 : Part 2 page 235)
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 58
The learned standing counsel for the revenue submitted that the order of the
Tribunal is untenable since it indirectly confers the benefit of Section 11
upon the assessee. We are, however, not inclined to accept the contention.
The CIT (Appeals) has actually not held so. He never examined the question
whether the assessee was eligible for the
exemption under Section 11 since there was no ground before him, taken by
the assessee, to that effect. All that the assessee claimed before the CIT
(Appeals) was that the entire expenditure should be allowed as a deduction
since it was incurred for the very objects for which the assessee was
established in 1979 i.e. promotion of sports and, therefore, the assessing
officer was not justified in restricting the allowance of expenditure to
Rs.1,20,000/- only for all the three years. It was this claim that was accepted
by the CIT (Appeals). The objection of the learned standing counsel for the
revenue that since the grants were assessed under the residual head, there
was no scope for allowing the expenditure incurred on the promotion of the
sports activities is not acceptable since even under Section 57(iii), any
expenditure incurred for the purpose of making or earning the income is
allowable as a deduction. It is open to the income-tax authorities to deny the
exemption under Section 11 of the Act in the absence of registration under
Section 12A and if they do so, then the assessment has to be completed in
accordance with the provisions of the Income Tax Act; if the income is
assessed under the residual head full play must be allowed to Section 57(iii).
Though prima facie it would appear that the phraseology employed in
Section 57(iii) is different from Section 37(1), it has been held by the
Supreme Court in CIT vs. Rajendra Prasad Moody, 115 ITR 519 that
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 59
Section 57(iii) must be construed broadly and the somewhat wider language
of Section 37(i) should not affect the interpretation of Section 57(iii). The
assessee in the present case was created in 1979 with the object of
promoting sports; there was no other object and all its constituents were
giving grants/ funds only for that purpose. In truth and reality the assessee
was merely acting as a custodian or conduit to the constituents for the
purpose of promoting sports activity inside and outside the country. The
expenditure incurred by the assessee is only for the purpose of promoting
the sports events and activities and in this respect there is no challenge to
the finding of fact recorded by the Tribunal. If such expenditure is not
allowed, it may amount to taxing the gross receipts of the assessee and not
the income, which is not permissible under the income tax law.
M/s. J.B. Educational Society, IN THE INCOME TAX APPELLATE
TRIBUNAL HYDERABAD BENCH ‘B', HYDERABAD Date of
pronouncement: 28.10.2013
64. In view of the above discussion, we are of the opinion that voluntary
contributions in the nature of tied up grant received by the assessee cannot
be brought to tax even the trust is not registered u/s. 12AA of the Act. The
tied up donations received by the assessee should not be taxable as income
of the assessee, if it is used for specific purpose for which it has been given
and it cannot be considered as revenue receipts so as to tax the same. On the
other hand, the donations used for the benefit of the trustees it should be
brought to tax as income of the assessee. The AO is directed to segregate
these donations which are diverted for personal benefit of the Members of
the trust and tax the same accordingly. Further, other than tied up
grant/donations, if any, should be treated as income in the hands of the
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 60
assessee in accordance with law as business income after allowing usual
deductions under the provisions of the Act while computing income
under the head 'business income', more so, deduction u/ss. 30 to 38 of
the Act is to be allowed, if it is not already granted to the assessee
It has been so held by the Hyderabad bench of the Hon'ble
Tribunal in the case of Nirmal Agricultural Society vs. ITO 71
ITD 152 Hyd. It is submitted that in this case it has also been
held that even when the assessee had been assessed as AOP
and deprived of Section 11 benefits, the AO could assess only
net income of the assessee and not gross receipts.
Refer:
IN THE INCOME TAX APPELLATE TRIBUNAL,
MUMBAI BENCH “I”, MUMBAI ITA NO.6069/MUM/2011(A.Y.
2008-09) M/s. Islamic Research Foundation, 9th day of Jan.2013
There is also force in the contention of Ld. AR that entire gross
income could not be assessed as income of the assessee as in case
it is held that trust is not eligible for exemption under section 11, then
net income should be assessed and such arguments is supported by
decision relied by the Ld. AR in the case of Nirmal Agricultural
Society (supra) and no contrary decision has been brought to our
notice.
Bangalore ‘C’ Bench of the Tribunal in the case of
Sadvidya Educational Institution Vs. Add.CIT Head
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 61
Notes) :
“Charitable or religious trust—Exemption u/s 11—Assessee-trust was a
registered Society and ran several educational institutions in city of
Mysore starting from nursery to PUC—Assessee trust was also
registered u/s 12AA and had also obtained exemption u/s 11 and 12—
Some of the educational institutions run by assessee were aided
institutions, and as per norms fixed by State Government, assessee was
entitled to give 50% of admissions under management quota in respect
of PU Course—Assessee filed its returns of income, admitting 'Nil'
income for AYs 2006-07 & 2008-09 and declaring a loss for AY 2007-08
after claiming exemption u/s 11(1)(a) and 11(1)(d)—In meanwhile,
survey was conducted u/s 133A in assessee's premises and certain
books and documents containing details of student wise donations
collected by way of DDs and donation receipt books for admissions given
during FYs 2005-06 and 2006-07 relating to fees and alleged donations
collected from students who got admissions into the schools/college run
by the assessee were impounded and statement of secretary of assessee
was also recorded—AO observed that assessee was collecting voluntary
contributions/building fund/development funds against admissions
given under management quota in institutions run by assessee and was
not entitled to claim deduction u/s.11(1)(a) and 11(1)(d) –CIT(A)
upheld findings of AO holding that there was a direct nexus between
admissions granted under the management quota and voluntary
contributions collected by assessee- Held, if educational institution has
collected money in form of voluntary contributions from public and may
be from parents of the students who are studying in institution and
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 62
issued receipts acknowledging said amount towards building fund and
made requisite entries in the books and deposited same in the bank,
requirement of section 11(l)(d) is fulfilled— Assessee was running
several Schools starting from nursery to PUC and said fact has been
endorsed by AO—No question of assessee collecting 'capitation fees' in
guise of 'building fund or development fee—Further voluntary
contributions received were for the specific purpose of 'building fund or
development fee’ – Further voluntary contributions received were for
the specific purpose of ‘building’ and assessee had applied such
contributions towards object of trust – Assessee had obtained the
signatures of the parents of successful students in pre-printed letters
before obtaining donation and shown instatement – Assessee was
entitled to exemption u/s.11 in respect of ‘building fund’ as well as
‘college development fund’ – Assessee’s appeal allowed. Held :
In the present case, even if the fees collected were in violation of the
norms subscribed by the State Government, the application of the funds
were towards the objects of the assessee trust and as such, there was no
violation of s.13 of the Act as ascribed by the Revenue, The assessee had
obtained the signatures of the parents of the successful students in preprinted
letters without giving the details of amounts' donated, date of
contributions etc., but contained the donors' names and their addresses.
However, the assessing authority had chosen not to cross-examine such
parents who have admitted their children to the institution of the
assessee to verify the veracity of the assessee's claim.”
Chennai Bench of the Tribunal in the case of
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 63
Padanilam Welfare Trust Vs. Dy.CIT reported in 10 ITR 479 has
observed as under (Head Notes) :
“Charitable institution—Registration under s.12AA—CIT withdrawing
registration alleging that capitation fees was collected by the trustees
and there was diversion and misuse of funds—Violation of Prohibition of
Capitation Fees Act cannot be a ground to take away the registration of a
charitable organization—Capitation fee per se is not in the nature of
illegal income-There is nothing to show in the seized materials that the
assessee had made any profit out of the activities carried on by it and any
portion of that profit has been enjoyed by any of the trustees or the
relatives. Surplus funds of the assessee-trust year to year have been
used only for the purposes of furthering the objects of the assesseetrust—
There is no distribution of profit or such other benefits to the
trustees or relatives of the assessee-trust—Therefore action of the CIT in
withdrawing the registration granted to the assessee under s. 12AA is
not sustainable in law
Held :
It is found that the first ground pointed out by the CIT to cancel the
registration granted to the assessee under s. 12A on the ground of
accepting capitation fees is not sustainable in law. The CIT is not to
conduct investigation into the sources of
Hon’ble Delhi High Court in the case of Shanti Devi
Progressive Education Society (Supra) has observed as under : 340 ITR 320
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 64
"26. We have considered all these opinions as well as the submissions
made by learned counsel for the parties. We must at the inception itself
note that the three components scrutinized by the Assessing Officer are
the Admission Fee, Corpus Fund and the Loans taken from parents. Thus
it really can't be disputed that even the source of funds is relatable to the
activity of education. It may be noticed that there are factual findings on
the loans having been availed of by the assessee from a nationalized bank
for the purpose of creating additional infrastructure/schools and the
three sets of amounts have been addressed only towards the object of
creating additional infrastructure and easing the liability of the assessee
towards the interest burden of loan repayment. What is pertinent to be
taken note of is that there is no finding or allegation of any diversion of
these funds for the purpose other than carrying on educational activity.
There is no diversion of funds to the individual members or taking away
of profits for some other activity. It does appear to us that the Assessing
Authority appears to have been weighed down by the factum of some
questions being raised in the Parliament about the manner of collection
of funds by the institutions. That alone, would not suffice to deny the
exemption under Section 10(22) of the IT Act. There is in fact no material
to show or a complaint that there has even been any coercive process to
recover these amounts.
27. It cannot be lost sight of that if an institution has to expand,
additional infrastructure has to be created, quality education has to be
imparted, all these activities require funds. There may be an original
corpus of the Society but thereafter the corpus for such activity can be
created only through voluntary donations either from any philanthropist
or through collection of funds in the process of admission. We are not
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 65
concerned with the morality of the issue while deciding whether
exemption has to be granted. Personal prejudices seem to have stepped
in when allegations were made without any material against certain
members (which have rightly been struck off by the majority opinion of
Tribunal) alleging that these members were well known for making
profit through educational institutions. We also fail to appreciate the
doubts cast or the possibilities expressed about there being something
more to it in view of the funds being deposited in private banks. The
opinion is completely based on surmises and conjectures as it seems to
suggest that merely because funds were in a private bank, there may
have been divergence of funds to the members of the Society. Similarly,
the factum of construction being carried out by Ahluwalia Construction
Co. (P) Ltd., stated to be a family concern of the President, was not
material as there was no allegation of any inflated cost of construction or
unreasonable profits being derived from the same by third parties as a
mode of divergence of funds."
Karnataka high court in:
i)
CIT vs MBA Nahata charitable trust (14/2/2014 : ITA 467/2007) :
Section 68 cash credit : donation in cash name and address unavailable :
ass fav order: Held applying orders reported at 138 ITR 564; 336 ITR
694;276 ITR 152;THAT “since the amounts received from third party has
been accounted and utilized for charitable purposes even though the
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 66
assessee failed to disclose the name and addresses of the donors as well as
mode of payment, is entitled for deduction u/s 11 of the act”
ii)
CIT vs Fr Mullers Charitable Institutions: (10/2/2014 & ITA
588/2007): Whether violation of section 11(5) read with section
13(1)(d) by the assessee trust attracts maximum marginal rate of
taxation on the entire income of the trust?” Applying Bombay high
court in case of 249 ITR 533 & Delhi high court in 253 ITR 593
held that entire income cannot be subjected to taxation and only
relevant or part of relevant income can be taxed at maximum
marginal rate for said violation
IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH “
B
I.T.A. Nos.281 to 285/Bang/2014 (Assessment Years : 2005-06 to 2009-10)
Income Tax Officer, Ward-2, Hassan. Vs. M/s. Vokkaligara Sangha
14th Aug.,
2015
In the case of J.B. Educational Society V ACIT reported in 159 TTJ 234 (Hyd), the
Hyderabad Bench of the Tribunal followed an earlier decision of the Hyderabad
Bench in the case of Society for Integrated Development in Urban and Rural Areas
reported in 90 ITD 493 (Hyd) wherein the Tribunal followed the order of another
coordinate bench in the case of Nirmal Agricultural Society (2000) 67 TTJ (Hyd)
and recorded the observations therein which were as under :- "24. Coming to the
second limb of the argument of the learned counsel for the assessee that the entire
receipts cannot be taxed, we find that the issue is covered by the judgment of this
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 67
Bench in Nirmal Agricultural Society v. ITO, 71 ITD 152. In that case, it has been
held (as per head note) as under:-
"The assessee had not been granted registration under Section 12A, as the
Commissioner thought it fit to refuse to condone the long delay caused by the
assessee in applying for the registration. Therefore, the Assessing Officer had no
other option but to complete the assessments in the status of AOP also closing his
eyes towards Section 11 and Section 13. To that extent, the Assessing Officer was
right as he had acted only according to will of law. But as far as the contents of the
assessments were concerned, even when the assessee had been assessed as AOP
and deprived of Section 11 benefits, the Assessing Officer could assess only net
income of the assessee and not gross receipts. As far as the assessee was
concerned, construction of houses, reclamation of land, etc., were part of its regular
activities. Houses were built on the land of poor agriculturists. The assesseesociety had no legal title or right over the land or houses of those villagers/
agriculturists who were the beneficiaries. The purpose and activity of the assesseesociety was to engage in such charitable activities. Whatever amount had been
spent on those programmes/projects, it was spent in the usual course of carrying on
its acclaimed objects. Therefore, there was no basis whatsoever, factual or legal, to
hold that the amounts spent by the assessee in constructing houses or reclaiming
land were capital expenditure. As far as the assessee was concerned, those
expenses were revenue expenses. The assessee had no right or title over those
properties. Those expenses were incurred as part of its normal activities for which
the society was formed. Therefore, the money spent by the assessee- society in
constructing houses, reclaiming the land, for non-formal education, etc., had to be
allowed as deduction in the computation of income. The grants received from
foreign donor were for specific purposes. The grants which were for specific
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 68
purposes did not belong to the assessee-society; such grants did not form corpus of
the assessee or its income. Those grants were not donations to the assessee so as to
bring them under the purview of Section 12. Voluntary contributions covered by
Section 12 are those contributions freely available to the assessee without any
stipulation, which the assessee can utilise towards its objectives according to its
own discretion and judgment. Tied-up grants for a specified purpose would only
mean that the assessee which was a voluntary organisation, had agreed to act as a
trustee of a special fund granted by donor with the result that it need not be pooled
or integrated with the assessee’s normal income or corpus. In the instant case, the
assessee was acting as an independent trustee for that grant, just as same trustee
could act as a trustee of more than one trust. Tiedup amount need not, therefore, be
treated as amounts which were required to be considered for assessment for
ascertaining the amount expended or the amount to be accumulated. The assessee
should have actually credited the grant in the personal account of the donor and
any amount spent against that grant should have been debited to that separate
account of the donor. That incoming and outgoing need not be reflected in the
income and expenditure account of the assessee. At the end of the project, the
balance, if any, available to the credit of the donor, could be treated as income of
the assessee, if the donor did not insist for the repayment of the balance amount.
Therefore, the Assessing Officer was to be directed to redo the assessment on the
following lines. (1) The tied-up grants received from the donor, Bread for the
World, will be taken out of the computation of income from the income-side. (2)
All the money spent under the tied-up programmes directed by the donor also will
be taken out of the computation of income from the expenses-side. (3) Any nonrefundable credit balance in the personal account of Bread for the World will be
treated as income in the year in which such non- refundable balance was
ascertained. (4) The expenses incurred by the assessee for house construction,
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 69
reclamation of land, non-formal education programme (other than covered by the
tied-up grants) will be deducted as revenue expenses." 25. Honourable Rajasthan
High Court in the case of Sukhdeo Charity Estate (supra) held as follows (as per
head note):- "It was for the specific purpose of implementation of the water supply
scheme that the request for contribution had been made by the assessee-trust and it
was in response to that request that the amount had been given by the Calcutta
trust. It was clear that the intention of the donor and the donee was to treat the
money as capital to be spent for the water supply scheme. The fact that the amount
had not been paid over to the State Government and was kept unutilised in the
account of the assessee-trust was not relevant. The amount could not be said to be
"income" and could not be included as part of the assessable income of the trust
under the provisions of Section 12(2)." In Yet another judgment in the case of
Sukhdeo Charity Estate (supra), the Honourable Rajasthan High Court held as
follows (as per head note):- "The intention of the donor-trust as well as the doneetrust was to treat the money as capital to be spent for the Ladnu Water Supply
Scheme. It was of no significance whether the amount had since been paid to the
State Government or kept in the account of the said scheme by the assessee-trust.
The amount of Rs. 70,000/- did not constitute income of the petitioner. The
reassessment proceedings were not valid and were liable to be quashed." This
Bench of the Tribunal in the case of Arya Vysya Abhyudaya Sangham (supra) for
asst. year 1998-99, in its order dated 25-6-2002 to which one of us was a party,
was inclined to uphold the view of the Commissioner (Appeals) in that case by
holding in para 15 of that order as follows: "Though we find considerable force in
the other argument of the assessee’s counsel i.e. the income should be computed on
commercial principles, as we have held that the assessee-society is eligible for
exemption Under Section 11 of the Act and as we have also held that the objects of
the society were of charitable nature within the meaning of Section 2(15) of the
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 70
Act, and as we have further held that there is no violation, whatsoever of the
provisions of Section 13(1)(c) and (d) of the I.T. Act, 1961, the other grounds of
the assessee need not be gone into, as it would be of academic interest only." The
Revenue has not brought to our notice any judgment from any High Court which
has dealt at length on this issue and which is in its favour. It is also not clear
whether the Revenue has accepted or gone on appeal against the judgment of this
Bench in the case of Nirmal Agricultural Society (supra). 26. Honourable Andhra
Pradesh High Court in the case of Chairman, Andhra Pradesh Welfare Fund v.
CIT, as per head note, held as follows:- "(i) That the finding of the Tribunal, that
the assessee could not be regarded as a branch or as a part of the parent body, was
a finding of fact and no question of law arose for reference. (ii) That the mere fact
that the rice millers paid contributions with an oblique motive would not affect the
character of the contributions, as voluntary contributions. (iii) That the finding of
the Tribunal, that the assessee was not entitled to exemption as a trust under
Section 12 because some of the funds were being utilised for purposes other than
charitable and religious was a finding of fact and no question of law arose for
reference." This judgment was relied upon by the Reference. A careful reading of
this judgment does not indicate that the question raised by the assessee before us
was posed to the court. We do not feel that this is a precedent for laying down a
proposition of allowability of expenditure for computation of income of a
charitable institution which is denied benefit Under Section 11. Honourable
Supreme Court in the case of Goodyear India Ltd. v. State of Haryana (1991) 188
ITR 402 (SC), as per head note, held as follows: "Precedent -- Authority only for
what it decides - Not for what may remotely or even logically follows - Decision
on question not argued cannot be treated as precedent." Thus, the judgment of
Honourable Andhra Pradesh High Court (supra) does not help the case of the
Revenue. 27. On other hand, learned authors Chaturvedi and Pithisaria in their
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 71
book Income Tax Law, Fifth edition, Vol.1, at page 424, under the heading
"Income, when falls into the tax net", observed as follows:- "Although Section 14
of the 1961 Act classifies income under six heads, the main charging provision is
Section 4(1) which levies income-tax, as only one tax, on the "total income" of the
assessee as defined in Section 2(45) of that Act. AO income in order to come
within the purview of that definition must satisfy two conditions. Firstly, it must
comprise the "total amount of income referred to in Section 5”. Secondly, it must
be ”computed in the manner laid down in this Act”. If either of these conditions
fails, the income will not be a part of the total income that can be brought to charge
[CIT v. Harprasad & Co. P. Ltd., (1975) 99 ITR 118, 125 (SC)]”. 9 28. As argued
by the Revenue, though by virtue of Section 2(24)(iia) voluntary contributions are
income, to our mind this by itself does not entitle the tax gatherer to ignore all
other well settled principles of taxation and general law and levy tax on gross
receipts without considering the claim for deductions. Principles such as capital
versus revenue, doctrines of overriding title, form versus substance, interpretation
of ”deeming” provisions etc., have to be applied wherever necessary. Only the
surplus or profit can be brought to tax and the same has to be computed in the
manner laid down in the Act applying the normal principles of accountancy and
taxation laws. 29. The learned authors Kanga and Palkhivala in the book The Law
and Practice of Income Tax, Eighth edition, Vol. I, at page 387, state the legal
position as follows:- “Voluntary contributions towards corpus of recipient trust.-The present Section 12 is expressly made applicable to voluntary contributions
which are made with a specific direction that they shall form part of the corpus of
the trust [original in italics]. Therefore, such contributions on capital account do
not have to be applied to charitable purposes but can be retained as the corpus of
the recipient trust without attracting any tax liability. Although the italicized words
have now been omitted from Section 2(24)(ii-a), the exclusion of such capital
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 72
donations from the definition of ’’income” implicit in that section. The correct
legal position is as under: (a) All contributions made with a specific direction that
they shall form part of the corpus of the trust are capital receipts in the hands of the
trust. They are not income either under the general law or under Section 2(24)(ii-a)
rightly construed. (See under Section 2(24)(ii-a), "Voluntary contributions received
by charity".) (b) Section 2(24)(ii-a) deems revenue contributions to be income of
the trust. It thereby prevents the trust from claiming exemption under general law
on the ground that such contributions stand on the same footing as gifts and are
therefore not taxable. (See under Section 10(3), "Voluntarypayments ..."p.320.) (c)
Section 12 goes one step further and deems such revenue contributions to be
income derived from property held under trust. It thereby makes applicable to such
contributions all the conditions and restrictions under Sections 11 and 13 for
claiming exemptions. (See also Expln. (1) to Section 11(1).] (d) Section 11(1)(d)
specifically grants exemption to capital contributions to make the fact of nontaxability clear beyond doubt. But it proceeds on the erroneous assumptions that
such contributions are of income nature - "income in the form of voluntary
contributions". This assumption should be disregarded." 5.3.3 After, relying on the
observations from the decision of the co-ordinate bench (supra), the Hyderabad
Bench in the case of J.B. Educational Society (supra) observes as under :- 58.
Further, in the case of Shri Shankar Bhagwan Estate vs. ITO (61 ITD 196) wherein
even after considering section 2(24)(iia) of the Act it was held as follows: "Section
2(24)(iia) has to be read in the context of the introduction of present section 12. In
the instant case the Assessing Officer on evidence had accepted the fact that all the
donations had been received towards the corpus of the endowments. In view of this
clear finding, they could not be assessed as income of the assessees. Therefore, the
voluntary contributions received by the assessees towards the corpus could not be
brought to tax." 59. Now the issue for our consideration is whether the amounts
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 73
received by the assessee were in the nature of voluntary donations received for
specific purpose. If yes, whether the same could be considered towards corpus of
the trust. Alternatively, if the donations are not voluntarily made, then whether
such donations could be considered as income chargeable to tax. The assessee has
taken a plea before us that these donations are received from members of the trust
and their associated companies/persons for a specific purpose, it is a tied up grant.
Sections 11, 12 and 2(24)(iia) of the Act speak of voluntary contributions.
Therefore, firstly, it has to be seen whether such donations are voluntary or not.
According to the dictionary meaning, an act can be said to be voluntary if it is done
by free choice of once own accord, without compulsion or obligation, without
valuable consideration, gratuitous, etc. There is no material on record to suggest
that such donations are given against the will of the donors or by any compulsion
or under any obligation. In that sense, it can be said that the donations are
voluntary. Before us, the assessee filed a list of donors in Paper Book form at page
Nos. 637 to 656 giving details of the donors. If the donations are not voluntarily
made, the same fall outside the ambit of sections 11, 12 and 2(24)(iia) of the Act.
Consequently, general provisions of Income-tax Act would become applicable.
According to the general provisions of the Act all receipts are not income.
Donations received for specific object are to be considered as tied up fund and it is
capital receipt. If the donations are made voluntarily for specific purpose, the same
cannot be held as income of the assessee, since the donations were, in our opinion,
given for specific purpose as tied up grant and it cannot be taxed as income. 60. In
the present case, the resolution passed by the assessee shows that it has been
received from members of the trust and their associated companies/persons
towards "building construction" and the same were expended for that purpose. So
far as section 2(24)(iia) is concerned, this section has to be read in the context of
introduction of section 12. It is significant that section 2(24)(iia) was inserted with
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 74
effect from 1.4.1973 simultaneously with the present section 12, both of which
were introduced from the said date by Finance Act, 1972. Section 12 makes it clear
by the words appearing in parenthesis that contributions made with a specific
direction that they shall form part of the corpus of the trust or institution shall not
be considered as income of the trust. The Board circular No. 108 dated 20.3.1973
is extracted at page 1754 of Volume I of Sampath Iyengar Law of Income-tax
(10th Edition), in which the interrelation between sections 12 and 2(24) has been
brought out. Gifts made with clear direction that they shall form part of the corpus
of the religious endowment can never be considered as income. In the case of R.B.
Shreeram Religious and Charitable Trust v. CIT (172 ITR 373) (Bom) the Hon’ble
High Court held that even ignoring the amendment to section 12, which means that
even before the words appearing in parenthesis in the present section 12, it cannot
be held that voluntary contributions specifically received towards corpus of the
trust may be brought to tax. The aforesaid decision was followed by the Bombay
High Court in the case of CIT vs. Trustees of Kasturbai Scindia Commission Trust
(189 ITR 5) (Bom). In the present case donations being received for specific
purpose, towards corpus of the trust, cannot be assessed as income of the assessee.
61. Same view was taken in the case of Shri Dwarakadeesh Charitable Trust vs.
ITO (98 ITR 557), DCIT vs. Nasik Gymkhana (77 ITD 500), ITO vs. M/s.
Gaudiya Granth Anuved Trust in ITA No. 386/Agra/2012 order dated 2.8.2013,
Penta Software Employees Welfare Foundation vs. ACIT in ITA Nos. 751752/Mds/2007 and DIT (Exemptions) & Anr. vs. Sri Belimath Mahasamsthana
Socio, Cultural and Educational Trust (336 ITR 694) (Kar). 62. Further, we have
also carefully gone through the order of the Tribunal in the case of Nirmal
Agricultural Society vs. ITO (71 ITD 152) relied on by the DR. Specifically
paragraphs 9 to 12 of that order support the case of the assessee rather than the
Revenue. For clarity, we reproduce the said paragraphs as under: "9. But as far as
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 75
the contents of the assessments are concerned, we find much force in he
contentions advanced by the assessee. Even when the assessee has been assessed as
AOP deprived of s. 11 benefits, the AO could assess only net income of the
assessee and not gross receipts. As far as the assessee is concerned, construction of
houses, reclamation of land, etc., are part of its regular activities. Houses are built
on the land of poor agriculturists. The assessee-society has no legal title or right
over the land or houses of those villagers/ agriculturists who are the beneficiaries.
The purpose and activity of the assessee-society is to engage in such charitable
activities. Whatever amount has been spent on those programmes/ projects, they
were spent in the usual course of carrying on its acclaimed objects. Therefore,
there is no basis whatsoever, factual or legal, to hold that the amounts spent by the
assessee in constructing houses or reclaiming land are capital expenditure. As far
as the assessee is concerned, those expenses are revenue expenses. The assessee
has no rig ht or title over those properties. Those expenses were incurred as part of
its normal activities for which the society was formed. Therefore, the money spent
by the assessee-society in constructing houses, reclaiming the land, for non-formal
education, etc., has to be allowed as deduction in the computation of income. 10.
The grants received from Bread for the World were for specific purposes. The
grants which are for specific purposes do not belong to the assessee- society. Such
grants do not form corpus of the assessee or its income. Those grants are not
donations to the assessee so as to bring them under the purview of s. 12 of the Act.
Voluntary contributions covered by s. 12 are those contributions freely available to
the assessee without any stipulation which the assessee could utilise towards its
objectives according to its own discretion and judgment. Tied-up grants for a
specified purpose would only mean that the assessee, which is a voluntary
organisation, has agreed to act as a trustee of a special fund granted by Bread for
the World with the result that it need not be pooled or integrated with the
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 76
assessee’s normal income or corpus. In this case, the assessee is acting as an
independent trustee for that grant, just as same trustee can act as a trustee of more
than one trust. Tied-up amounts need not, therefore, be treated as amounts which
are required to be considered for assessment, for ascertaining the amount expended
or the amount to be accumulated. 11. The assessee should have actually credited
that grant in the personal account of the donor, Bread for the World and any
amount spent against that grant should have been debited to that separate account
of the donor. That incoming and outgoing need not be reflected in the income and
expenditure account of the assessee. At the end of the project, the balance, if any,
available to the credit of Bread for the World, the donor, could be treated as
income of the assessee, if the donor did not insist for the repayment of the balance
amount. 12. Therefore, in the light of the examination of the facts of the case, we
direct the AO to redo the assessments in the following lines: (1) The tied-up grants.
received from the donor, Bread for the World, will be taken out of the computation
of income from the income side. (2) All the money spent under the tied-up
programmes directed by the donor also will be taken out of the computation of
income from the expense side. (3) Any non-refundable credit balance in the
personal account of Bread for the World will be treated as income in the year in
which such non- refundable balance was ascertained. (4) The expenses incurred by
the assessee for house construction, reclamation of land, non-formal education
programme (other than covered by the tied-up grants) will be deducted as revenue
expenses. ” 63. Being so, as seen from the above order of the Tribunal the amount
received by the assessee for specific purpose would only mean that the assessee
agreed to act as a trustee of a special fund granted by assessee's trustees/members
or associated persons. As a result it need not be pooled or integrated with the
assessee's normal income or corpus. The assessee is acting as an independent
trustee for that amount received from the assessee's trustees/members just as some
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 77
trustee can act as a trust for more than one trust. Tied up or specific grant need not,
therefore, be treated as amounts which are required to be considered for
assessment. In other words, tied up grant received from donors for a specific
purpose cannot form part of assessee's income. 64. In view of the above discussion,
we are of the opinion that voluntary contributions in the nature of tied up grant
received by the assessee cannot be brought to tax even the trust is not registered
u/s. 12AA of the Act. The tied up donations received by the assessee should not be
taxable as income of the assessee, if it is used for specific purpose for which it has
been given and it cannot be considered as revenue receipts so as to tax the
same…….” In coming to the aforesaid conclusion the Hyderabad Bench of the
ITAT has also relied upon the decisions of the ITAT, Delhi Bench in the case of
Smt. Basanthi Devi (supra) and Sri Chakhan Lal Garg Education Trust (supra) and
in the case of Gaudiya Granth Anved Trust (supra) wherein similar issue raised has
been considered by both the Delhi and Agra Benches of the ITAT. We also find
that the Hon'ble Delhi High Court in the case of Basanti Devi & Sri Chakhan Lal
Garg Education Trust vide its order in ITA No.927/09 dt.23.9.2009 has also
affirmed the view taken by the Hon'ble ITAT in holding that corpus donations
cannot be regarded as income under Section 2(24)(iia) of the Act. 5.3.5 Following
the above decisions of the Tribunal (supra), relied upon by the assessee, we hold
that voluntary contributions received for a specific purpose cannot be regarded as
income under Section 2(24)(iia) of the Act since they are capital receipts and tied
up grants for specific purpose.
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 78
ITO vs. Saraswati Educational Charitable Trust (ITAT Lucknow
)
June 17, 2015 (Date of pronouncement)
(i) The trust is registered u/s 12A of the Act. There is no dispute that the
entire voluntary donations have been disclosed by the trust as income in
the Income and Expenditure account. The income so disclosed has been
applied for charitable purposes as provided u/s 11(1) of the Act and
hence cannot be included in total income of the trust. Adding part of the
voluntary donations again as unexplained cash credits u/s 68 to the total
income of the trust amounted to taxing, the same income twice which is
not permissible (Director of Income Tax (Exemption) v. Keshav Social and
Charitable Foundation, [2005] 278 ITR 152 (Delhi), CIT, Ghaziabad v.
Uttaranchal Welfare Society, [2014] 42 taxmann.com 361 (All.) referred);
(ii) To obtain the benefit of the exemption under section 11, an assessee
is required to show that the donations were voluntary. In the instant
case, the assessee had not only disclosed its donations, but had also
submitted a list of donors. The fact that the complete list of donors was
not filed or that the donors were not produced, did not necessarily lead
to the inference that the assessee was trying to introduce unaccounted
money by way of donation receipts. That was more particularly so in the
facts of the case where admittedly, more than 75 per cent of the
donations were applied for charitable purposes;
(iii) Section 68 had no application to the facts because the assessee had
in fact disclosed the donations as its income and it could not be disputed
that all receipts, other than corpus donations, would be income in the
hands of the assessee. There was, therefore, full disclosure of income
by the assessee and also application of the donations for charitable
purposes. It was not in dispute that the objects and activities of the
assessee were charitable in nature, since it was duly registered under
the provisions of section 12A;
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 79
(iv) Section 115 BBC of the Act were not violated by the trust and the
donations received from the nine donors cannot be categorized as
anonymous donations. To be excluded from the definition of expression
“anonymous donation” the person receiving the voluntary contributions
referred to in section 2(24) (iia) is required to maintain a record of
identity indicating the name and address of the contributor and such
other particulars as may be prescribed. Since no other particulars have
been prescribed under the provisions the person receiving the donation
is under obligation to maintain the identity of donors indicating the name
and address only. On perusal of the details furnished by the trust it is
seen that the trust has not only furnished the names and addresses of
the donors but also furnished a number of other details in respect of
such donors viz. their PANs, copy of ITRs, copy of bank statements their
confirmations, financial statements, computation of income etc. In view
of the above it is held that the trust has established the identity of donors
as provided u/s 115BBC of the Act and the donations cannot be
categorized as anonymous donations and subjected to tax as per
provisions of section 115BBC of the Act.
income Tax Appellate Tribunal - Delhi
Sant Vivekanand Education & ... vs Assessee on July, 2013.
In view of the ratio laid down in the above cited decisions of Hon'ble Delhi High
Court when we examined the orders of authorities below, we do not find
justification in the action in sustaining the addition of Rs.140 lacs u/s 68 of the Act
only because some of the donors could not be verified when there is no dispute that
the assessee had made disclosure of donations along with list of donors, the
amount so received in donations were applied for charitable purposes. It is
pertinent to mention over here that during the year, the assessee had received
corpus donations of Rs.1,99,86,101/- and it had collected RS.3,51,76,220/- as per
income and expenditure account that the total amount available with the assessee
from these two accounts was Rs.5,51,62,321`/- against which it had spent
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 80
Rs.4,03,76,796/- of fixed assets and Rs.3,09,80,493/- on recurring expenses. Thus,
after depreciation of Rs.63,08,433/-, the total application of funds comes to
Rs.6,50,48,856/-. Thus, there is no dispute that the amount in question was applied
for educational purposes, the act that some donations remained unverifiable due to
non availability of donors at the addresses given in their confirmations does not
necessarily lead to the inference that the assessee was trying to introduce
unaccounted money by way of donation receipts. We, therefore, respectfully
following the decision of Hon'ble Delhi High Court in the case of Keshav Social &
Charitable Foundation (supra), hold that the assessee is not required to show that
the donations were voluntary. In the present case before us, the assessee had not
only disclosed the donations but had also submitted the list of donors. Thus, the
provision of Section 68 of the Act has no application to the facts of the present
case. There is also no dispute that the objects and activities of the assess ewer
charitable in nature and it was duly registered under the provisions of Section 12A
of the I. T. Act, 1961. We thus direct the A.O. to delete the addition of Rs.140 lacs
u/s 68 of the Act in question made upheld by the authorities below in the absence
of justification thereto. The grounds No.1-10 are thus allowed in favour of the
assessee.
Sunder Deep Education Society vs. ACIT In the Income Tax
Appellate Tribunal Delhi Bench ‘ G’ New Delhi
MonthYear :
Jan - 2014
Author/s : ITA No. 2428/Del/2011(BCAJ)
Title :
Sunder Deep Education Society vs. ACIT In the
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 81
Income Tax Appellate Tribunal Delhi Bench ‘ G’ New
Delhi
Details :
Facts
The assessee is registered under the Societies Registration Act, 1860 and
u/s. 12AA of the Income tax Act, 1961. It also enjoys exemption u/s. 80G.
The assessee runs educational institutions conducting various professional
courses. In respect of the voluntary contribution aggregating to Rs. 1.97
crore received during the year, the assessee was not able to produce the
donors when summoned by the AO who, as claimed by the assessee, had
made the said donations. Therefore, the AO held that the same were
anonymous and unexplained cash credit and added the said amount as the
assessee’s total income as per section 115BBC and section 68.
Before the CIT(A) the assessee submitted the name and address of the
persons who had made donations alongwith other particulars prescribed by
the Act. The CIT(A) agreed that the donations could not be treated as
‘anonymous’. However, according to him, since the assessee could not
prove the donations amount of Rs. 1.97 crore the same was treated as
unaccounted income by him and brought to tax u/s. 11(4) read with
section 68/69/69C.
Before the tribunal, the revenue did not challenge the CIT(A)’s finding that
the donations were not anonymous but contended that as held by the
CIT(A), the same were taxable u/s. 68 and 69 as income from other
sources and the benefit of section 11 and 12 would not be available to the
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 82
assessee.
Held
The tribunal referred to the decision of the Delhi tribunal in the case of Shri
Vivekanand Education & Welfare Society (ITA No. 2592 / Del / 2012) which
was based on the decision of the Delhi high court in the case of DIT(Exem)
vs. Keshav Social & Charitable Trust (278 ITR 152) where the Court
observed that the fact that complete list of donors was not filed or that the
donors were not produced, does not necessariiy lead to the inference that
the assesse was trying to introduce un-accounted money by way of
donation receipts. The Court further observed that as the assesse had
disclosed the donation as income, the provisions of section 68 cannot be
applied. Applying the ratio, the tribunal held that the said receipts of Rs.
1.97 crore would be governed by the provisions of sections 11 and 12 of
the Act and if 85% thereof is applied towards the objects of the trust, then
the income assessable would be nil.
Hoshiarpur Improvement Trust vs. ITO (ITAT Amritsar)
September 10, 2015 (Date of pronouncement)
The assessee trust is set up under the Punjab Towns Improvement Act
1922, (PTIA, in short) by the Government of Punjab with the principal
objective to bring about improvement in the town by the means set out
under section 22 to 26 of the PTIA. The land for development is provided
by the State Government, by acquiring the same under the Land
Acquisition Act. The land so given to the assessee trust is developed,
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 83
inter alia, by providing for public amenities such as gardens, schools,
religious places, community halls and shopping areas. The area
available, after providing for access roads and streets as also public
amenities, is then allotted in accordance with the State Government
policies which include policy regarding reservation for specified
categories such as members of Scheduled Castes and Scheduled
Tribes, army personnel, sports persons etc. The assessee claimed the
entire income to be exempt under section 11 of the Act. The Assessing
Officer was of the view that the aim of the assessee trust is “acquisition
of land, to develop it and sell it in the shape of plots, flats and
commercial booths, after calling the applications from public with some
registration fees”. He noted that these plots, shops and flats are sold at
market rates. The Assessing Officer was of the view that these activities
cannot be treated as advancement of any other object of “general public
utility”. The Assessing Officer further observed that these activities are
only to earn profits and that its functioning cannot be regarded as
‘charitable’ within the meanings of Section 2(15) of the Act. He relied on
Lok Shikshan Trust Vs CIT (1975) 101 ITR 234 (SC) and Indian
Chamber of Commerce & Ors Vs CIT (1975) 101 ITR 797 (SC). This
was upheld by the CIT(A). On appeal by the assessee to the Tribunal
HELD allowing the appeal:
(i) Vide Finance Act, 2008, the words “preservation of environment
(including watersheds, forests and wildlife) and preservation of
monuments or places or objects of artistic or historic interest)”, were
added and, on a more relevant note, a new proviso (i.e. fist proviso) was
added to this provision, carving out an exception in the cases of
‘advancement of any other object o f general utility’, and, by the
immediately following Finance Act 2009, there was yet another proviso
(i.e. second proviso) introduced to carve out an exception from the
exception itself. In essence, the effect of these provisos was that even
when an assessee was pursuing ‘a charitable purpose’ in the event of
advancement of any other object of public utility’ it would cease to be for
charitable purposes if it involves (a) carrying on an activity in the nature
of trade, commerce or business; or (b) rendering any service in relation
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 84
to any trade, commerce or business, for a cess or fee or any other
consideration, irrespective of nature of use or application or retention of
the income from such activity. However, these provisions are not to
apply when the activities are such a modest scale that the value of
receipts in respect of the same are less than Rs 25 lakhs. Therefore, as
the legal position stands as on now, even after the insertion of the above
two provisos, as long as the object of general public utility is not merely a
mask to hide true purpose or rendering of any service in relation thereto,
and where such services are being rendered as purely incidental to or as
subservient to the main objective of ‘general public ut ility’, the carrying
on of bonafide activities in furtherance of such object ives of ‘general
public utility’ cannot be hit by the proviso to s. 2(15).
(ii) By the Finance Act 2015, these two provisos also stand substituted,
with effect from 1st April 2016, a new proviso to Section 2(15). It may be
noted that while the earlier proviso simply stated that exclusion from
‘charitable purposes’ will come into play “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
”, the requirement of exclusion clause extends even to situations “ in
which such activity is undertaken in the course of actual carrying out of
such advancement of any other object of general public utility”. In other
words, the exclusion clause, by proviso to Section 2 (15), was earlier
triggered by “involvement in any activity in the nature of trade, commerce
or business etc” but, post Finance Act 2015 amendment, it will be
triggered even if “such an activity in the nature of trade, commerce or
business etc is undertaken in the course of carrying out such
advancement of any other object of general public utility”.
(iii) This substitution of proviso to Section 2(15) may be viewed as
representing a paradigm shift in the scope of the exclusion clause. The
paradigm shift is this. So far as the scope of earlier provisos is
concerned, the CBDT itself has, dealing with an assessee pursing “the
advancement of any object of general pubic utility”, observed that “If
such assessee is engaged in any activity in the nature of trade,
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 85
commerce or business or renders any service in connection to trade,
commerce or business, it would not be entitled to claim that its object is
for charitable purposes” because “In such a case, the object of ‘general
public utility’ will only be a mask or a device to hide the true purpose
which is trade, commerce, or business or rendering of any service in
relation to trade, commerce or business.” The advancement of any
objects of general public utility and engagement in trade, commerce and
business etc. were thus seen as mutually exclusive in the sense that
either the assessee was pursuing the objects of general public utility or
pursuing trade, commerce or business etc. in the garb of pursing the
objects of general public utility. As the CBDT circular itself demonstrates,
there could not have been any situation in which the assessee was
pursing the objects of general public utility as also engaged in trade,
commerce of business etc. In the new proviso, however, even when the
assessee is engaged in the activities in the nature of trade, commerce or
business etc. and “such activity is undertaken in the course of actual
carrying out of such advancement of any other object of general public
utility” it is excluded from the scope of charitable purposes only when
“the aggregate receipts from such activity or activities during the
previous year, do not exceed twenty per cent of the total receipts, of the
trust or institution undertaking such activity or activities, of that previous
year”. In other words, even when the activities are in the course of
advancement of any other object of general public utility, but in the
nature of trade, commerce or business etc, the proviso seeks to exclude
it only when the threshold level of activity is not satisfied. Whether such
a statutory provision stands the legal scrutiny or not is another aspect of
the matter, and that is none of our concern at present anyway, it is
beyond doubt that the new proviso, with effect from 1st April 2016, seeks
to exclude, from the scope of section 2(15), the situations in which even
in the course of pursuing advancement of any objects of general public
utility when any activities in the nature of trade, commerce or business
etc “is undertaken in the course of actual carrying out of such
advancement of any other object of general public utility”, unless, of
course, the activity level remains within the threshold limit i.e. receipts
from such activities are less than twenty percent of total receipts of that
year.
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 86
(iv) As the above provisions seeks to restrict the scope of Section 2(15)
is effective from the assessment year 2016-17, these provisions are only
prospective in effect. As a corollary to this legal position, even if the
activities in the nature of trade, commerce or business etc are
undertaken in the course of actual carrying out of advancement of any
object of general public utility, till the end of the previous year relevant to
the assessment year 2016-17, the activities will continue to be covered
by the scope of Section 2 (15).
(v) In view of the above discussions, the reliance placed by the
authorities below on the CBDT instruction no. 1024 dated 7th November
1976 and on Hon’ble Supreme Court decisions in the cases of Lok
Shikshan Trust Vs CIT (1975) 101 ITR 234 (SC) and Indian Chamber of
Commerce & Ors Vs CIT (1975) 101 ITR 797 (SC) is devoid of any
legally sustainable merits. These decisions are no longer good law, the
relevant provision in the context of which the decisions were given does
no longer exist on the statute, and the judicial precedent, which the
CBDT instruction has interpreted, has already faded into oblivion.
(vi) The above discussions clearly show that so far as making profits
from a business activity incidental to the attainment of objectives of the
trust is concerned, the legal position always was that, as long as
separate books of accounts have been maintained by the assessee, the
same were exempt from tax under section 11. There is no substantive
change in law vis-à-vis the law prevailing as at the point of time in the
context of which Hon’ble Supreme Court’s five judge bench had
delivered the judgment in the case CIT Vs Surat Art Silk Clothes
Manufacturers Association [(1980) 121 ITR 1 (SC)]. In the said case,
Their Lordships had, inter alia, held, by majority view, that “What is
necessary to be considered is whether having regard to all the facts and
circumstances of the case, the dominant object of the activity is profit
making or carrying out a charitable purpose. If it is the former, the
purpose would not be a charitable purpose, but, if it is the latter, the
charitable character of the purpose would not be lost”. Of course, as the
law was so laid down, the school of thought to the effect “However, if the
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 87
object of the trust is advancement of an object of general public utility
and it carried on any activity for profit, it is excluded from the ambit of
charitable purpose defined in s. 2(15)” was articulated in the said order
but that was part of the minority view stated by Justice A P Sen, as he
then was.
(vii) Clearly, therefore, so far as pre insertion of Explanations to Section
2(15), i.e. prior to 1st April 2009, is concerned, the stand taken by the
authorities below cannot be sustained in law. Assuming that all the
allegations of the Assessing Officer, with respect to presence to profit
motive in activities of the assessee are correct, since these activities
were carried out with the larger and predominant objective of general
public utility. It is only when, to use the words of the CBDT circular cited
earlier in this order and the beneficial impact of which has the binding
force on the field authorities under section 119 of the Act, the Assessing
Officer finds that the income is “ income of any other business which is
not incidental to the attainment of the objectives of the trust or institution”
that the such an income will “not be exempt from tax”. There is no finding
to that effect by any of the authority below. In any case, it is not even the
case of revenue authorities that the activities of the trusts do not serve
the objects of the general public utility but the case is confined to the
stand that these activities have been carried out in such a manner as to
make profit and no activities directly of any general public utility are
carried out. The registration granted to the assessee evidences that the
objects of the assessee trust were advancement of objects of general
public utility, and there is nothing to demonstrate any paradigm shift from
this fundamental position. The allegation is only of the profit making but
that does not obliterate the overall objects of general public utility. As
regards the maintenance of the separate books of accounts for the
business activities pursued by the assessee trust, since all the activities
of the assessee trust are said to be of the business nature, the books of
accounts maintained by the assessee trust meet this requirement as
well. Of course, we will deal with the issue of activities being in the
nature of ‘profit making activities’ a little later, but, suffice to say, that on
the admitted facts of this case, so far period prior to 1st April 2009 is
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 88
concerned and for the reasons set out above, the benefit of Section 11
read with Section 2(15) could not have been declined at all.
(viii) Turning once again to the amendments brought on the statue with
effect from 1st April 2009, we have to understand that there are the two
mutually exclusive situations in which business activities are carried out
by the assessee trust – one, in which “the object of ‘general public utility’
will only be a mask or a device to hide the true purpose which is trade,
commerce, or business etc” [referred to in the CBDT circular no. 11
dated 19th December 2008 issued at the point of time when first proviso
to Section 2(15) was introduced]; and – second, in which any activities in
the nature of trade, commerce or business etc are “undertaken in the
course of actual carrying out of such advancement of any other object of
general public utility”, [insertion of new proviso to replace first and
second proviso to section 2(15)- effective 1st April 2016 i.e. assessment
year 2016-17]. As for the first category, post 1st April 2009 amendment,
this category cannot be treated as covered by Section 2(15) but then
that’s not the case before us. It is not, and it cannot be, the case that the
Government formed these trusts by legislating the Punjab Towns
Improvement Act 1922 because it wanted to carry on the business as
colonizer or developer. Therefore, by no stretch of logic, formation of
trusts can be said to a mask or device to hide the true purpose of the
doing business. The case of the revenue at best is that the manner in
which the activities are carried out is of a profit seeking entity that a
business inherently is. In other words, thus, the case of the revenue is
that the activities in the nature of trade, commerce and business are
carried out for advancement of objects of general public utility. This
situation at best falls in the second category. However, these cases, for
the detailed reasons set out above, the exclusion of these cases from
Section 2(15) is only effective 1st April 2016, i.e. assessment year 201617. The law is well settled by a five judge bench of Hon’ble Supreme
Court, in the case of Vatika Township Pvt Ltd (supra), that, following the
maxim lex prospicit non respici, the law, particularly with respect to a
requirement which is more onerous on the assessee, cannot be treated
as retrospective in effect unless it is specifically legislated to be so. In
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 89
our considered view, therefore, this amendment cannot be treated as
clarificatory or retrospective in effect. In view of these discussions, even
post insertion of proviso to Section2(15) but before 1st April 2016, when
business activities are carried by the assessee trust “in the course of
actual carrying out of such advancement of any other object of general
public utility”, the benefit of Section 11 read with Section 2 (15) cannot
be declined. Nothing, therefore, turns on the assessee carrying out, even
if that be actually so, activities in the nature of trade, commerce or
business etc as long as these activities are carried out in the course of
actual carrying out of advancement of any other object of general public
utility. The planned development of cities and towns is an object of
general public utility, and that is an object consistently followed by the
assessee in all its activities. For this short reason alone, the stand of the
authorities below must be held to be unsustainable in law.
(ix) As regards the fundamental allegation of the revenue authorities that
the assessee has sold residential and commercial units and residential
and commercial lands “just to earn profit”, the Departmental
Representative has pointed out that the commercial plots and units are
auctioned off which shows that the idea is to make maximum profits but
what he clearly overlooks is the fact that since it is not a desirable state
of affairs for the State to subsidize businesses, and to ensure highest
degree of transparency in maximising returns from public assets,
competitive bidding for commercial units is a safe option, and that the
use of bidding process is justified for the larger causes. The bidding
process ensures transparency in functioning of the improvement trusts
and that, by itself, does not make the functioning of the improvement
trust a commercial venture. It is also important that this use of bidding
process is only in the context of commercial units etc. The development
of commercial areas is in the interest of planned growth of an area and
when such commercial areas develop, all the stakeholders in the
development of that area benefit. In order of this benefit to the common
cause, it is not necessary that the businessmen, buying such units, must
also benefit. The denial of any advantage, at the cost of general public,
to the business entities buying the commercial areas, in our considered
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 90
view, does not amount to an defeating an object of general public utility.
In this context, it is important to understand the benefit from developing
commercial areas, which is for public good, and benefit to the business
persons in buying these units from the assessee trust, which can only be
for the good of benefit of these entrepreneurs.
ITO vs. Bhartiya Vidya Mandir Trust (ITAT Chandigarh)
April 30, 2015 (Date of pronouncement)
The decision of the Hon’ble Supreme Court in A.L.N Rao Charitable
Trustreported in 216 ITR 697(SC) clearly held that there is a blanket
exemption with regard to the 25% (now 15%) of gross receipts as per
second part of Section 11(1)(a) of the Income Tax Act. This exemption of
15% is not dependent on any other condition except that the trust or society
should be registered u/s 12AA of the Income Tax Act. The only issue to be
examined here is whether the provisions of section 11(1) (a) and 11(2)
have been since amended and if so, whether the aforesaid decision would
apply to the amended provisions also? It is apparent from the reading of
the provisions that section 11 (1)(a) was almost identical during the AY 6970 and during AY 2010-11. As regards the provisions of section 11(2) are
concerned, even the amended sub section (2) operates qua the balance of
85 per cent, of the total income of the previous year which has not got the
benefit of tax exemption under sub-section (l)(a) of section 11. Section
11(2), as amended, does not operate to whittle down or to cut across the
exemption provisions contained in section 11(1)(a)so far as such
accumulated income of the previous year is concerned. As held by the
Hon’ble Supreme Court in the case of A.L.N Rao Charitable
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 91
Trust reported in 216 ITR 697(SC), it has to be appreciated that subsection (2) of section 11 does not contain any non obstante clause like
“notwithstanding the provisions of sub-section (1)”. Consequently, it must
be held that after section 11(l)(a) has full play and if still any accumulated
income of the previous year is left to be dealt with, and to be considered for
the purpose of income tax exemption, sub-section (2) of section 11 can be
pressed into service and if it is complied with then such additional
accumulated income beyond 15 per cent, can also earn exemption from
income-tax on compliance with the conditions laid down by sub-section (2)
of section 11. As such, this judgement of the Hon’ble Supreme Court is
squarely applicable to the appellant’s case. The appellant is thus eligible for
exemption of 15% of gross receipts 11(l)(a) of the Income Tax Act.
IN THE INCOME TAX APPELLATE TRIBUNAL
“ A” BENCH, CHENNAI M/s.Dolphin Club ./I.T.A.No.1929/Mds. /2014
Assessment Year :2009-10
Date of Pronouncement : 13.11.2014
The Revenue aggrieved by the order of the Ld. Ld. CIT (A) has
taken up five grounds before us; however, the crux of the issue is that
the Ld. Ld. CIT (A) had erred in holding that the Assessee is eligible
for exemption U/s.11 of the Act without appreciating the fact that it is
in violation to the newly inserted proviso to Sec.2(15) of the Act since
the objects of the Assessee society falls under ‘General Public Utility’
as envisaged in the Act. Before us, Ld. A.R. reiterated his submission made
before the Revenue. He further pointed out that the issue is covered in its
favour by the decision of the case of M/s.All India Chess Federation in ITA
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 92
No.184/Mds./2013 dated 09.05.2014. From the above facts and from findings of
the Ld. CIT (A), it is apparent that the assessee society is a society, formed for
promoting the sports of swimming and related activities and thereby, squarely
covered by the decision of the Tribunal in the case of M/s.All India
Chess Federation Vs. CIT (A)-XII cited supra
Considering the ratio of the aforesaid decisions and
discussions, and also the scope of sports development in India, we
are of the view that the recognized sports association in India, who
impart knowledge in sports, promotion of sports by conducting
various sports activities in all branches, to fall within the scope of
“educat ion as def ined under the amended provisions of
Sect ion-2(15) of the Act”. Accordingly we hold that the
objects of the assessee society will fall within the scope of the first
limb of the amended provisions of section 2(15) of the Act viz.,
“education”. Further on analyzing the activities of the assessee society
with regard to FIDE trainer coach fee – `5,70,000/-, AICF chronicle –
`2,53,300, Prize money share –`5,51,500/-, Rent on Monrai system –
`1,43,750/, Title fees – `3,00,500/-,Telecast charges–Doordarshan–
`12,00,000, and FIDE remittances – `15,35,052/- , we find that all of
them relate to the activities which are incidental to the main objects of the
assessee’s society and therefore, proviso to section 2(15) of the Act will
not be attracted. Based on our aforesaid decision the learned Assessing
Officer is hereby directed to modify his order accordingly.” we hereby hold that the
objects of the assessee trust falls within the scope of the first limb of Sec.2(15) of
the Act viz. ‘Education’ and therefore, the proviso to Sec.2(15) of the Act will
not be attracted and accordingly, the order of the Ld. CIT
(A) stands confirmed.
(“Objectives of the Society
1. To encourage and develop existing and potential swimmers
associated with the Dolphin Club in all age groups.
2. Specifically to provide advanced coaching and to prepare the Dolphin
Club Swimmers for various competitions at the local, district, state, zonal,
national and international levels.
3. To arrange and provide for Gym and dry land exercise facilities
and sessions to improve the performance of Dolphin Club Swimmers…)
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 93
IN THE INCOME TAX APPELLATE TRIBUNAL
“ ” BENCH, CHENNAI
M/s.Jairam Eductional Trust
I.T.A.Nos.1720 & 1765/Mds. /2013
Assessment Years :2004-05 & 2006-07)
Date of Pronouncement : 21.11.2014
Ground No.(i) and (ii) relates to denial of exemption U/s.
10(23C)(iiiad) of the Act by the Revenue since the “Annual Receipts”
exceeded the prescribed limit under the Act by aggregating the
receipt of the assessee-trust and the institution run by the assessee
Trust. On this issue, the Ld. A.R. had relied in the order of Cochin
Bench of the Tribunal (infra) who had followed the order of the Hon’ble
Karnataka High Court in the case of Children’s Educational
Society reported in (2013) 92 DTR (Kar.) 158….
Moreover, it is apparent from Sec. 10(23C)(iiiad) of the Act that
it refers to University or other educational institution existing solely for
educational purpose and not for the purpose of profit. It does not refer
about the organizations such as Trust etc., which is running such
institutions /universities. However Sec.139 (4C) mandates every such
institutions/universities etc. and such Trust which are running such
institutions/universities to file its return of income within the due date
prescribed under Sec.139(1) of the Act. Moreover there is no bar
under the provisions of any Law for any trust to run various different
institution/university as independent entities. Therefore, on a direct
reading of the provisions of section 10(23C)(iiiad) together with
139(4C) of the Act, it can be inferred that every institution/university
etc., functioning under a trust or similar other bodies should be
treated as an independent unit and the “annual receipts” of every
such institution/university should be considered for the purpose of
granting deduction U/s. 10(23C)(iiiad) of the Act. This view is further cemented
by the decision of the Hon’ble Karnataka High Court
(supra). Therefore, we hereby allow the concised ground Nos.(i) & (ii)
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 94
mentioned herein above in favour of the assessee.
Refer: Hon’ble Karnataka High
Court in the case of Children’s Educational Society in (2013) 92 DTR
(Kar.) 158; Cochin Benches of the
Tribunal in the case of Dr.C.T.Eapen Trust Vs.ITO in ITA No.135 &
136/Coch/2014 vide order dated 25.07.2014; the Delhi
Benches of the Tribunal in the case of Param Hans Swami Uma
Bharti Mission Vs ACIT in (2013) 140 ITD 429(Delhi).
Ground No.(iv) relates to corpus fund received being treated as
income of the assessee and thus aggregated as “annual receipts” for
the purpose of determining the eligibility U/s. 10(23C)(iiiad) of the Act.
On this issue the Ld. A.R. had relied on the decision of the Delhi
Benches of the Tribunal in the case of Param Hans Swami Uma
Bharti Mission Vs ACIT which is also relied by the decision of
Agra Bench of the Tribunal in the case of ITO Vs. Shri Hardayal
Singh Educational Society .. Moreover, it is pertinent to mention here that the
assessee trust has
received the donation to add on to its corpus fund. This fund may be
used by the assessee trust in order to meet its various objectives
including for the purpose of funding the educational institutions as
their corpus fund. Further, it can be inferred by the ratio laid down in
decision of the Hon’ble Karnataka High Court(Supra) that corpus fund
received by the Trust cannot be treated as the income of the
institution for the purpose of determining “annual receipts” of the
institutions for granting benefit U/s. 10(23C)(iiiad) of the Act.
Therefore we hereby hold this issue is also in favour of the assessee.
Refer:
ITAT Agra Bench in the case of ITO Vs.
Shri Hardayal Singh Educational Society in ITA No.180/Agra/2013
vide order dated 18th October, 2013.
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 95
 Supreme Court Daoodi Bohra Jamat 364 ITR 31
This Court in several decisions has reiterated the
aforesaid test of predominant purpose and held that
the purposes which would yield to profit or not in
general public interest could be separated and the
trust would only be exigible to tax to the extent
of the charitable purposes under its objects.
.Indubitably, the word ‘charity’ connotes
altruism in thought and action and involves an
idea of benefiting others rather than oneself.
(Andhra Chamber of Commerce (supra)). It also
cannot be lost sight of that the supreme
goal of all religions is philanthropy which could
be manifested in various forms. It is held that
gifts for religious purposes are prima facie gifts
for charitable purposes. (Schoales v. Schoales
[1930] 2 Ch. 75 (CA); White v. White (1893) 2 Ch.
41 (CA)) 5.Unlike the phrase “charitable
purpose”, “religious purpose” is not defined
under the Act. According to lexicographers, the
term religious would mean “of or relating to
religion.” In certain cases, the activities of the
trust may contain elements of both: religious and
charitable and thus, both the purposes may be over
lapping. More so when the religious activity
carried on by a particular section of
people would be a charitable activity for or
towards other members of the community and also
public at large. For example, the practice of
optional charity in the form of Khairat or Sadaquah
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 96
under Mohammadan Law would be covered under both
charitable as well as religious purpose. Further,
while providing food and fodder to animals
especially cow is religious activity for Hindus, it
would be charitable in respect to non-Hindus as
well. Similarly, service of water to the thirsty
would find mention as religious activity in sacred
texts and at the same time would qualify as a
charitable activity The Privy Council in Re The
Tribune, 7 ITR 415 has held that in judging
whether a certain purpose is of public benefit or
not, the Courts must in general apply the standards
of customary law and common opinion amongst the
community to which the parties interested belong
to. Therefore, it is pertinent to analyse whether
the customary law would restrict the charitable
disposition of the intended activities in the
objects.
The provision of food to the public on religious
days of the community as per object (a) and (b),
the establishment of Madarsa and organizations for
dissemination of religious education under object
(d) and rendering assistance to the needy and poor
for religious activities under object (e) would
reflect the essence of charity. Further,
establishment of Madarsa or institutions to impart
religious education to the masses would qualify as
a charitable purpose qualifying under the head of
education under the provisions of Section 2(15) of
the Act. Therefore, the objects of the trust
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 97
exhibit the dual tenor of religious and charitable
purposes and activities. Section 11 of the Act
shelters such trust with composite objects to claim
exemption from tax as a religious and charitable
trust subject to provisions of Section 13. The
activities of the trust under such objects would
therefore be entitled to exemption accordingly.
The issue which arises for our consideration and
decision is, whether the respondent-trust is a
charitable and religious trust only for the
purposes of a particular community and therefore,
not eligible for exemption under Section 11 of the
Act in view of provisions of Section 13(1)(b) of
the Act. issue which arises for our consideration
and decision is, whether the respondent-trust is a
charitable and religious trust only for the
purposes of a particular community and therefore,
not eligible for exemption under Section 11 of the
Act in view of provisions of Section 13(1)(b) of
the Act. The Section requires it to be established
that such charitable purpose is not for the benefit
of a particular religious community or caste. That
is to say, it needs to be examined whether
such religious-charitable activity carried on by
the trust only benefits a certain particular
religious community or class or serves across the
communities and for society at large. (Sole
Trustee, Loka Shikshana Trust v. CIT, (1975)
101 ITR 234 (SC)). The section of community sought
to be benefited must be either sufficiently defined
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 98
or identifiable by a common quality of a public or
impersonal nature. (CIT v. Andhra Chamber of
Commerce, 55 ITR 722). We have already noticed that
the perusal of the objects and purposes of the
respondent-trust would clearly demonstrate that the
activities of the trust though both charitable and
religious are not exclusively meant for a
particular religious community. The objects, as
explained in the preceding paragraphs, do not
channel the benefits to any community if not the
Dawoodi Bohra Community and thus, would not fall
under the provisions of Section 13(1)(b) of the
Act.
Hon'ble Delhi High Court in the case of India Trade
Promotion Organisatiosn V/s. Director of Incometax(Exemption)
(114 DTR (Del) 329)/ (2015) 53 taxmann.com 404 (Del.)
The relevant portion of the observations of Hon'ble Delhi High
Court in this context is extracted hereunder from the head-note
of the Report (114 DTR)“The proviso to s. 2(15) does not make any distinction between entities carrying
on regular trade, commerce or business or providing services in relation to any
trade, commerce or business on the one hand and genuine charitable
organizations on the other. It must be remembered that the Court is construing
the expression "charitable purpose" not in a vacuum, but in the specific context of
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 99
s. 10(23C)(iv). Sec. 10 deals with the incomes not included in total income. And,
510(23C)(iv) specifically deals with the income received by any person on behalf
of, inter alia, an institution established for charitable purposes. Therefore, the
meaning of the expression "charitable purposes" has to be examined in the
context of s. 10(23C)(iv). Looking at the said expression from this stand point, it
becomes clear that it has a reference to income. Because, it is only when such an
institution has an income that the question of not including that income in its total
income would arise. Therefore, merely because an institution, which otherwise is
established for a charitable purpose, receives income would not make it any less
a charitable institution. Whether that institution, which is established for
charitable purposes, will get the exemption under s. 10(23C)(iv) -would have to be
determined by the prescribed authority having regard to the objects of the
institution and its importance throughout India or throughout any State or States.
There is no denying that having regard to the objects of the assessee and its
importance throughout India in the field of advancement of promotion of trade
and commerce, the assessee would be entitled to be regarded as an institution
which would qualify for that exemption. The only thing that is to be examined
iswhether the assessee had been established for charitable purposes'? The fact
that it derives income does not, in any way, detract from the position that it is an
institution established for charitable purposes. Therefore, merely because the
assessee derives rental income, income out of sale of tickets and sale of
publications or income out of leasing out food and beverages outlets in the
exhibition grounds, does not, in any way, affect the nature of the assessee as a
charitable institution if it otherwise qualifies for such a character. To put it plainly,
if an institution established for charitable purposes did not receive an income at
all, then what would be the need for taking any benefit under s. 10(23C)(iv).
Therefore, if a meaning is given to the expression 'charitable purpose' so as to
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 100
suggest that in case an institution, having an objective of advancement of general
public utility, derives an income, it would be falling within the exception carved
out
in the first proviso to s. 2(15), then there would be no institution whatsoever which
would qualify for the exemption under s. 10(23C)(iv). And, the said provision
would be rendered redundant. This is so, because, if the institution had no
income, recourse to s. 10(23C)(iv) would not be necessary. And, if such an
institution had an income, it would not, on the interpretation sought to be given by
the Revenue, be qualified for being considered as an institution established for
charitable purposes. So, either w?:y, the provisions of s. 10(23C)(iv) would not be
available either because it IS not necessary or because it is blocked. Theintention
behind introducing the proviso tos.2(q5) could certainly not have ben ro render teh
provisions of s.10(23C)(iv) redundant.
Merely because a fee or some other consideration is collected or received by an
institution, it would not lose its character of having been estebtishea for a
charitable purpose. It is also important to note that one must examine as to what
is the dominant activity of the institution in question. If the dominant activity of
the
institution was not business, trade or commerce, then any such incidental or
ancillary activity would also not fall within the categories of trade, commerce or
business. It is clear from the facts of the present case that the driving force is not
the desire to earn profits but, the object of promoting trade and commerce not for
itself, but for the nation-both within India and outside India. Clearly, this is a
charitable purpose, which has as its motive the advancement of an object of
general public utility to which the exception carved out in the first proviso to s.
2(15) would not apply. If a literal interpretation were to be given to the said
proviso, then it would' risk being hit by Art. 14 (the equality clause enshrined in
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 101
Art. 14 of the Constitution). It is well-settled that the Courts should always
endeavour to uphold the Constitutional validity of a provision and, in doing so,
the
provision in question may have to be read down. It would be pertinent to reiterate
that s. 2(15) is only a definition clause. Sec. 2 begins with the words, "in this Act,
. unless the context otherwise requires". The expression "charitable purpose" ,
appearing in s. 2(15) has to be seen in the context of s. 10(23C)(iv). When the.
expression "charitable purpose", as defined in s. 2(15), is read in the context of s ..
1O(23C)(iv) the Court would have to give up the strict and literal interpretation'
sought to be given to the expression "charitable purpose" by the Revenue. The'
introduction of the proviso to s. 2(15) by virtue of the Finance Act, 2008 was'
directed to prevent the unholy practice of pure trade, commerce and business
entities from masking their activities and portraying them in the garb 'of an
activity with the object of a general public utility. It was not designed to hit at
those institutions, which had the advancement of the objects of general public
utility at their hearts and were charity institutions. The attempt was to remove
the masks from the entities, which were purely trade, commerce or business
entities, and to expose their true identities. The object was not to hurt genuine
charitable organizations. And, this was also the assurance given by the Finance
Minister while introducing the Finance Bill, 2008......
In conclusion, the expression "charitable purpose", as defined in s. 2(15) cannot
be construed literally and in absolute terms. It has to take colour and be
considered in the context of s. 10(23C)(iv). It is also clear that if the literal
interpretation is given to the proviso to s. 2(15), then the proviso would be at risk
of running fowl of the principle of equality enshrined in Art. 14 of the Constitution
of India. In order to save the Constitutional validity of the proviso, the same would
have to be read down and interpreted in the context of s. 10(23C)(iv) because,
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 102
the context requires such an interpretation. The correct interpretation of the
proviso to s. 2(15) would be that it carves out an exception from the charitable
purpose of advancement of any other object of general public utility and that
exception is limited to activities 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. In both the activities, in the
nature of trade, commerce or business or the activity of rendering any service in
relation to any trade, commerce or business, the dominant and the prime
objective has to be seen. If the dominant and prime objective of the institution,
which claims to have been established for charitable purposes, is profit making,
whether its activities are directly in the nature of trade, commerce or business or
indirectly in the rendering of any service in relation to any trade, commerce or
business, then it would not be entitled to claim its object to be a 'charitable
purpose'. On the flip side, where an institution is not driven primarily by a desire
or motive tq earn profits, but to do charity through the advancement of an object
of general public utility, it cannot but be regarded as an institution established
for charitable purposes. Thus, while upholding the Constitutional validity of the
proviso to s. 2(15), it has to be read down in the manner indicated above. As a
consequence, the impugned order dt. 23rd Jar:. , 2013 is set aside and a
mandamus is issued to the respondent to grant approval to the assessee under s.
10(23C)(iv) within six weeks from the date of this judgment. “
Case referred in above order:
(1) Institute of Chartered Accountants of India v. Director General of Income
Tax (Exemptions): 347 ITR 99 (Del);
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 103
(2) Bureau of Indian Standards v. Director General of Income-tax
(Exemptions): (2013) 212 Taxman 210 (Delhi);
(3) Institute of Chartered Accountants of India v. DGIT(E): WP(C) 3147/2012,
decided on 04.07.2013;
(4) M/s G.S. 1 India v. Director General of Income-tax (Exemption) and
Another: WP(C) 7797/2009, decided on 26.09.2013 (2013) 219 Taxman 205
From a reading of the above case laws, the following propositions
emerge.
(a) For the cancellation of registration u/s 12AA(3), the Commissioner
should record a satisfaction that the activities of the Trust or
Institution are not genuine or that the activities are not being carried
on in accordance with the objects of the Trust. In the absence of such
a finding registration granted u/s 12A or u/s 12AA cannot be
cancelled. Cancellation of registration of a charitable Trust, in a given
case, is permissible, only under the circumstances stated u/s 12AA(3)
of the Act.
(b) For an assessee to be classified as charitable under the residuary
category i.e. “advancement of any other object of general public
utility” u/s 2(15) of the Act, the following four factors have to be
satisfied. i. Activity should be for advancement of ‘general public
utility’. ii. Activity should not involve any activity in the nature of
trade, commerce and business. iii. Activity should not involve
rendering of services in relation to any trade, commerce or business.
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 104
iv. Activities in Clauses b and c above, should not be for a fees, cess
or other consideration, the aggregate value of which should not
exceed the amount specified in the Second Proviso to S.2(15).
(c )The earlier test that if the income so collected, is applied towards
the charitable activity, then the trust cannot be held as non-charitable,
is no longer relevant after the statutory amendment.
(d) The scope of the term “activity in the nature of trade, commerce or
business” would mean that: i. It is undertaken with the profit motive;
ii. The activity is continued on sound and recognized business
principles and is pursued with reasonable continuity;
iii. There should be facts and other circumstances which justify and
show that the activity undertaken is in fact, in the nature of business;
iv. The five tests propounded in the case of Customs and Excise
Commissioner vs. Lord Fisher (1981) STC 238 and the propositions in
the case of CST vs. Sai Publication Fund 258 ITR 70 (SC) apply.
v. Business activity is an important prevailing element of self interest.
(e) From a perusal of Circular no.11 of 2008 issued by the CBDT, it is
clear that the new Proviso of S.2(15) of the Act, is applicable to the
assesses who are engaged in commercial activities i.e. carrying of
trade, commerce or business in the garb of “public utility” to avoid
tax liability, and where the object of “general public utility” was
sometimes, only to mask or device to hide the true purpose, which
was “trade, commerce or business.” (f) Charitable activity is antithesis of activity having an element of self interest. Charity is driven
by altruism and desire to serve others, though element of self
preservation may be present. For charity, benevolence should be
omnipresent and demonstratable but it is not equivalent to self
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 105
sacrifice and abnegation. (g) The antiquated definition of charity,
which entails giving and receiving nothing in return is outdated.
(h) Enrichment of oneself or self-gain should be missing and the
predominant purpose of the activity should be to serve and benefit
others, the mandatory features being, selflessness or illiberal spirit.
(i) The quantum of fee charged, the economic status of the
beneficiaries who pay, commercial values in comparison to the fee,
purpose and object behind the fee etc. are several factors which
decide seminal question, is it business?
(j) The Revenue cannot take a contradictory stand that, the assessee
carries on charitable activity under the residuary head “general public
utility”, but, simultaneously record the said activity as business.
(k) There is no statutory mandate that a charitable Institution falling
under the residuary Clauses, should be wholly, substantially or in part
be funded by voluntary contributions.
(l) A pragmatic view is required when we examine the data, which
should be analysed objectively. A narrow and coloured view will be
counter productive and contrary to S.2(15) of the Act.
(m) Accumulation of money/funds over a period of two to three years
may not be relevant in determining the nature and character of
activity and whether the same should be treated indicative of profit
motive i.e. desire or intention to carry on business or commerce.
(n) The so called business activities, when intrinsically woven into
and is part of the charitable activity undertaken, the business activity
is not feeding charitable activities, as they are integral to the
charity/charitable activity.
(o) What has to be seen is, as to what is the core/main activity of the
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 106
assessee. The predominant activity shall be the basis of decision
making.
IN THE INCOME TAX APPELLATE TRIBUNAL
KOLKATA BENCH “C” KOLKATA
Indian Chamber of
Commerce Date of Pronouncement 02.12.2014
The main
objects for which the association came into existence are set out in clause 3 of the
Memorandum of Association which reads as under;
“3(a) To promote and protect the trade, commerce and industries and in
particular the trade, commerce and industries in or with which Indians are
engaged or concerned.”
Thus from the above, the logical corollary which inexorably flows from a careful
perusal of the above laid decision is that in the cases of many institutions /
associations whose main activity is not ‘business’ the connected incidental or
ancillary activities of sales carried out in furtherance of and to accomplish their
main objects would not, normally, amount to business, unless an independent
intention to conduct ‘business’ in these connected, incidental or ancillary
activities is established by the revenue. Therefore, the issue whether a
professional institution is or is not hit
by the proviso to section 2(15) of the Act will essentially depend upon the
individual facts of the case of the institutions wherein discussing the nature of the
individual activities it will have to be decided whether the same form incidental,
ancillary and connected activities and whether the same were carried out
predominantly with a profit motive. Thus in the cases of many professional
institution whose main activity is not “business”, the connected incidental or
ancillary activities of sales carried out in furtherance of and to accomplish their
main objects would not, normally, amount to business, unless an independent
intention to conduct ‘business’ in these connected, incidental or ancillary
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 107
activities is established by the revenue. The test, therefore, to be applied is
whether the activity which is pursued is ancillary to a dominant object
or is independent to the main object and forms a separate object in itself. The
issue whether a professional institution is not hit by the proviso to section 2(15) of
the Act will essentially depend upon the individual facts of the case of the
institutions wherein discussing the nature of the individual activities it will have
to be decided whether the same form incidental, ancillary and connected
activities and whether the same were carried out predominantly with a profit
motive.
Thus from all the above it is seen that though the definition of “charitable”
purpose under section 2(15) has undergone changes, the principle underlying the
same has remained the same. In context of the above, with regard to the
“principle of consistency” it would be of relevance here to quote the decision of
the Apex Court in the case of Radhasoami Satsang v. Commissioner of Incometax (193 ITR 321 SC) wherein it was held that:
“…. (ii) That, in the absence of any material change justifying the Department
to take a different view from that taken in earlier proceedings, the question of
the exemption of the assessee appellant should not have been reopened.
Strictly speaking, res judicata does not apply to income-tax proceedings.
Though, each assessment year being a unit, what was decided in one year
might not apply in the following year; 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 ordered, it would not be at all appropriate to allow the
position to be changed in a subsequent year.”
Hon’ble Delhi High Court in the case of
PHD Chambers of Commerce and Industry v DIT(E) (2013)212 TAXMAN 194
(Del), wherein the following substantial question of law was framed as under:
“Whether on the facts and in the circumstances of the case, the Tribunal was right
in law in holding that the provisions of Section 11(4A) of the Act were attracted to
the assessee’s case and consequently in remanding the case to the Assessing Officer
with directions.” Thus we note from the judgment of Delhi High Court, which very categorically
and vehemently observed and held, that activities and services performed for a fee
or against a payment, by a trade, professional or similar association, such as achamber of
commerce and industry could not be held to be “business” in nature
carried out with a profit motive.
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 108
Now coming to application of section 28(iii) of the Act. We find that section
28(iii) of the Act provides that the income derived by a trade, professional or similar
association from specific services performed for its members will be brought to
charge under the head “profits and gains of business or profession”. The underlying
idea behind s. 28(iii) is that there must be a business from which income is derived
and that in the course of such business specific services must be rendered for its members. The
concept behind s.28(iii) is to cut at the mutuality principle being relied
on in support of a claim for exemption, when the assessee was actually deriving
income or making profits as a result of rendering specific services for its members in
a commercial way. The reason for the introduction of Section 28(iii) of Act, to ignore
the principle of mutuality and reach the surplus arising to the mutual association and
this is clear from the fact that these provisions are confirmed to services performed
by the association “for its members”. Such income would either be charged as
business income or under the residual head, depending upon the question whether the
activities of the association with the non-members amount to a business or otherwise.
Section 28(iii) constitutes certain income of the association to be business income
without affecting the scope of the exemption under Section 11. Section 2(15) which
incorporates the definition of “charitable purposes” simply shows that several mutual
associations may also fall within the definition. The receipts derived by a chamber of
commerce and industry for performing specific services to its members, though
treated as business income under Section 28(iii) would still be entitled to the
exemption under Section 11 r.w.s. 2(15) of the Act, provided there is no profit
motive. Thus, assessee being a charitable Institution carrying on the object of
promotion and development of trade and commerce and which is not involved in the
carrying on of any activity in the nature of “business”, the said section 28(iii) of the
Act does not apply.
In our view the basic principle underlying the definition of “charitable purpose” remained
unaltered even on amendment in the section 2(15) of the Act w.e.f. 01/04/2009,
though the restrictive first proviso was inserted therein. Accordingly, in the given
facts of the case as discussed above in detail, the assessee association’s primary
purpose was advancement of objects of general public utility and it would remain
charitable even if an incidental or ancillary activity or purpose, for achieving the
main purpose was profitable in nature. Hence, assessee is not hit by newly inserted
proviso to section 2(15) of the Act. This issue of assessee’s appeal is allowed.
refer:
 Delhi high court in GSI India vs DGIT 360 ITR 138
 Allahabad high court in Lucknow development Authority 219 Taxman
162
 Gujarat high court in Director of Income-tax (Exemption) v. Sabarmati
Ashram Gaushala Trust (Guj) . 362 ITR . . 539
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 109
 Supreme Court Daodi Bohra Jamat 364 ITR 31
In re: Vivekanand Rural Development Institute in context of imparting of
occupational training of stitching and embroidery for women by charging fees
held same can be considered as charitable activities as defined u/s.2(15)
applying Institute of Chartered Accounts of India and Another v.
DirectorGeneral of IncomeTax (Exemption) and Others, [2013] 358 ITR 91
(Delhi),
 Net Surplus taxable : non registered entity
o AP high court Y.S.R. Foundation,20/11/2014
o Society for Integrated Development in Urban & Rural
Areas vs. DCIT [90 itd 493]
o Delhi high court In Petroleum Sports Promotion Board 362
ITR 235
 Karnataka high court in Karnataka ligeyat Education
university case (18/10/2014) educational institution can earn
from allied activity like running of hospital and hostel
without attracting section 2(15) proviso
 Section 12AA(3) : Madras High court Tamil Nadu Cricket
Association case 360 ITR 633 On basis of proviso to section
2(15) withdrawal of registration not possible
IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH
AT HYDERABAD I.T.T.A. No.583 of 2013 18-12-2013 Ramoji Foundation
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 110
Mr.J.V.Prasad says that the learned Tribunal was not correct in holding
that without approaching the Civil Court, the rectified trust deed can be
accepted.
Mr.S.Ravi has produced the trust deed before us and he pointed out the
relevant clause thereof. The trustees have been given power by the settler itself
to rectify the trust deed, if necessary.
Mr.J.V.Prasad submits that without approaching the Civil Court, as it
could be found from the aforesaid judgment of the Hon’ble Supreme Court
relied on by the learned Tribunal in the case of CIT Vs. Kamala Town Trust (1996)
217 ITR 699, the trust deed could not be rectified and consequently the rectified
portion of the trust deed cannot be said to be binding.
We are of the view that when the power had been given to the trustees by
the settler, it can be amended without approaching the Civil Court provided all
the conditions laid down by the settler are fulfilled. The approach of the Civil
Court is required where there is no such power. No law has been produced
before us that the trustees without approaching the Civil Court in spite of the
specific power being given by the settler cannot change the trust deed. According
to us, when the power has been given to the trustees by the settler, no further
power basically from the Civil Court is required. This is the exact mindset of the
Hon’ble Supreme Court in the aforesaid judgment. We have got the
corresponding judgment of the Hon’ble Supreme Court in Commissioner of
Income-tax, Kanpur V. Kamla Town Turst (AIR 1996 Supreme Court 620). At page
629 in paragraph-16 of the judgment, the Hon’ble Supreme Court observed as
follows:
“The aforesaid decision of the Rajasthan High Court also takes a view which is almost parallel to
the view taken by the Delhi High Court though the binding nature of the rectification order of the
Civil Court on the Income-tax Officer is not highlighted as no such occasion arose for Rajasthan
High Court to pronounce on the same on the facts of that case. However, the fact remains that
after due rectification of the original Trust Deed either by the settlor himself by executing a
supplementary deed or by getting it rectified through competent Civil Court under the relevant
provisions of the Specific Relief Act, the trustees would be bound to carry out the amended and
rectified objects of the trust and if they fail to do so they would be guilty of breach of trust for
which even proper proceedings can be initiated against them under Section 92 of the Code of
Civil Procedure”.
Thus, in the aforesaid decision of the Hon’ble Supreme Court, nowhere it is stated that, in spite
of having power to amend the trust deed, the trustees have to approach the Civil Court and get it
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 111
rectified and such rectified trust deed is a binding instrument. Therefore, we hold that the
learned Tribunal has correctly dealt with the matter in this case and the rectified trust deed can be
relied on by the Revenue Authorities for the purpose of registration.
Also to discuss CBDT Circular no. 14/2015 on taxation of educational
institutions dated 17/08/2015
Background material on NPO – Charitable trust taxation
Kapil Goel Advocate 9910272806 (advocatekapilgoel@gmail.com)
Page 112