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Before: Shri V. Durga Rao & Shri G. Manjunatha
O R D E R
PER V. DURGA RAO, JUDICIAL MEMBER:
There are three cross appeals filed by the Revenue as well as assessee against different orders of the ld. Commissioner of Income Tax (Appeals) 17, Chennai dated 12.12.2014 relevant to the assessment year 2011-12 and orders dated 05.08.2016 for the assessment years 2010-11, 2012-13 and 2013-14. Since common grounds are involved, these appeals were heard together and being disposed of by this common order for the sake of brevity. 2011-12] 2. The Revenue has raised the following grounds: “Ground No.1 : The order of the learned CIT(A) is contrary to the law and facts of the case. Ground No.2 : 2.1. The learned CIT(A) erred in holding that the assessee is entitled to exemption of all its income, including rental income out of letting, interest income on investments and miscellaneous income, under Secs.11 & 13 of the I.T. Act, 1961. 2.2. The learned CIT(A) failed to appreciate that letting out of buildings (without any charitable activity carried on, by the assessee) involves activity in the nature of trade, commerce of business, which would cause invocation of first proviso to Sec.2(15) of the I.T. Act, 1961. 2.3. The learned CIT(A) ought to have noted that the Hon'ble ITAT, Bangalore Bench, in the case of Subharam Trust v. OIT (E) (126 ITO 33) has held that in view of the amended definition of 'charitable purpose', the activity of letting out of buildings I halls is in the nature of business. 2.4. The learned CIT(A) failed to note that the decision of the Hon'ble Jurisdictional High Court in the case of CIT v. Halai Nemon Association (243 ITR 439) squarely applies to the facts of the case. 2.5. Having regard to the observation of the learned CIT(A) himself in Para 5.6, Page 11 of his order that the assessee maintains separate books of account for its letting out activities, as envisaged by Sec.11 (4A) of the I.T. Act, 1961, the learned CIT(A) ought to have seen that the assessee is engaged in business activities, attracting application of the first proviso to Sec.2(15) of the I.T. Act, 1961.
Ground No.3 :
3.1. The learned CIT(A) erred in holding that the assessee got common share in 3 floors, viz., Basement 1, Basement 2 and Ground Floor and also 40% share in the open land of 10,000 sq.ft . 3.2. The learned CIT(A) failed to appreciate that the MOU (Memorandum of Understanding) dated 02.07.2009 (Annexure 'A'), executed between the assessee and Willingdon Charitable Trust (WCT) speaks about exclusive right of ownership to the assessee with regard to 4th and s" Floors (that is, 2 Floors) in the constructed building and there is no mention of assessee's share in Basement 1, Basement 2 and Ground Floor and also 40% share in the open land of 10,000 sq.ft. 3.3 The Id. CIT (A) could not have read into the MOU more than what is written therein; Ground No.4 : 4.1. The learned CIT(A) erred in placing reliance on the order of his predecessor in the case of M/s. The Willingdon Charitable Trust for the asst. year 2009-10 (ITA No.374/2011-12 dated 30.04.2012). 4.2. The learned CIT(A) failed to appreciate that the relied upon order is distinguishable from the facts obtaining in the case on hand. 4.3. The learned CIT(A) ought to have seen that in the relied upon order, the issue was whether the activity of running hostels for women and letting out of two Kalyana Mandapams was a commercial activity, necessitating denial of exemption u/s.11, whereas, the crux of the issue, in the instant case is, whether the, assessee can be said to be eligible for exemption u/s.11, without doing any charitable activity, but only engaged in construction of commercial buildings. In any case, the order of the CIT (A) is under challenge before higher appellate authorities. Ground No.5 : 5.1. The learned CIT(A) erred in rendering his decision on the basis of assurances given by the assessee, that, in future, it may utilise the buildings constructed for research activities, without the support of any concrete evidence. 5.2. The learned CIT(A) failed to appreciate that the moot question when such research activities will commence in the constructed buildings has not at all been answered.
5.3. The learned CIT(A) ought to have noted that the lease deed executed by the assessee with various commercial establishments in respect of the subject building reveals that the lease has been granted by the assessee for 10 years, commencing from 2010, and therefore, there is no scope for the assessee to utilise the constructed building for research activities within 10 years, i.e., up to 2020. 5.4. The learned CIT(A) failed to observe that it would not serve the purposes of the trust, if no charitable activity is carried on, for ten years and the trust's version that it will utilise the building for research activities in future, i.e., after ten years, is far-fetched. 5.5. The learned CIT(A) ought to have appreciated the decision of the Hon'ble Kerala High Court in the case of ell v. Sree Seetharama Anjaneya Veda Kendra 336 ITR 65, wherein, the Court has propounded the ratio that accumulating income u/s.11 (2), without carrying on any activity towards the objects of the trust will cast aspersions on the genuineness of the trust and the same has to be examined. Ground No. 6 For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer may be restored.”
Facts are, in brief, that the assessee M/s. The Indian Cultural Research Trust has established Research Institute for learning and research and study in depth of all Vedas and effect of Vedic chants on human life, nature and universe. The trust also has objects of awarding scholarships to students and gives donation to any trust existing for charitable purpose etc. The trust initially carried out research activities more than 25 years ago on the main objects. However, the results were not encouraging and became purpose less. The trust therefore decided to pursue the other objects. For the sake of convenience, the objects of the Trust are extracted as under: (a) To establish a Research Institute or Institutes for the learning and research and study in depth of all Vedas and effect of vedic chants on human life, nature and universe. (b) For training and carrying on research in Shad-dharsanas and other shastras and to train students and scholars for furtherance of the study of Shad-dharsanas and their bearing on psychological characteristics on human beings. (c) To train experts and undertake research in the Indian systems of medicine such as Ayurveda, Siddha, Unani, Homeopathy etc. (d) To train musicians and to establish Research Institutes for the various types of music prevailing in the world from time immemorial and in particular to study the effect on the human psychology, animal and plant psychology and physiology. (e) To institute and conduct research into various aspect of Yoga and other allied sciences and its effect on psychology and physiology. (f) To establish and maintain research Departments pertain to Vedas, Ayurvedic Sciences and other systems of Indian medicine and to study the scientific basis of religious beliefs and practices existing in India. (g) To award scholarships, stipends and-fellowships to students and scholars in the field of education and research general and for higher studies including the attainment of the objects aforementioned and also to arrange for lectures, seminars and all other activities intended to promote research and expertise in the general field of knowledge including the objects mentioned above and allied objects. (h) To give donations and grants and aids to any trust this is established for charitable purposes ensuring for the benefit of the public in the discretion of the trustees.
(i) To obtain grants of lands and buildings and other gifts of property movable and immovable and moneys by way of block-grants, recurring grants, maintenance grants and stipendiary grants from any Government or from any quasi-governmental corporations or bodies or from any municipal and local bodies as may be acceptable to the Governing body for carrying out the objects of the trust. (j) To acquire by purchase or lease and to construct immovable property to carry out the objects as above. (k) To obtain by lease of other arrangement possession and use of land and buildings from any person, body or government on such terms as may appear reasonable to the governing body for the purposes of the objects of the trust. (l) To investment surplus moneys belonging to the trust in approved securities. (m) To collect and maintain a fund to be contributed by voluntary donation and by subscription for the objects and purposes of the trust and (n) Finally, to do such other lawful acts and things as may be necessary or incidental and conducive to the attainment of the above objects of the trust. 3.1 On perusal of the Income and Expenditure Account, the Assessing Officer has noted that the assessee has not incurred any expenditure in the nature of charity. The assessee has paid a donation of ₹.36,06,166/- for the period under review. Even in the donation payments, a sum of ₹.25 lakhs was paid to a trust which was managed by one of the trustee viz., Smt. Meena Muthiah. The assessee can claim deduction under section 80G for the payment of donation and not exemption under section 11 of the Income tax Act. If the payment of donation is treated as charity, then everyone who pays a small amount of donation may claim charity. The assessee is not doing any charitable activities on its own whereas to claim exemptions under section 11 of the Act, the trust gave a negligible amount as donation to a few concerns.
3.2 The Assessing Officer issued a notice under section 142(1) of the Act and in response to this, the assessee has filed a letter dated 10.07.2013 stating that the trust's object initially was to establish Research Institute for learning and research and study in depth of all Vedas and effect of Vedic chants on human life, nature and universe. The trusts also have objects of awarding scholarships to students and give donation to any trust existing for charitable purposes etc. the trust initially carried out research activities more than 25 years ago on the main object. However, since the results were not encouraging and became purposeless, the assessee trust focused to construct Multi Storied Commercial Buildings for corporate houses. Though the assessee has earned a huge income from the properties, the income was not used for the purpose of charity.
3.3 The assessee vide Annexure V of its reply states that the trust had some lands near the building already put by it 25 years ago, out of which rent is collected. The remaining vacant land was utilized for the purpose of multi storied buildings. For this purpose it entered into an MoU with The Willington Charitable Trust which also had adjacent lands. Both the Trusts jointly made development of multi storied building out of which 2 Floors were allotted to Indian Cultural Research Trust. For this purpose, the Trust advanced sum of Rs.6,27,55,000/- till 31.03.2010 to Wellington Charitable Trust. The amount is paid for investment in immovable property which is permitted investment by a Trust under the Income-tax Act 1961.The same has been fully completed and rental income has come to the Trust".
3.4 The Assessing officer further noted on perusal of the approved building plan submitted by the assessee that the building was constructed in a land belonging to the assessee, M/s. Willington Charitable Trust and M/s. Tamil Nadu Educational Trust in R.S.No.1629/1, 1629/2 & 1629/7. The assessee has not obtained any approval either from the Director of Income tax (Exemptions), Chennai or from the Court having jurisdiction over the assessee to enter into an agreement to align its land with other trust. The building construction approval was given to M/s. Wellington Charitable Trust by the Chennai Metropolitan Development Authority vide Letter dated 14.12.2009. The Assessing Officer has discussed the facts in paragraphs 15 to 30 elaborately and also noted that the assessee has accumulated the trust income in the earlier yeas only to construct building and not for doing charity. Out of the total income of ₹.3,58,21,185/- for the assessment year 2011-12, the amount donated to some concern/trust was only 10%.
3.5 Further, on verification of the income tax return filed for the assessment year 2006-07, the assessee has submitted Form 10 for accumulation of the surplus income as under: (i) Put up buildings for research as contemplated in the objects of the society. (ii) To purchase land and put up buildings to train musicians and to establish Research Institutes for various types of music prevailing in the world from time immemorial and in particular to study the effect on the human psychology, animal and plant psychology and physiology. (iii) To institute and conduct research into various aspects of yoga and other allied sciences and its effect on Psychology and Physiology. (iv) To award scholarships, stipends and fellowships to students and scholars in the field of education and research generally and for higher studies including the attainment of the objects aforementioned and also to arrange for lectures, seminars and all other activities intended to promote research and expertise in the general field of knowledge including the objects mentioned above and allied objects. 3.6 However, the assessee trust has not applied its accumulated funds as per the objects mentioned in Form 10 and has utilized for the construction of multi storied building and let out to various corporate houses. None of the above building was utilised for the purpose of charity as claimed by the assessee.
3.7 The Assessing Officer has considered the provisions of section 11(3) of the Act and noted that as per provisions of the section 11(3) of the Act, any income referred to in sub-section (2) which – (a) is applied to purposes other than charitable or religious purposes as aforesaid or ceases to be accumulated or set apart for application thereto, or (b) ceases to remain invested or deposited in any of the forms or modes specified in sub-section (5), or] (c) is not utilised for the purpose for which it is so accumulated or set apart during the period referred to in clause (a) of that sub-section or in the year immediately following the expiry thereof, [(d) is credited or paid to any trust or institution registered under section 12AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub- clause (v) or sub-clause (VI) or sub-clause (via) of clause (23C) of section 10,] shall be deemed to be the income of such person of the previous year in which it is so applied or ceases to be so accumulated or set apart or ceases to remain so invested or deposited or credited or paid or], as the case may be, of the previous year immediately following the expiry of the period aforesaid.] 3.8 The Assessing Officer further noted that for the assessment year under consideration, the assessee has spent ₹.15,72,61,182/- within 6 months as additions to building and ₹.2,42,69,477/- in the second half of the year summing up to ₹.18,15,30,659/- which was not spent for the purpose of charity and the same is not an application. However, the assessee trust has paid only ₹.14,02,12,514/- for the financial year 2010- 11 to Willington charitable Trust and ultimately to M/s. Chettinad Builders Pvt. Ltd. The exemption under section 11 of the Act is not allowed the application of the above provisions and concluded that the assessee's activities are not in the nature of charity and only construction of Multi Storied Building & letting out for rent for corporate houses are the objects of the assessee trust. The Assessing Officer has further concluded that assessee trust has unreasonably paid extra consideration to the builder viz M/s. Chettinad Builders Pvt Ltd, Chennai through Willington Charitable Trust. The income accumulated in the earlier for the construction of building for Vedic Research etc. as mentioned in Form 10 under section 11(2) of the Act was not complied with as the income applied was for the construction of Multi Storied Building and all the occupants are Corporate Business Houses as mentioned in the hereinabove. Accordingly, the income accumulated and applied for the construction of the building paid during the financial year 2010-11 of ₹. 14,02,12,514/- was brought to tax.
The assessee carried the matter in appeal before the ld. CIT(A). During the course of appellate proceedings, the ld. CIT(A) has, by issuing a letter dated 28.10.2014, asked the assessee trust certain questions for the purposes of clarification. The relevant questions asked by the ld. CIT(A) are what are the charitable activities done by the assessee during the assessment year 2011-12, etc. The assessee gave reply dated 07.11.2014 before the ld. CIT(A) stating that there is no common trustee between The Indian Cultural Research Trust and Chettinad Dental College & Research Institute and furnished details building constructed and tenants occupied the buildings.
4.1 Further, the ld. CIT(A) has again issued a notice dated 26.11.2014 seeking clarifications from the assessee on the following points: a. How the construction of “Sigapi Achi Building” and letting out the same to commercial purpose amount to charitable activity. b. Perusal of income and expenditure account for the year ended 31.03.2011 reveals that except donation of ₹.36,06,166/-, entire expenditure was towards maintenance of buildings to earn income. How it is termed as charitable activity?
Nature of endowment fund of ₹.2,23,24,34,274/-. c. d. Under the head sundry creditors and other liabilities, the sum of ₹.4,13,18,145/- represents what? And how it was quantified? Raja Annamalai Building (Annexure) – 2nd and 3rd floor e. belongs to the assessee. Other floors belong to whom/ Raja Muthiah Centre – 4th floor belongs to the assessee. f. Other floors belong to whom/ Willingdon Estate Building (3rd floor) belongs to assessee. g. Other floors belong to whom? Details of rates and taxes of ₹.31,87,720/- paid to whom and h. to which property. 4.2 The assessee has given reply vide letter dated 04.12.2014 as under: “a) The purpose of construction of Sigapi Achi Building, to earning of rental income and use the income for objects of the Trust. An activity for generating income for pursuing the approved object and there should not be any attempt in approving such activities as commercial in as much as the finding on the commerciality of such activities is not at all relevant to the factual matrix of the Assessees. The Sigapi Achi building which is let out and the income where from was used for the objects was held as application of income by the Trust in CIT Vs. Saint George Forana Church 170 ITR 62. We have applied the rental income of the Sigapi Achi Building and other receipts for Charitable objects for the Financial years 11-12, 12-13 and 13-14 Rs.34,37,500/- , Rs.3,02,01,137/- and Rs. 3,47,64,278/- respectively. b) The Gross receipts for the year under construction is Rs.3,58,21,185/- and we have an expenditure of Rs.70,94,341/- to earn the above mentioned income of the trust and we have applied excess of income during the year after charities done to the extent of Rs.3,06,166/- the balance amount towards construction of building and the subsequent years we earn the income and spent for charitable activities. c) The Endowment of Rs.2,23,34,274/- long ago it is created. d) The sundry creditors of Rs.4, 13, 18, 145/- represents the our share of construction cost payable to The Willingdon Charitable Trust for Joint development of Sigapi Achi Building and which is settled to them in the subsequent years. The copy of Ledger account is enclosed for your perusal in Annexure-1, e, f &g) The details of buildings are separately enclosed Annexure-2. h) The details of rates and taxes with details for which property it is paid is separately enclosed as Annexure-3.” 4.3 The ld. CIT(A), by considering the explanations of the assessee, passed a detailed order, which is reproduced as under: “5. I have gone- through the points raised by the AO in the Assessment Order and the submissions of the Appellant including the grounds of appeal, and written submissions/replies and oral submissions to the various queries raised. 5.1 The objectives of the Appellant as per the Memorandum of Association are education, medical relief which fits into section 2(15) of the Income Tax Act 1961 and there is no change in objectives since formation of the Trust: The Appellant should have a source of revenue to achieve its objectives and in such process it has constructed buildings. The same have been let out and the revenue generated out of the same have been utilized for the Appellant's charitable objectives/purposes. 5.2 The Hon'ble High Court of Madras in the Appellant's sister concern viz., The Willingdon Charitable Trust case reported in 330 ITR 24 has approved the activities pursued and continuously pursued. It has observed that the amendment in the statue i.e., the newly inserted proviso below section 2(15) of the Income Tax Act 1961 would not nullify the principles laid down by the Jurisdictional High Court especially in view of the non-applicability of the said proviso to the factual matrix of the case, due to the fact that running of the kalyana mandapams was not the objects mentioned in the Memorandum of Association of the Appellant and the surplus generated from the kalyana mandapams was admittedly ploughed back for pursuing the objects of the trust and relief was granted. This has not been reversed so far. The AO's contention that the Appellant's objectives are only towards advancement of the object of general utility is not totally correct.
5.3 Moreover, in the case of Willingdon Charitable Trust case, the Jurisdictional High Court held that when a business income was used towards the achievement of the object of the trust it would be incidental to the .achievement of the object of the trust notwithstanding the profit and gain involved therein. That section 11(4A) of the Act did not exclude section 11(1)(a). The exemption under section 11(4A) would be available only when the business was incidental to the attainment of the object of the trust. In the absence of any specific bar under section 11(4A) of the Act prohibiting the application of section 11(4A) it could not be construed that it was independent of section 11 (4A) of the Act. Hence, Section 11(4A) and section 11 (4) of the Act were complementary to each other and section 11 (4A) did not restrict the power under section 11 (4) of the Act. That in so far as the compliance with the maintenance of separate books of account as required under section 11 (4A) of Act was concerned, it was mandatory and a condition precedent for the assessee to maintain the same while seeking exemption. It was not in dispute that the assessee had maintained three sets of accounts. Both the Commissioner (Appeals) and the Tribunal had held that the assessee had complied with the condition of maintaining the accounts. These findings being findings in fact, the contention of the Revenue that no separate books of account were maintained by the assessee in respect of its income assessable under business was to be rejected. Entities who have the objects such as education, medical relief and relief of poor will continue to be eligible for exemption even if they incidentally carry on a commercial activity, subject, however, to the conditions stipulated under section 11(4A) or the seventh proviso to section 10(23C) which are that (i) the business should be incidental to the attainment of the objectives of the entity and ii) separate books of account should be maintained in respect of such business. Similarly, entities whose object is 'education' or 'medical relief’ would also continue, to be eligible for exemption as charitable institutions even if they incidentally carry on a commercial activity subject to the conditions mentioned above ..........” 5.4 In the case of the Appellant, education and medical relief are given in the objectives in the memorandum and the letting of buildings is an incidental activity and the surplus is used for charitable activities. The Appellant had made donation to another charitable "trust which is also application as per instruction no. 1132 dated 5.1.1978 as extracted from CIT Vs. Sarladevi Sarabhai Trust 172 ITR 698 Guj., and the AO's finding that the Appellant had not applied or applied minimum of the gross receipts is factually not correct. A Charitable Trust can make donation to another Charitable Trust having
12A registration and 80G and such amount of donation will be application of income. 5.5 The A.O's action in exhibiting the revenue of the Appellant Trust as Income from House Property is not correct, since the main objects of the trust remain intact. Also, the Income accumulated and applied for the construction of the building amounting to Rs.14,02,12,514/- had been disallowed by the A.O is also not correct, in view of the Hon’ble High Court decision in the case of CIT Vs. St. George Forana Church in 170 ITR 62 Ker which lends support to the Appellant wherein, it was decided that the word "applied" is of wider import than the word "expenditure” . The sum spent on the construction of additions to the buildings owned by a religious institution, which were let out, and the income where from was used for religious purposes, can be said to be an application of income for religious or charitable purpose. Even, repayment of loan for construction of building is treated as application as per the decision of the Jurisdictional High Court in case of CIT Vs. Kannikaparameswari Devasthanam Charities 133 ITR 779 Mad. That being the case, the expenditure on construction of buildings and income wherefrom is used for charitable purposes is definitely a clear case of "Application of income". Further, the Appellant had applied the rental income of Sigapi Achi Building for the financial years 2011-12, 2012-13 and 2013-14 to the extent of Rs.34.38 Lacs, Rs.3.02 Crores and Rs.3.48 Crores respectively towards charitable purposes. 5.6 I have also gone through the books of accounts produced before me to confirm the fact that the Appellant maintains separate books of accounts for letting activities as required under law which is as per the findings of the Hon'ble Jurisdictional High Court. Moreover, the AO's observation that the business is not incidental to the attainment of objectives of the trust and denial of exemption u/s 11(4A) does not appear to be correct, in view of the above facts, as per the submissions & replies of the Appellant. 5.7 The A.O had also disputed the amount spent on construction by referring the same to DVO. The Appellant had submitted that a Trust is entitled to invest the fund in immovable property which is permitted u/s 11(5)(x) of the Income 'Tax Act, 1961.Moreover, the construction if commercial in nature, cannot lead to a conclusion that trust is doing commercial activity. The trust should have income to apply for its charitable cause for which creation of asset is permitted under law. As regards, the fixation of ratio of the cost of construction of 40% as well as the difference in allotment of constructed area proportionate to the cost of construction, the Appellant had explained that the A.O had ignored the fact that the Appellant trust had got 2 floors and in addition that has got common share in 3 floors viz., Basement l, Basement 2 and Ground floor. In addition to the above, the Appellant trust has got 40% share in the open land of 10,000 Sq.ft. which is for common usage. If the cost of the common area as well as common share of land is computed, then the payment made to the Wiliingdon Charitable Trust would be in order as per the MOU entered and produced before the A.O in original. Even if an excess amount had been given to the another charitable trust having 12A registration and 80G, it would amount to application of income as per the instruction of CBDT vide Instruction No1132 dated 05/01/1978 as reported in CIT Vs. Saraladevi Sarabhai trust (172 ITR 698) and also as per the decision in the case of CIT Vs Hindustan Charity Trust (139 ITR 913) wherein it was held that donation to another trust is also application of income. 5.8 The A.O had brought out the case of Info Parks Vs. DCIT reported in 329 IIR 104 Ker, wherein it was held that letting on rent commercial building to software companies was an activity of commercial in nature and cannot be treated as income from properties and in the case of the Appellant multistoried commercial complex constructed and let out to various corporate houses. The Appellant has countered it saying that it is a charitable trust and it is permitted to put up buildings and let it out and use proceeds for charitable purposes. Hence, the case of Info Parks is not applicable since Info Parks is not a charitable trust and its objectives are totally different from that of the Appellant trust. 5.9 The A.O had again stated that the accumulations had been aimed to construct buildings and not to do charity. Also it had not complied with the purpose for which the accumulations have been meant as mentioned in Form no.10.He has also referred to the provisions of sec 11(3) of the Income Tax Act. He has again added that the Appellant had spent Rs.15.72 Crores in six months and Rs.2.43 Crores in second half of the year totalling to Rs. 18.15 Crores and the Appellant trust had paid Rs. 14.02 Crores to Willingdon Charitable Trust and ultimately to M/s Chettinad Builders Pvt. Ltd. a construction Company. The Appellant trust had submitted the total cost of construction as Rs. 45.38 Crores and its share worked out to Rs. 18.15 Crores. The moneys have been paid to M/s Willingdon Charitable Trust and not to M/s. Chettinad Builders Pvt. Ltd as alleged by the A.O. The Appellant reiterates that construction of building is to augment the resource for achieving the charitable objectives is permitted as per the decision in the case of CIT Vs. St. George Forana Church in 170 ITR 62 (Ker). 5.10 The Appellant during the course of hearinq further submitted that the buildings constructed are definitely meant for research activities as mentioned in Form 10 and such research activities are being planned and may take up shape at any point of time. Recruitment of experts as well as approvals have been planned in the near future. Till such time it is put to such use, the buildings have been let out since idle buildings would require lot of maintenance expenditure and would result in loss of revenue which would hinder the achievement of its objectives. 5.11 In view of the above discussions, I am of the opinion that the ground raised by the Appellant in this appeal is bonafide and m~ predecessor has also allowed the appeal of the Appellant's sister concern M/s. The Willingdon Charitable Trust for the Asst. Year 2009-10 in dated 30.04.2012 after Amendment to Section 2(15) of the Income tax Act, 1961 where the facts are similar. Therefore construction and letting out of buildings are to be treated as incidental to the attainment of the main objectives of the trust and the income thereon is being utilized for the objects of the Appellant. Therefore the Appellant is eligible for exemption of all its incomes including rental income out of letting, interest income on investments and miscellaneous income u/s 11 to 13 of the Income Tax Act, 1961.
6. In view of the above discussion, I am of the considered view that the appellant is entitled to exemption u/s 11 to 13 of the Act. The Assessing Officer is directed to accept the income returned by the assessee as per the return filed for the Assessment Year 2011-12.”
5. Aggrieved, the Department carried the matter in appeal before the Tribunal.
5.1 The ld. DR has submitted that the initial object of the assessee trust was to establish Research Institute for learning and research and study in depth of all Vedas and effect of Vedic chants on human life, nature and universe and since they are not successful in conducting the research all the buildings were given on rental for a period of 99 years. Therefore, the intention of the assessee is only running a commercial institution and no charitable activity was carried out by the assessee. Only a small amount was given to another charitable society and claim exemption under section 11 of the Act.
5.2 The ld. DR further submitted that the original object of the assessee trust to carry on research on Vedas are no more carried by the assessee and the assessee only constructed commercial building and leasing out to corporate houses. Therefore, the income earned by the assessee cannot be exempted under section 11 of the Act.
5.3 the ld. DR further submitted that the Assessing Officer has proved beyond doubt that the assessee has not carried many of the objects and carried only ancillary object and thus, exemption under section 11 of the Act cannot be allowed to the assessee.
5.4 The ld. DR further submitted that the assessee has not carried out any activity relating to medical and education. It was further submission that the ld. CIT(A), without considering any material and by considering only the submissions of the assessee, gave a finding that the Memorandum of Association provides the objectives of education and medical relief and there is no change in the objectives since formation of the assessee trust and the assessee should have a source of revenue to achieve its objectives and in such process it has constructed building, which was let out and revenue generated out of which, the assessee has utilized for assessee’s charitable purposes, the above findings of he ld. CIT(A) is without any material and any basis. Therefore, the ld. DR pleaded for reversing the order passed by the ld. CIT(A).
On the other hand, the ld. Counsel for the assessee has submitted that the assessee is having 12A registration and Department has not disturbed the same and therefore, the denial of exemption under section 11 to 13 of the Act by the Assessing Officer is not in accordance with law. He further submitted that the activity of construction and also spending the accumulated income itself is an application of income and on that count, section 11 of the Act cannot be denied. The ld. Counsel further submitted that the assessee is donating the money to other charitable organization and therefore, section 11 cannot be denied. The ld. CIT(A) has considered the entire factual matrix of the case and allowed exemption under section 11 to 13 of the Act and submitted that the same may be upheld.
Per contra, the ld. DR has also pointed out that the assessee has entered into lease agreement with lessee for a period of 99 years and therefore, there is no possibility of utilizing the building constructed for the purpose of charity. So far as case law relied on by the ld. CIT(A) in assessee’s sister concern, DIT(E) v. Willington Charitable Trust [2010] 195 Taxman 232 (Mad), the ld. DR has submitted that in that case, the assessee has carried out its main objects and therefore, the Hon’ble Madras High Court has granted exemption under section 11 to 13 of the Act and thus, the case law has no application in the present case. The ld. DR strongly relied on the decision of the Tribunal in the case of Investors Financial Education Academy v. ITO (E) in dated 11.06.2018 and pleaded that the same may be followed.
We have heard both the sides, perused the materials available on record and gone through the orders of authorities below including paper book. The assessee trust has been created mainly for the purpose of research and study in depth of all Vedas and effect of Vedic chants on human life, nature and universe. Since the assessee was not able to carry out the activities for which it has obtained 12A registration, started construction activities and letting out to corporate houses and getting rental income out of which some portion of amount was donated to educational institution. The assessee has not carried out any activity relating to medical and education or any medical relief. Therefore, the activities carried out by the assessee cannot be said as charitable activity.
The assessee was only constructing commercial complex and the same was given to long lease for 99 years. Therefore, there is no possibility that the assessee can again revive its main object of carrying out research on Vedas. We find that in the assessment years under consideration, the assessee has only carrying out construction of building and letting out it to the corporate houses.
8.1 The ld. DR has filed written submissions, wherein, he has submitted that in the assessment year 2010-11, the gross revenues & receipts of the assessee was ₹.3,51,.40,039/- out of which ₹.24,82,284/- was donated, which is only 6.9% of the gross receipts. Similarly, in the assessment year 2011-12, the gross receipts was ₹.3,58,21,185/- out of which ₹.36,06,166/- was donated, which is only 10% of the gross receipts; in the assessment year 2012-13, the gross receipts was ₹.5,59,97,254/- out of which ₹.34,37,500/- was donated, which is only 6% of the gross receipts; and in the assessment year 2013-14, the gross receipts was ₹.5,63,26,222/- out of which ₹.3,02,01,137/- was donated, which is 53.64% of the gross receipts. From the above details, it is very clear that the assessee has spent to the extent of very small portion of its income earned by giving it to other charitable organization. Therefore, the activity of the assessee of constructing commercial complex, letting out the same and earning of income out of which giving a small portion to other charitable organization cannot be treated as charity. The activity carried out by the assessee was neither relief to poor nor medial relief or education. Therefore, the provisions of section 2(15) of the Act clearly applies to assessee’s case. For the sake of convenience, section 2(15) of the Act is extracted as under: [(15) charitable purpose includes relief of the poor, education [Yoga], medical relief, [ preservation of environment (including water-sheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic 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 the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention of the income from such activity, unless – (i) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility and (ii) the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities of that previous year]] From the above, it is clear that if the assessee has to claim relief under charity, it has to carry out charitable activities of relief to poor or education or medical relief. In the case in hand, the assessee neither carried out any activity relating to relief to poor nor education or medical relief.
Therefore, the provisions of section 2(15) of the Act clearly attracts in the case of the assessee, i.e., other object of general public utility. Therefore, the Assessing Officer has rightly decided that the assessee has not carried out any charitable activity and not entitled for claiming deduction under section 11 to 13 of the Act. The ld. CIT(A), without examining any material documents and provisions of section 2(15) of the Act, simply reversed the order passed by the Assessing Officer. We find that the order passed by the ld. CIT(A) is without any material and any basis. Therefore, the order passed by the ld. CIT(A) has to be reversed.
8.2 In so far as donation given to the other charitable organization is concerned, only 10% of the assessee’s income was donated to other Trust/organization, which is only an incidental activity, though; it is not a main objective of the assessee. Once, the assessee has not carried out its main objectives and only carried out an incidental activity, it cannot be said that the assessee was carrying charitable activities and therefore, the provisions of section 2(215) clearly applies to the assessee’s case.
8.3 The decision of the Hon’ble Supreme Court in the case of CIT v. Rajasthan & Gujarati Charitable Foundation Poona 402 ITR 441 relates to depreciation to be allowed on assets so purchased by the trust having 12A registration.
8.4 In the case of India Trade Promotion Organization v. DGIT(E) 371 ITR 333 (Delhi), the Hon’ble Delhi High Court has held that the expression ‘charitable purpose’ as defined in section 2(15) cannot be construed literally and in absolute terms and it has to take colour and be considered in context of section 10(23C)(iv), thus, if dominant and prime objective of institution was not desire to earn profits but, object of promoting trade and commerce not for itself, but for nation, it was clearly a charitable purpose. The above case law has no application to the facts of the present case for the reason that the assessee has carried out construction activity and by letting out it to the corporate houses, earned rental income without carrying any charitable activity.
8.5 In the case of Institute of Chartered Accountants of India v. DGIT(E), the Hon’ble Delhi High Court has held that where dominant objective of ICAI was to regulate profession of Chartered Accountancy in India, it was a charitable institution and conducting coaching classes and campus placements for a fee could not be held as business as per section 2(15). The above case law has no application to the facts of the present case for the reason that the assessee has carried out construction activity and by letting out it to the corporate houses, earned rental income without carrying any charitable activity.
8.6 We have also gone through the other decisions placed in the form of paper book. None of the case law relied on by the assessee speaks that the assessee is eligible for claiming deduction under section 11 to 13 of the Act just because the assessee is having 12A registration and carrying out only construction of multi-storied buildings the rental income earned by letting it out to corporate business houses without carrying out any charitable activity such as relief to poor or education or medical relief. Thus, the case law relied on by the assessee are rejected.
8.7 Further, as relied on in the CIT(A)’s order in the case of Willington Charitable Trust 330 ITR 24, the Jurisdictional High Court held that when a business income was used towards the achievement of the object of the trust it would be incidental to the achievement of the object of the trust notwithstanding the profit and gain involved therein. That section 11(4A) of the Act did not exclude section 11(1)(a). The exemption under section 11(4A) would be available only when the business was incidental to the attainment of the object of the trust. The above case law has no application to the facts of the present case for the reason that the assessee trust was created and granted 12A registration for carrying out its objects. The assessee’s objects are reproduced at para 3 page 5 & 6 hereinabove. The Income and Expenditure Account shows that the assessee has not incurred any expenditure in the nature of charity, in fact, no charitable activity has been carried out by the assessee for which it was established besides carrying out construction and leasing out the buildings to corporate houses and earning income become the main activity of the assessee. The income earned out of construction of multi- storeyed building and leasing out to corporate houses was not at all applied for any of the charitable activity except payment of a small amount of donation. Out of the total income of ₹.3,58,21,185/- for the assessment year 2011-12, only ₹.36,06,166/- was paid as donation out of which, a sum of ₹.25 lakhs was paid to a trust which was managed by one of the trustee viz., Smt. Meena Muthiah. If payment of a small amount is treated as charity, then everyone who pays a small amount of donation may claim charity. The assessee can claim deduction under section 80G for the above payment of donation and not exemption under section 11 of the Act. The other case law filed in the form of paper book has no application to the facts of the present case for the reason that there was no case of earning income and not applied for carrying out charitable activity on par with assessee’s case. In view of the above facts and circumstances, we set aside the order of the ld. CIT(A) for all the assessment years under appeal and that of the Assessing Officer is restored. Thus, the ground raised by the Revenue is allowed for all the assessment years under appeal.
The appeals filed by the assessee for the assessment years 2010- 11, 2012-13 and 2013-14 are delayed by one day in filing the appeal, for which, the ld. Counsel for the assessee has filed a petition in support of an affidavit for condonation of the delay, to which; the ld. DR has not raised any serious objection. Consequently, since the assessee was prevented by sufficient cause, the delay of one day in filing of the appeal stands condoned and the appeal is admitted for adjudication.
9.1 The only effective common ground raised in the assessment years 2010-11, 2012-13 and 2013-14 relates to confirmation of disallowance of depreciation claimed by the assessee. The ld. Counsel for the assessee has relied on the decision of the Hon’ble Supreme Court in the case of CIT v. Rajasthan and Gujarati Charitable Foundation 402 ITR 441 and prayed that the same may be followed.
9.2 We have heard the rival contentions. The Assessing Officer disallowed the claim of depreciation of the assessee in the above assessment years on the ground that the depreciation claimed by the assessee cannot be allowed since the cost of the asset was already claimed as application of income and concluded the assessment under section 143(3) r.w.s. 147 of the Act for the assessment year 2010-11 and section 143(3) of the Act for the assessment years 2012-13 and 2013-14, which was confirmed by the ld. CIT(A) on appeal.
9.3 We have perused the decision of the Hon’ble Supreme Court in the case of CIT v. Rajasthan and Gujarati Charitable Foundation (supra), wherein, the Hon’ble Supreme Court has held that even though the cost of asset was allowed as application of income in the year of acquisition of asset, the charitable institution is still entitled for depreciation. By respectfully following the judgment of the Hon’ble Supreme Court in the case of CIT v. Rajasthan and Gujarati Charitable Foundation (supra), the orders of the authorities below are set aside and the Assessing Officer is directed to allow the depreciation as claimed by the assessee for the assessment years 2010-11, 2012-13 and 2013-14. Thus, the ground raised by the assessee is allowed.
9.4 In the grounds of appeal, the assessee has also challenged reopening of assessment under section 147 of the Act in the assessment year 2010-11. However, during the course of hearing, the ld. Counsel for the assessee has not pressed the ground by making endorsement as “reopening ground not pressed”. Thus, the ground raised by the assessee is dismissed as not pressed in the assessment year 2010-11.
In the result, all the appeals filed by the Revenue are allowed. The appeal filed by the assessee for the assessment year 2010-11 is partly allowed and the appeals for the assessment year 2012-13 and 2013-14 are allowed.
Order pronounced on 24th February, 2022 at Chennai.