COMM. OF INCOME TAX vs. JANHIT SEWA CHARITABLE TRUST

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ITA/153/2003HC Punjab & HaryanaPHHC01045233200325 March 2014Author: MR. JUSTICE R.C. KATHURIA (RETD.),MR. JUSTICE RAJESH BHARDWAJ26 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the respondent-trust is indeed a charitable trust and its income is exempt from tax under Sections 11 and 12 of the Act. The court found that the CIT was not justified in assuming jurisdiction under Section 263. The reasoning was that the assessee had been granted registration under Section 12A, and the activities undertaken, including the construction of a temple, were considered application of funds for charitable purposes in line with Section 11(1) of the Act. The court cited the Supreme Court's decision in S.RM.M.CT.M.Tiruppani Trust v. CIT and the Delhi High Court's decision in Director of Income Tax (Exemptions) v. Maharaj Agarsen Technical Education Society, which held that spending on hospital construction is an application of funds. The judgments relied upon by the revenue were distinguished as being based on different fact situations where the trusts were found to be personal or private family trusts, not public trusts. Consequently, the assessment order passed by the Assessing Officer on March 21, 2000, was deemed correct, and the CIT's assumption of jurisdiction under Section 263 was held to be improper. The court also noted that the action of treating the assessee as an association of persons and assessing Shri Shambhu Dayal Shastri on a protective basis could not be legally sustained.

What were the facts?

The Revenue (Commissioner of Income Tax, Faridabad) appealed against an order of the Income Tax Appellate Tribunal (ITAT) dated October 11, 2002, which had cancelled an order passed by the Commissioner under Section 263 of the Income Tax Act, 1961. The assessment year in question is 1997-98. The assessee, Janhit Sewa Charitable Trust, which is registered under Section 12A, had its assessment under Section 143(3) completed at nil income. The CIT, Rohtak, invoked Section 263, holding the assessment order erroneous and prejudicial to the revenue, citing lack of examination of books, non-enquiry into activities/expenditure, and beneficiaries residing in trust premises. The CIT also noted unrecorded bookshop sales. Consequently, a fresh assessment was made, taxing the trust at ₹84,12,517/-. The ITAT set aside the CIT's order, restoring the Assessing Officer's original assessment. The CIT(A) also allowed the assessee's appeal against the fresh assessment.

What were the issues?

1. Whether the respondent-trust is a charitable trust and, therefore, its income was exempt from tax under Sections 11 and 12 of the Act? The assessee contended that it is a charitable trust registered under Section 12A and its income should be assessed according to Sections 11 and 12, provided it is applied for charitable purposes and there is no violation of Section 13(1). The revenue argued that the Assessing Officer passed the assessment order cursorily without due compliance and that the CIT rightly exercised revisional jurisdiction under Section 263, as major receipts were spent on non-charitable activities like temple construction. The revenue relied on Shri Gopal Lalji-ka-mandir Trust v. CIT and Kizhakke Kovilakam Trust v. Assistant Commissioner of Income Tax. 2. Whether the CIT was justified in assuming jurisdiction under Section 263 of the Act in the facts and circumstances of the present case? The assessee argued that the CIT's order differed from the notice issued under Section 263. The assessee also presented evidence of charitable activities like running Gaushalas, langars, medical camps, and a Sanskrit school, supported by photographs, and relied on judgments like Malayammal and others v. A.Malayalam Pillai and others, CIT v. Social Service Centre, Hiralal Bhagwati v. CIT, and Raghunath Das Parihar Dharamshala vs. CIT.

Which sections of the Income-tax Act were involved?

Section 263,Section 143(1)(a),Section 143(3),Section 12A,Section 11,Section 12,Section 13(1),Section 234A,Section 234B,Section 234C,Section 271(1)(c),Section 2(15)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
ITA No.153 of 2003 (O&M) 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No.153 of 2003 (O&M) Date of decision: March 25, 2014 The Commissioner of Income Tax, Faridabad ...Appellant Versus Janhit Sewa Charitable Trust, 576/16A, Faridabad ...Respondent CORAM: HON'BLE MR.JUSTICE AJAY KUMAR MITTAL HON'BLE MS. JUSTICE ANITA CHAUDHRY Present: Mr. Tejinder K.Joshi, Advocate for the appellant. Mr. J.P.Sharma, Advocate and Mr. Fateh Saini, Advocate for the respondent (s). Ajay Kumar Mittal,J. 1. This order shall dispose of a bunch of 21 appeals i.e. ITA Nos. 153 of 2003, 285 to 287 of 2006, 57, 58, 60 to 63, 65 to 68, 83, 84,116, 126 of 2007, 402 of 2009, 346 and 479 of 2010 as learned counsel for the parties are agreed that the issue involved in all these appeals is similar. However, the facts are being extracted from ITA No.153 of 2003. 2. ITA No.153 of 2003 has been preferred by the revenue under section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order of Income Tax Appellate Tribunal Delhi Bench 'D' Delhi (in short, “the Tribunal”) dated 11.10.2002, Annexure P.5 in ITA No.1554/Del/2001 for the assessment year 1997- 98. It was admitted on 8.5.2006 to consider the following substantial question of law:- “Whether on the facts and in the circumstances of the case, the Singh Gurbax 2014.07.01 12:46 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.153 of 2003 (O&M) 2 Hon'ble ITAT has erred in cancelling the order under section 263 of the Income Tax Act, 1961 ignoring that the assessment order was passed without going through the books of account and without bringing to tax the correct and complete income?” 3. The facts, in brief, necessary for adjudication of the controversy involved, as narrated in the appeal may be noticed. The assessee trust was registered under Section 12A of the Act. Return declaring nil income for the assessment year 1997-98 was filed on 28.10.1997 which was processed under Section 143(1) (a) of the Act vide order dated 26.2.1998. Assessment under section 143(3) of the Act was completed on 21.3.2000, Annexure P.1 at nil income. The said assessment was cancelled under section 263 of the Act by the Commissioner of Income Tax, Rohtak (CIT) vide order dated 26.3.2001, Annexure P.2 holding that the Assessing Officer had not examined the books of account and passed order under Section 143 (3) of the Act without making enquiries regarding the genuineness of activities and expenditure claimed. It was also observed that the trustee Shri Shambhu Dayal Shastri alias Swami Sudershan Acharyaji, his wife Smt.Asharfi Devi and two sons were beneficiaries of the trust. They were taking food and residing in the trust premises. It was further noticed that the trust was running a bookshop in the premises and sale proceeds of these books were not recorded in the books of account of the Trust. No receipt of sale of books was issued. The CIT concluded that the order passed by the Assessing Officer granting exemption to the trust and adopting its Income at ` nil was erroneous and prejudicial to the interest of the revenue. The same was set aside with a direction to the Assessing Officer to pass a fresh order after taking into account the various observations made and findings given Singh Gurbax 2014.07.01 12:46 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.153 of 2003 (O&M) 3 in the order. Vide order dated 27.3.2002, Annexure P.3, the Assessing Officer after examining the matter passed fresh assessment order and assessed the income of the assessee at `84,12,517/- in addition to levy of interest under Sections 234A, 234B and 234C and penalty under Section 271(1) (c) of the Act. The assessee went in appeal before the Tribunal against the order passed by the CIT under Section 263 of the Act. Vide order dated 10.10.2002, Annexure P.5, the Tribunal set aside the said order passed by the CIT and restored that of the Assessing Officer. The assessee also filed appeal before the Commissioner of Income Tax (Appeals) [CIT(A)] against the assessment order passed by the Assessing Officer under Section 143(3)/ 263 of the Act. Vide order dated 5.12.2002, Annexure P.4, the said appeal was also allowed. It was held that keeping in view the decision of the Tribunal by which the order of the Assessing Officer had been restored, the assessment framed as a consequence of the order of CIT be annulled. However, in the case of Shri Shambhu Dayal Shastri, trustee, the additions were made on protective basis which were also set aside by the Tribunal. Hence the present appeals by the revenue. 4. We have heard learned counsel for the parties and perused the record. 5. Learned counsel for the appellant-revenue submitted that the Assessing Officer while passing assessment order, Annexure P.1 on 21.3.2000 for the assessment year 1997-98 had, in a cursory manner without discussing anything, allowed the benefit of Sections 11 and 12 of the Act by treating the assessee to be a charitable institution without their due compliance. The CIT exercising the powers under section 263 of the Act Singh Gurbax 2014.07.01 12:46 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.153 of 2003 (O&M) 4 after noticing the activities of the assessee had rightly set aside the said order in its revisional jurisdiction and the Assessing Officer thereafter had passed an assessment order taxing the assessee as an association of persons. It was contended that the major portion of the receipts was spent by the assessee on construction of temple and other non-charitable activities and, therefore,it could not be held to be utilisation of funds for charitable purposes. Reliance was placed upon judgments reported in Shri Gopal Lalji-ka-mandir Trust v. CIT, (1984) 146 ITR 513 (MP) and Kizhakke Kovilakam Trust v. Assistant Commissioner of Income Tax, (2002) 256 ITR 238 (Ker.). 6. Controverting the submissions made by learned counsel for the appellant-revenue, learned counsel for the respondent-assessee submitted that the assessee was a charitable trust and had been granted registration under section 12A of the Act and as such the assessment was required to be made in accordance with Sections 11 and 12 of the Act. Learned counsel also submitted that in case the income was applied for charitable purposes and there had been no violation under section 13(1) of the Act, the exemption had to be granted.Reliance was placed on judgments in Malayammal and others v. A.Malayalam Pillai and others, 1991 Supp. (2) SCC 579, CIT v. Social Service Centre, ((2001) 250 ITR 39 (AP), Hiralal Bhagwati v. CIT, (2000) 246 ITR 188 (Guj.) [affirmed in ACIT v. Surat City Gymkhana, (2008) 14 SCC 169 (SC)] and Raghunath Das Parihar Dharamshala vs. CIT, (1986) 158 ITR 432 (Raj.) in support of the submissions. Learned counsel further argued that the order under Section 263 of the Act was different from the reasons given in the notice sent to the Singh Gurbax 2014.07.01 12:46 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.153 of 2003 (O&M) 5 assessee under the said provision. With regard to the submission whether the temple is a public trust, reliance was placed upon judgment in Ramchandra Shukla vs. Shree Mahadeoji, AIR 1970 SC 548 which was followed in Commissioner of Income Tax v. Barkate Saifiyah Society, (1995) 213 ITR 492 (Guj.). Learned counsel had referred to CM No.11042 CII of 2012 urging that the assessee-trust was carrying on charitable activities as it has since constructed the temple, is running Gaushalas, langar organized in the Langar hall, holding medical camps where distribution of medicines for the poor is being made. Besides this, the assessee is running a Sanskrit school attached with Library and holding havans from time to time. Photographs in support thereof have also been appended alongwith the application. 7. After hearing learned counsel for the parties and perusing the record, we do not find any merit in the contentions of learned counsel for the revenue. 8. The following issues arise for adjudication in the present appeals:- (i) Whether the respondent-trust is charitable trust and, therefore, its income was exempt from tax under Sections 11 and 12 of the Act? (ii)Whether the CIT was justified in assuming jurisdiction under Section 263 of the Act in the facts and circumstances of the present case? 9. We proceed to examine whether assessee is a charitable trust entitled to benefit of Sections 11 and 12 of the Act. The assessee M/s Janhit Sewa Charitable Trust came into existence on 2.6.1989 i.e. the date on which the trust deed was executed. The assessee was formed as charitable Singh Gurbax 2014.07.01 12:46 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.153 of 2003 (O&M) 6 institution. In terms of Clause 4 of the trust deed, the aims and objects of the Trust were to give education and medical relief, relief of poor and any other objective of general public utility not involving the carrying of any activity for profit and such purposes: (a) To establish, promote, support, maintain and/or grant aid or other financial assistance to schools, colleges, hostels, libraries, reading room, lecture hall, museum and other establishment and institutions for the development of education and diffusion of useful knowledge. (b) To grant scholarships, stipends, free studentship, prizes, rewards and allowances or other financial assistance to students. (c) To establish, promote, support, maintain, help run and grant aid/or other financial assistance to dispensaries, hospital, nursing homes, maternity homes, child welfare centres, sanitoriums, clinics, laboratories, mobile medical units, ambulances, medical and/or surgical camps and other establishment for giving medical relief to the public. (d) To establish and maintain hospitals and/or other institution for the reception and treatment of persons suffering from illness or mental defectiveness or for the reception and treatment of persons during convalescence or of persons requiring medical attention or rehabilitation. (e) To do any other act of medical relief for philanthropic purposes and not for the purposes of profit. (f) To provide food, clothing and/or shelter for the poor and/for needy persons and to give help to them either in cash or kind or otherwise. (g) To establish, maintain and/or grant aid to homes, orphanages or other establishments for relief of and to give help to the poor and destitute and Singh Gurbax 2014.07.01 12:46 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.153 of 2003 (O&M) 7 physically handicapped persons, orphans and widows and otherwise provide for them. (h) To establish, maintain, construct and/or grant aid to guest houses and/or dharmasalas, ashrams for the use of the public. (i) To construct public roads, parks, gardens, well, tubewells, tanks and jalkshetra and/or maintain and/or grant aid for the construction/maintenance and/or repairs of the same for the use of general public. (j) To grant relief to the people affected by earthquake, flood, fire, famine, pestilence and other natural calamity of similar nature and to give donation, subscriptions or contributions to institutions, establishments or persons doing such relief works. (k) To give financial assistance to local authorities, municipalities and such other bodies engaged in public utility services. (l) To renovate or repair any such temple, mosque, gurdwara, church or other place as is notified by the Central Government in the official gazette to be of historic archeological or artistic importance or to be a place of public worship of renown throughout any stage or states. (m) To protect and give help for the improvement and protection of animals and birds of all kinds. (n) To publish books, monographs, periodicals, journals, pamphlets, souvenirs without any motive to earn profit whatsoever. (o) To render assistance and/or grant aid to recognized public charitable trusts or institutions. (p) To do any other act for the advancement of general public utility not involving the carrying on of any activity for profit. Singh Gurbax 2014.07.01 12:46 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.153 of 2003 (O&M) 8 (q) Generally to do all such other things as are incidental or conclusive to the attainment of the above objects. The then CIT after scanning the objects of the trust as enumerated in the trust deed had registered it under Section 12A of the Act. It had also been granted exemption for five years from 1.4.1993 to 31.3.1998 under Section 80G of the Act on 26.9.1996. The assessee filed the return for the assessment year 1997-98 declaring nil income on 28.10.1997 which was accepted by the Assessing Officer under Section 143(3) of the Act on 21.3.2000. The Assessing Officer had accepted that the assessee respondent was a charitable trust and its income was exempted under Sections 11 and 12 of the Act. The CIT had invoked revisional jurisdiction under section 263 of the Act holding the said assessment order to be erroneous and prejudicial to the interest of the revenue. 10. It would be apposite to refer to the grounds on which CIT had sought to invoke Section 263 of the Act. The Tribunal in para 3 of its order had summarized the same as under:- “(i) The AO had passed the assessment order without examining the books of account, which lay impounded in the office of the CIT at Rohtak. (ii) The claim for exemption under section 80G had been rejected vide order dated 23.11.2000 as it was found that the assessee did not produce books of account before the AO till 18.5.1998 when the said AO sent a report to the CIT who had asked for such a report to verify the assessee’s claim under section 80G. (iii) Books for the previous year ending 31ST March 1997 relevant to AY 1997-98 had not been written till 18.5.1998 and these were produced for the first time on 13th July 1998 before Singh Gurbax 2014.07.01 12:46 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.153 of 2003 (O&M) 9 the predecessor CIT who impounded the same. (iv) The AO had passed the order without examining the books of account and an order passed in a hurry and without making requisite enquiries was erroneous and prejudicial to the interests of revenue. (v) That the trustee Shri Shambhu Dayal Shastri and his wife Smt.Asharfi Devi who had been co-opted as a trustee by the husband were living in the trust premises, eating the food of the trust and even the other trustee Smt. Manjushree, who was the sole settler of the trust was living in the trust premises and eating food offered by the trust. (vi) That Shri Shmbhu Dayal Shastri alias Swami Sudershana Acharyaji set up a managing committee for the trust which included two of his sons who too were enjoying all the benefits of the trust. (vii) That the trust had purchased an air conditioned luxury car for the use of the Swamiji and the other trustees were also enjoying personal benefits from the society/trust. (viii) That the trust was the handiwork of the Swamiji, who was managing the entire show and Smt.Manjushree had settled the trust by a trust deed on 2nd June 1989 by dedicating an amount of ` 3000/- and by appointing as the sole trustee Shri Shambu Dayal Shastri alias Swami Sudernancharya Ji Maharaj. (ix) That the assessee trust was running a book shop in the premises whose receipts were not being disclosed in the accounts of the trust. It may be mentioned that this is an observation made by the CIT in para 6 of his order and apparently he visited the trust premises himself without disclosing his identity. According to the CIT, he purchased a small booklet for ` 3/- but he noted as a fact that no piece was printed on the booklet and the persons running the bookshop informed him that they were not issuing any receipts for the articles sold. It also appears from para 6 of the order of the CIT that on his insistence a kachha receipt dated 9th October 2000 Singh Gurbax 2014.07.01 12:46 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.153 of 2003 (O&M) 10 was issued although he is supposed to have visited the trust premises and the book shop on 10.11.2000. (x) The sole trustee was given all the powers to collect donations and to apply the income of the trust for one or more of its objects,to invest, borrow, sell, open accounts, to appoint further trustees and members of the managing committee and he was also given power to dismiss the trustees and to do whatever he liked with the trust and the trust property. (xi) That Smt.Manjushree was a disciple of Swamiji and settler of the trust and Smt.Asharfi Devi was the wife of Swamiji and the board of trustees consisted of hand picked loyal persons who had never performed any duties and who had not been given any power either by the trust deed or by a board resolution or by any rules and regulations of the trust. (xii) The trustees had violated the provisions of law and this was duly proved by the fact that it was not a public charitable trust but the individual domain of the Swamiji and the trust properties were his individual properties. (xiii) That clause 4(a) of the trust deed provided that one of the aims of the trust was to publish books, monographs, periodicals,journals, pamphlets, souvenirs without any motive to earn profit but the trust was publishing all these things and earning huge profits which were unaccounted. (xiv) That the trustees were residing in the trust property, eating food provided by the trust and enjoying the benefits of a chauffeur driven luxury car, which was a trust property and by this, there was clear violation of the provisions of section 13(1), which prohibited the use of trust property or income by the settler or any of the trustees directly or indirectly for their personal benefit. (xv) The trust deed revealed that the settler had created a public charitable trust for doing charity for the general public but through the passage of time, the trust had been converted by the trustee into a religious trust. Singh Gurbax 2014.07.01 12:46 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.153 of 2003 (O&M) 11 (xvi) That facts on record pertaining to relevant assessment year revealed that there had been a violation of the provisions of the section 11(1) (b) since the receipts had been accumulated and nothing was spent on charity although substantial amounts had been spent in various assessment years on the construction of a temple, on langar expenses, vehicle maintenance, purchase of a luxury car etc. That nothing had been spent on relief of the poor, public charity or on education or medical relief or on any other object of general public utility. (xviii) That the trust was on a building and temple construction spree on its own land or on unauthorized land and recently the state Government had demolished some of the unauthorized constructions. The aforesaid showed that the trust had no regard for law and order and it was simply spreading superstition amongst the public and working against the general public interest.” 11. Each ground was elaborately challenged by the assessee by countering the allegations in the following terms as noticed by the Tribunal

in para 5 of its order:- “(i) The appellant is a charitable trust and had been granted registration under Section 12A of the IT Act, 1961 and as such the assessment had to be made in accordance with sections 11 And 12 of the said Act. (ii) In case the income was applied for charitable purposes and there had been no violation committed under sections 13(1) and 13(2), the exemption had to be granted. (iii) One of the grounds taken by the CIT for acting under section 263 was the impounding of the books of account of the assessee when exemption under Section 80G was being considered whereas it was a matter of record that the books impounded were in the possession of the AO and exemption under Section 80G was allowed by means of an order dated 26th Singh Gurbax 2014.07.01 12:46 integrity of this document High Court Chandigarh September 1996 and which covered a period of five years i.e. From 1.4.1993 to 31.3.1998 (page 50 of the paper book). (iv) There was no provision in the IT Act, 1961 for withdrawing or cancelling the certificate issued under Section 80G or the registration certificate issued under section 12A(b). (v) Expending of money on capital account such as for acquiring a building by a charitable institution was to be treated as application of money for charitable purposes and it could

therefore be not held that 75% of the gross receipts had not been applied for charitable purposes. (vi) The finding of the CIT that Swamiji had appointed wife as a trustee as also his two sons and that the third trustee Smt.Manjushree Srivastwa was also a disciple of Swamiji was no ground to hold that the trust was the ‘personal property’. He could not have appointed them as trustees since it was the Board of trustees who made such appointments. (vii) The CIT had overlooked the fact that it was Smt.Manjushree Srivastawa who had settled on the trust a sum of `3000/- as the corpus and whereby the trust had come into existence. (viii) The trust had substantial contributions made to it by the members of the public for charitable purposes and if the Board of Trustees in their wi om considered it appropriate to apply the trust funds either for constructing a building or acquiring a car,it could not be treated as a ground to deny exemption and to hold that there was no application of income for charitable purposes. (ix) There was no material available with the department more particularly the commissioner to hold that there had been a purchase of a luxury car for the use of specific persons and it was vehemently denied that the car purchased was not a luxury vehicle. (x) It had been completely overlooked by the Commissioner that a sum of ` 28 lakhs and odd had been spent on langar and Singh Gurbax 2014.07.01 12:46 integrity of this document High Court Chandigarh which was definitely expenditure for charitable purposes. (xi) There was no material on record for the CIT to hold that any benefit had been derived by the persons specified in Section 13(2) of the IT Act, 1961. (xii) In the Hindu system, there was no line of demarcation between religion and charity since charity was regarded as a part of religion and what were purely religious purposes and that were charitable purposes was to be decided entirely according to Hindu law and Hindu notions. For instance construction of the Samadhi of a saint was also to be considered as a charitable purpose. (xiii) There was a distinction between public and private temples and the former were generally built or raised by the public and the deity installed to enable the members of the public or a section thereto to offer worship and in such a case the temple would clearly be a public temple. Further,if offerings in a temple were being made by the public in the usual course and if the expenses of the temple were met by public contribution, it was safe to presume that the temple in question was a public temple. (xiv) In a given case, there could be an existence of a public religious trust and the income arising thereto would be exempt from tax. (xv) The order of the AO may be brief/cryptic but this by itself was not enough to hold the same to be erroneous and pre- judicial to the interests of revenue inviting attraction of section 263. (xvi) In the case of a charitable trust, one had not to apply the same parameters, as would be the position when business income was to be computed. It was necessary to examine the receipts and expenditure and if the accounts were audited then probably there would be no need to examine the books of account. (xvii) During the previous year relevant to the assessment year Singh Gurbax 2014.07.01 12:46 integrity of this document High Court Chandigarh under consideration, the assessee had received total donations to the tune of ` 85 lakhs and odd and out of this only ` 1.95 lakhs was by means of cheques, the remaining amount having been received in cash. (xviii) The year wise details of expenditure and income beginning AY 1990-91 and ending with AY 1997-98 showed substantial amounts having been spent on the construction of a building plus other expenditure for charitable purposes and no doubt there were surplus in some of the assessment years but these were within the specified percentage. (xix) Since the impounded books were lying with the AO these are purported/deemed to have been examined and under these circumstances audited accounts were quite adequate for completing the assessment. (xx) In a given case, rejection of the request for exemption under section 80G was not at all relevant for purposes of deciding whether the activities of a trust were charitable or otherwise. (xxi) As per the notice issued under section 263, purchase of a luxury car or the residence of the Swamiji being in the property belonging to the trust were not the points raised/indicated. It was a fact that the Swamiji was living in a separate property located at Sector 16A Faridabad. (xxii) There was no bookshop in existence during AY 1997-98 and observations of the CIT with reference to his informal visit to the premises at the end of 2002 would not be relevant since this was in his private capacity and in case the same had to be considered as official, then the assessee should have been confronted with relevant facts before recording the facts, which were adverse. Further,the aforesaid action on the part of the CIT reflected bias and prejudice towards the assessee. There was no evidence with the department for the allegation that the trustees were eating food belonging to the trust and further, action under Section 263 was required to be restricted Singh Gurbax 2014.07.01 12:46 integrity of this document High Court Chandigarh to the allegations made in the notice. (xxiii) That more than 75% of the total income arising during the assessment year under consideration had been applied for charitable purposes and this would be apparent from the copy of the return appended at page 11 of the paper book and investment in the construction of a building/acquisition of immovable property had to be treated as ‘application of income. (xxiv) The preconditions to be specified by the CIT before exercising powers vested in him under section 263. (a) the order passed by an authority below him must be erroneous and (b) such an order should be prejudicial to the interests of revenue. That only if the aforesaid two conditions were cumulatively satisfied then action under Section 263 could be treated to be valid. (xxv) That it was not permissible in law for the Commissioner to merely set aside the order without bringing any material on record in support of his prima facie opinion and on the mere ground that the AO had not made requisite enquiry. Further, definite findings of error and prejudice to the interests of revenue were essential.”

12.

A conjoint reading of Sections 11, 12 and 12A leaves no ambiguity that registration under Section 12A of the Act is a condition precedent for availing the benefit under Sections 11 and 12 of the Act. At the time of granting registration to a trust or institution, the CIT is required to see whether proper procedure is followed and whether the objects are charitable or not. The assessee was granted registration under Section 12A of the Act. However, registration under Section 12A of the Act does not entitle an assessee-trust to claim automatic benefit of Sections 11 and 12 which is available only on fulfilment of conditions specified thereunder Singh Gurbax 2014.07.01 12:46 integrity of this document High Court Chandigarh which the assessing authority can examine at the time of finalisation of assessment. The registration does not prevent the Assessing Officer from considering whether the assessee is entitled to the benefits of Sections 11 and 12 of the Act. The Assessing Officer cannot make further probe into the objects of the trust once registration has been granted under Section 12A of the Act. The scope of proceedings for registration and its cancellation are different from assessment proceedings. The power to cancel registration under sub section (3) of Section 12AA of the Act was conferred on CIT only from 1.10.2004 by Finance (No.2) Act, 2004. 13. The assessee had filed audit report alongwith the return. In response to statutory notices issued by the assessing authority, the assessee had furnished details/information from time to time as required. The Tribunal had after appreciating the respective submissions of learned counsel for the parties, concluded that the assessment was rightly framed under Section 143(3) of the Act on 21.3.2000. It had also been noticed that the donations received by the assessee had been applied for the purpose for which the trust had been created which included the construction of the building and other charitable purposes. The reason recorded by CIT in the notice issued under section 263 of the Act was that the books of account of the assessee were impounded on 13.7.1998 during the course of proceedings for grant of exemption under Section 80G of the Act and that the assessment was finalized without checking the books of account and making due enquiries. The Tribunal did not accept the aforesaid reason as the books impounded relating to the assessment year 1997-98 were in the possession of the Assessing Officer and in such circumstances, it could not be Singh Gurbax 2014.07.01 12:46 integrity of this document High Court Chandigarh concluded that the same were not considered/examined by the Assessing officer while finalizing the assessment. Another ground taken by the CIT that the sole trustee had appointed a managing committee of which Shri Shambhu Dayal Shastri was the managing trustee who had appointed his two sons in the managing committee in violation of Section 13 of the Act. The plea was negated by the Tribunal by holding that the appointment of trustees or the members of the committee was not within the exclusive powers of Shambhu Dayal Shastri as the same was done by the trustees. The plea regarding expenditure having not been incurred for charitable purposes was not accepted as out of the total receipts of ` 86 lacs, the trust had incurred ` 31 lacs for construction of the building and ` 19 lacs for langar expenses. Further, other items of expenditure were those which were incurred by the charitable trust for regular functioning such as salaries, vehicle maintenance and miscellaneous expenses. Besides the aforesaid, the trust had also spent on various other items amounting to ` 5 lacs. The purchase of luxury car for ` 5 lacs was not accepted. It was recorded that the vehicle purchased was for purposes of running the affairs of the trust. There was nothing to substantiate the ground taken by the CIT that Shambhu Dayal Shastri and others were utilizing the trust premises for their own residential purposes as he was maintaining separate residential premises in Faridabad unconnected with the trust. Yet another ground taken by the CIT that on his visit to the premises of the assessee, he had paid ` 3/- for purchase of booklet for which no receipt was issued to him, which depicted that the assessee was dealing in profiteering and earning income outside the books of account, was also not accepted as there was no book Singh Gurbax 2014.07.01 12:46 integrity of this document High Court Chandigarh shop in existence during the assessment year 1997-98 whereas the alleged purchase of booklet was in the year 2002. The certificate under section 80G of the Act for a period of five years from 1.4.1993 to 31.3.1998 was granted on 26.9.1996 and nothing was shown by the department that the said certificate was cancelled/withdrawn. On the cumulative effect of the aforesaid, the Tribunal had concluded that the assessee was a charitable institution and was carrying on activities for charitable purposes. At the relevant time, the assessee trust was required to utilize 75% of its funds for charitable purposes to take benefit under Sections 11 and 12 of the Act. The Tribunal has recorded that more than 75% of the total income during the assessment year had been applied for charitable purposes as per return. The amounts invested for the construction of immovable property had to be treated as application of income. The requirement of 75% was enhanced to 85% by Finance Act 2002 w.e.f 1.4.2003. Learned counsel for the revenue was unable to dislodge the finding of facts recorded by the Tribunal.

14.

The contention of the learned counsel for the revenue that the assessee was constructing a temple and had utilized the funds for religious purposes only which did not constitute charitable purpose, is repelled in view of the judgment of the Apex Court in Ramchandra Shukla's case (supra), which was followed in Barkate Saifiyah Society's case (supra).

15.

In Barkate Saifiyah Society's case (supra), while dealing with similar issue with regard to religion and charity, it was held that there was no line of demarcation between the two. It was observed as under:- “It is to be noted that definition of the phrase "charitable purpose" is inclusive and it covers a wider field than the field covered by the words "religious purpose". Further, in some Singh Gurbax 2014.07.01 12:46 integrity of this document High Court Chandigarh cases, even a religious activity by a particular sect would be a charitable activity; for some, supply of fodder to animals and cattle is a religious object, while to others it may be a charitable purposes, according to Hindu religious activity. Similarly, Khairat under the Mohamedan law would be considered to be a religious activity. The said activities may be for a charitable purpose to some. Hence, in many cases, both the purposes may be overlapping. The purposes may have both the elements, charity as well as religious.

While dealing with what is "religious" or "charitable purpose" it is observed by the Supreme Court in the case of Ramchandra Shukla v. Shree Mahadeoji, AIR 1970 SC 458, that there is no line of demarcation in the Hindu system between religion and charity. Indeed, charity is regarded as part of religion. While discussing this aspect, the Supreme Court has further observed as under (at page 464) : "Hindu piety found expression in gifts to idols to religious institutions and for all purposes considered meritorious in the Hindu social and religious system. Therefore, although courts in India have for a long time adopted the technical meaning of charitable trusts and charitable purposes which the courts in England have placed upon the term 'charity' in the Statute of Elizabeth, and, therefore, all purposes which according to English law are charitable will be charitable under Hindu law, the Hindu concept of charity is so comprehensive that there are other purposes in addition which are recognised as charitable purposes. Hence, what are purely religious purposes and what religious purposes will be charitable purposes must be decided according to Hindu notions and Hindu law. As observed by Mukherjea in Hindu Law and Religious and Charitable Trusts, Second Edn., page 11, there is no line of demarcation in the Hindu system between religion and charity. Indeed, charity is regarded as part of religion, Singh Gurbax 2014.07.01 12:46 integrity of this document High Court Chandigarh for, gifts both for religious and charitable purposes are impelled by the desire to acquire religious merit. According to Pandit Prannath Saraswati, these fell under two heads, Istha and Purta. The former meant sacrifices, and sacrificial gifts and the latter meant charities. Among the Istha acts are Vedic sacrifices, gifts to the priests at the time of such sacrifices, preservations of vedas, religious austerity, rectitude, vaisvadev sacrifices and hospitality. Among the Purta acts are construction and maintenance of temples, tanks, wells, planting of groves, gifts of food, dharamshalas, places for drinking water, relief of the sick, and promotion of education and hearing. (cf. Pandit Prannath Saraswati's Hindu Law of Endowments, 1897, pages 26-27). Istha and Purta are in fact registered as the common duties of the twice born class. (cf. Pandit Saraswati, page 27)."

In view of the aforesaid discussions, it can be said that a trust can be either for religious purposes or for charitable purposes or it can be for both charitable and religious purposes.”

16.

The Apex Court in Malayammal's case (supra) had held that there was no distinction between religion and charity. It was recorded as under:- “In Hindu system there is no line of demarcation between religion and charity. On the other hand, charity is regarded as a part of religion. But what are purely religious purposes and what religious purposes will be charitable must be entirely decided according to Hindu Law and Hindu notions.”

17.

In Hiralal Bhagwati's case (supra), the requirements for registration of a trust under Section 12A of the Act were emphasized as under:- Singh Gurbax 2014.07.01 12:46 integrity of this document High Court Chandigarh “It is required to be noted that the registration of a charitable trust under s. 12A is not an idle or empty formality. This is apparent from the tenor of the provisions of s. 12A. It requires that not only an application should be filed in the prescribed form, setting out the details of the origin of the trust, but also the names and addresses of the trustees and/or managers should be furnished. The CIT has to examine the objects of creation as well as an empirical study of the past activities of the applicant. The CIT has to examine that it is really a charitable trust or institution eligible for registration. It is required to be noted that the trust is granting benefits to the staff of 16 different institutes, the names of which are appearing at p.

44.

The staff working in these institutes, on becoming members, are getting the benefits of the scheme. Thus, the staff members of all these institutes become entitled to get the benefit of the scheme. The object beneficial to a section of the public is an object of "general public utility". To serve as a charitable purpose, it is not necessary that the object must be to serve the whole mankind or all persons living in a country or province. It is required to be noted that even if a section of public is given benefit, it cannot be said that it is not a trust for charitable purpose in the interest of public. It is not necessary that the public at large must get the benefit. It is required to be noted that considering the objects of general public utility, the matter is to be decided.” Construction of temples alongwith other acts of construction of tanks, wells with flight of steps etc. were held to be charitable acts in the following terms:- “It will be appropriate to refer to Mayen's Hindu Law and Usage, 11th Edn., at p. 911. Charitable acts are referred to as acts of construction of tanks, wells with flights of steps, temples, planting of groves, the gift of food, Dharmasalas (rest Singh Gurbax 2014.07.01 12:46 integrity of this document High Court Chandigarh houses) and places for supplying drinking water, the relief of the sick, the establishment of processions for the honour of deities and so on. Gifts for the promotion of education and knowledge are considered specially meritorious.” This judgment was affirmed by the Apex Court in Surat City Gymkhana's case (supra).

18.

A Division Bench of the Andhra Pradesh High Court in Social Service Centre's case (supra) had held that construction of a church was a purpose of general public utility. It was further noticed that expenditure on religious activities was also entitled to exemption. It was indicated as under:- “We do not find that donation to a church or construction of a church is not a purpose which is not of general public utility. Therefore, the contention of the Department that the expenditure on religious activities could not be given exemption cannot be accepted particularly in the context of our polity. We are aware that most of the religious and charitable activities go together in this country. Secondly, if we look at Section 11 which is reproduced below it becomes clear that it is not necessary that an institution which is dealing in charitable and religious activities should get a notification issued for both the purposes because the words used are "charitable or religious".

19.

The question for consideration in Raghunath Das Parihar Dharamshala's case (supra) was whether the assessee whose sole object was to run a dharamshala and derive income by way of rent by letting out rooms therein, was carrying on a charitable activity, the Court answering in the affirmative had recorded as under:- “Applying the tests laid down in Addl. CIT v. Surat Art Silk Singh Gurbax 2014.07.01 12:46 integrity of this document High Court Chandigarh Cloth Manufactures' case [1980] 121 ITR 1 (SC) and adopting the reasons given in the aforesaid three decisions, we are of the considered opinion that on the facts and circumstances of the case, the assessee is a charitable trust and the sole purpose of the trust is to run a dharmshala, which is an object of general public utility and so when this was the sole object, the income derived therefrom in the shape of rents from the income of the dharmshala is exempt under Section 11 read with Section 2(15) of the Act. At the risk of repetition, it may be stated that the object of the trust is not to earn profit, but the object of running the dharmshala is of general public utility.”

20.

Whether the amount spent for the construction of temple would amount to utilization of the funds within the meaning of Sections 11 and 12 of the Act?, the Supreme Court in S.RM.M.CT.M.Tiruppani Trust v. CIT (1998) 230 ITR 636 where the assessee trust had spent the amount for construction of hospital had held that the same was application of funds within the meaning of Section 11(1) of the Act. The Delhi High Court following the aforesaid decision in Director of Income Tax (Exemptions) v. Maharaj Agarsen Technical Education Society, (2010) 328 ITR 551 held as under:- “8. In fact, in our view, the facts of the present case are quite similar to the case of S. RM. M. CT. M. Tiruppani Trust Vs. ITA 1480/2010 Commissioner of Income Tax (1998) 230 ITR

637.

In the said case,the Supreme Court held as under:- “For the year ending April 12, 1970, which is the accounting year relevant to the assessment year 1970-71,the amount of Rs.7,82,792.44 which was shown in the earlier balance-sheet (as on April 1, 1969) as advance to S. RM. M. CT. M. Firm, Rangoon, on the “assets” side was substituted by “building for Rs. 8 lakhs” on the assets side. It was the case of the Singh Gurbax 2014.07.01 12:46 integrity of this document High Court Chandigarh assessee that during the assessment year 1970-71, the advance to the said firm at Rangoon was in effect realised and invested in a building for the purpose of starting a hospital. The trust had also earned during that assessment year other income amounting to Rs.1,64,210.03.The assessee claimed exemption for the total income of Rs.8 lakhs plus Rs.1,64,210.03 under Section 11(1) of the Income-tax Act, 1961. The Income-tax Appellate Tribunal by a majority of 2:1 held that the sum of Rs.8 lakhs was to be treated as income of the assessee for the purposes of Section 11. The Tribunal gave the benefit of section 11(1) to the assessee for the assessment year 1970-71 in respect of the entire income consisting of Rs.8 lakhs plus Rs.1,64,210. 03. On a reference to the High Court, the High Court has held that the sum of Rs.8 lakhs was an asset acquired in realization of an outstanding due and hence, the sum of Rs. 8 lakhs cannot be included in the income of the assessee for the purposes of section 11(1)…..xxx xxx xxx A mere look at sections 11(1) and 11(2) is sufficient to dispel this argument. Under Section 11(1), every charitable or religious trust, irrespective of whether it has filed a declaration under Section 11(2) or not, is entitled to deduction of certain income from its total income of the previous year. The income so exempt is the income which is applied by the charitable or religious trust to its charitable or religious purposes in India. If the entire income is so applied, the entire income would be exempted. If the entire income is not applied but some ITA 1480/2010 income is accumulated by such a trust, then also under Section 11(1)(a), such accumulated income to the extent of 25 per cent of the total income (or Rs.10,000, whichever is higher) would be exempted from income-tax…………. xxx xxx xxx ………The assessee, however, is entitled to claim the benefit Singh Gurbax 2014.07.01 12:46 integrity of this document High Court Chandigarh of Section 11(1)(a). In the present case, the assessee has applied Rs. 8 lakhs for charitable purposes in India by purchasing a building which is to be utilised as a hospital. This income, therefore, is entitled to an exemption under section 11(1).” Thus, the amounts spent for construction of temple had not been rightly held to be non application of funds within the meaning of section 11(1) of the Act by the Commissioner while invoking juri iction under Section 263 of the Act.

21.

In all fairness, reference is made to the judgment in Shri Gopal Lalji-ka-mandir Trust's case (supra) relied upon by learned counsel for the revenue, it was held therein that the assessee trust was a personal temple built for the benefit of trustees and the members of the family and therefore was not entitled to exemption under Section 11 of the Act. Similarly in Kizhakke Kovilakam Trust's case (supra), it was held that the assessee trust was only a private family trust that was created and it was not a public trust and therefore was not entitled to exemption under Section 11 of the Act. Thus, the judgments being based on different fact situation do not help the revenue.

22.

In view of the above, the Assessing Officer was right in framing the assessment on 21.3.2000 and assumption of juri iction by CIT under Section 263 of the Act was improper.

23.

Once it is held that the registration granted to the assessee under Section 12A of the Act was in accordance with law and the assessee had complied with the requirement of Sections 11 and 12 of the Act, as a necessary corollary, the action of the assessing authority in treating the Singh Gurbax 2014.07.01 12:46 integrity of this document High Court Chandigarh assessee as an association of persons and also to assess Shri Shambhu Dayal Shastri on protective basis cannot be legally sustained. Equally, the action of CIT in invoking provisions of section 263 of the Act in the facts and circumstances cannot be justified. Consequently, the substantial questions of law are answered accordingly and the appeals are dismissed.

(Ajay Kumar Mittal)

Judge March 25,2014 (Anita Chaudhry) ‘gs’

Judge Singh Gurbax 2014.07.01 12:46 integrity of this document High Court Chandigarh

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