Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “G” Bench, Mumbai
Before: Shri B.R. Baskaran (AM) & Shri Ramlal Negi (JM)
THE INCOME TAX APPELLATE TRIBUNAL “G” Bench, Mumbai Before Shri B.R. Baskaran (AM) & Shri Ramlal Negi (JM)
I.T.A. No. 2176/Mum/2016 (Assessment Year 2011-12) I.T.A. No. 7235/Mum/2016 (Assessment Year 2012-13)
M/s. Muniwar Abad Dy. DIT(E)-I(1) Vs. Charitable Trust 6th Floor 405A/407, Jolly Bhavan Piramal Chambers No. 1, 10, New Marine Lalbaug, Parel Lines, Mumbai-400 020. Mumbai-400 012.
PAN : AAATM0140K (Appellant) (Respondent)
Assessee by S/Shri Porus Kaka, Manish K. Kanth & Mayank V. Thosar Department by Shri V. Vidhyadhar Date of Hearing 16.07.2018 Date of Pronouncement 11.10.2018
O R D E R Per B.R. Baskaran (AM) : Both the appeals filed by the assessee are directed against the orders passed by Ld CIT(A)-1, Mumbai and they relate to the assessment years 2011- 12 and 2012-13. Since identical issues are contested in these appeals, they were heard together and are being disposed of by this common order, for the sake of convenience.
We shall first take up the appeal filed for AY 2011-12, wherein following issues are contested:- (a) Whether the AO was justified in rejecting the claim for exemption u/s 11 of the Act.
(b) Whether the AO was justified in rejecting the claim for accumulation of income u/s 11(2) of the Act.
The facts of the case are discussed in brief. The assessee is a trust and the same is registered as a Charitable Trust u/s 12A of the Act under Registration No.Tr/5215 dated 01-08-1975. It is also registered with Charity
2 M/s. Muniwar Abad Charitable Trust
Commissioner, Mumbai, vide registration No.E-4857. The assessee, inter alia, is building residential flats and providing them at subsidised rates to lower income and middle income group.
The first issue relates to the rejection of claim for exemption u/s 11 of the Act. The AO took the view that the assessee is engaged in various commercial activities and hence it is hit by the proviso to sec.2(15) of the Act. The provisions of sec.2(15) defines "Charitable purpose” and the same reads as under:- 2(15) “charitable purpose” includes relief of poor, education, medical relief, preservation of environment (including watersheds, 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.
Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is ten lakh rupees** or less in the previous year.
(** twenty five lakh rupees w.e.f. 1.4.2012)
The assessee submitted that the activities carried on by it would fall under the category of “relief of poor” and hence the first proviso to sec.2(15) would not apply to it as explained by the CBDT in Circular No.11 of 2008. The AO, however, took the view that the charitable activities carried on by the assessee would fall under the category of “advancement of any other object of general public utility”. The AO also took the view that the activities of the assessee of providing accommodation by purchasing land, construction flats and selling them is a clear commercial activity as a builder or developers.
3 M/s. Muniwar Abad Charitable Trust
During the year under consideration, the assessee has sold a land admeasuring 71 sq.mtrs for a sum of Rs.37.50 lakhs. The AO considered the same also as commercial activity. Accordingly the AO held that the assessee is not eligible for exemption u/s 11 of the Act as the activities of the assessee are hit by the proviso to sec. 2(15) of the Act. Accordingly he rejected various contentions urged by the assessee. For the sake of convenience, we extract below the relevant observations made by the AO in the assessment order:-
“3.3 On perusal of the above submission of the assessee, it is seen that the claims of the assessee trust can be summarized as under:
a) It is the contention of the assessee that the assessee trust is engaged in relief to poor amendment to provisions of section 2(15) w.e.f. 01.04.2009 are not applicable to its case;
The argument of the assessee is devoid of merit as it is ample clear from the activity of the assessee that the assessee is engaged in development of houses. By no stretch of imagination the activity of development of any house/land and to sell on either market rate or below the market rate can be considered as relief to poor. It is not denied that the assessee is engaged in developing housing colony/land on various sites and selling them to various clients. The above activity which provides housing facility to general public is clearly falls with the advancement of any other object of general public utility and not any relief to poor. Therefore, the contention of the assessee cannot be acceptable.
b) The assessee has also contended that it is not engaged in any commercial activity and even one transaction of sale of land cannot be construed as business activity:
The contention of the assessee is contradictory of the facts of the case. As discussed in the above para, the main object of the assessee is providing housing accommodation to various categories of people. For this the assessee has to sell/purchase the land and develop the same as housing society. This activity is nothing but a clear commercial activity as a builder or developer. Therefore, it is clearly concluded that the activity of the assessee is falls under the category of commercial/business activity. Moreover, as decided by the Hon'ble Supreme Court in various case laws that even one transaction can be constituted as business activity. In view of the same, the contention of the assessee cannot be accepted.
4 M/s. Muniwar Abad Charitable Trust
c) The assessee has also contended that in view of the CBDT Circular No.11 of 2008 the provisions of amended proviso to section 2(15) cannot be applicable to the assessee.
It is seen that the assessee has grossly misunderstood the contents of the CBDT Circular No. 11 of 2008 and as well as the amended provision of proviso to section 2(15). Regarding the contention that the assessee mentioned the object of relief to poor in its trust deed, therefore, the provisions of section 2(15) are not applicable to the assessee's case, It is pertinent to mention here that merely mention in the trust deed cannot constitute to the assessee that it is engaged in relief to poor. The major activity of the assessee is acquiring land and developing the housing society which is clearly a commercial activity. However, the Hon'ble Supreme Court in the case of Lok Shikshan Sansthan and CIT Vs. Labour Electric Supply Co. Ltd. (60 ITR 1) observed that what has to be considered is the result of an activity and net the motive of the person or the object of the trust. Therefore, the result of the activity has to be considered. In view of the above, discussion the contention of the assessee cannot be accepted.
d) It is further claim of the assessee that only sale of land cannot be treated as commercial activity.
The contention of the assessee is grossly misunderstood of the facts and various judicial pronouncements of various Hon'ble Court wherein it is clearly held that even a single transaction can be treated as a business activity being an adventure in nature of trade. Moreover, the assessee is regularly and every year acquiring and selling the land and developing the housing projects. If in the year under consideration, the assessee is not able to do much activity and only entered into a single transaction, that doesn't mean that assessee is not engaged in any commercial activity.
e) It is further a claim of the assessee that it is not engaged in any commercial activity:
The contention of the assessee cannot be accepted for the following reasons:
i) Admittedly, it has been stated that the assessee is engaged in providing homes to various category. It is also not denied that this type of activity is very much commercial in nature. For providing home, one has to acquire the land and develop the housing society as a builder/developer. It is also correct that sometime every partial of land cannot be developed, and the same has to be shown without developing.
5 M/s. Muniwar Abad Charitable Trust
This activity that is acquired the land and sale the same without developing is also incidental to the business of builder/ developer. The assessee is also doing the same thing. In view of the above the contention of the assessee that it is not engaged in any commercial activity cannot be acceptable.
ii) From the plain reading, it can be understood- that business includes any trade, commerce or manufacturing or concern in the nature of trade, commerce or manufacture. In the case of Mazgaon Docks Ltd. v/s CIT (34 ITR 368, 376 (SC) it is explained that business is a word of wide import and is fiscal statues, it must be considered in a broad manner nature than in a restrict sense. Business has been defined in the case of following decision:
CIT V/s Motilal Heerabai Spinning & Wvg. Co. Ltd. (113 ITR 173) CIT V/s Bharat Development Pvt. Ltd. (133 ITR 470) CIT V/s Narayan Swadeshi Weaving Mills (26 ITR 765) .
The activity of the assessee are primarily as under:
a) Acquiring the land. b) Developing the housing projects. c) Selling / Leasing of houses. One can make out a clear conclusion from these activities that developing the housing project after providing various infrastructures and selling the same is very much i commercial in nature. In view of the same, the activities of the assessee can very much conclude as commercial activity.
f) The assessee has also contended that there is no profit motive in any of objects or activities at all & hence the main ingredient is absent- Here it is pertinent to mention that the motive is a subjective thing which has to be determined in view of the facts and circumstances. The financial activities of the assessee year after year shows that the assessee is generating huge profits in the name of surplus which shows that though the assessee is taking argument that it is not making any profit, however, the reality is a complete contrast to its claims. It is further seen that existence of the assessee with a profit motive' is not a pre-condition for disqualification of the assessee as a charitable entity w.e.f. 01.04.2009 under the amended definition as per section 2(15). Further the assessee clearly mentions in its submission dated 16.08.2013 in annexure 1 about one of its housing project at Vapi as under:
6 M/s. Muniwar Abad Charitable Trust
"Vapi Hosuing Project- Work In progress
During the year, the trust has started construction of 192 flats of the trust's land at Vapi (Gujarat) for providing 90 flats at subsidized rate to Economically weaker section families and 102 flats at little above construction cost to Middle Income group families with a view to cross subsidies the cost of the project. A sum of Rs. 1,43,83,428/- has been spent during the year."
It is clearly seen that the little above construction cost is nothing but it is a form of Profit only. In view of the above, the contention of the assessee that the amended provisions of the proviso to section 2(15) of the IT. Act are not applicable to the assessee's case appears to be devoid of merit.
Further in support of its claim, the assessee has relied on various case laws in its submission. It is pertinent to mention here that the facts of the case relied upon by the assessee are different from this case. Therefore, the same has to be looked into in light of the provisions of amended proviso to section 2(15) of the IT Act.”
The Ld CIT(A) also confirmed the view taken by the assessing officer.
We heard the parties and perused the record. A careful reading of provisions of sec. 2(15) would show that the provisos to sec.2(15) shall apply only to those charitable purposes which fall under the category of “advancement of any other object of general public utility”, i.e., the provisos shall not apply to the charitable purposes, which fall under the category of “relief of poor”, “education” or “medical relief”. This is so clarified by the CBDT in its Circular No.11/2008 dated 19-12-2008.
There is no dispute with regard to the fact that the main objective of the assessee is to provide housing accommodation. The main objective of the assessee reads as under:- “(a) to provide the homeless and or the poor and or the low income group individuals and or families and or deserving people and or middle class individuals and or families housing accommodation and or to assist any one or more of them in obtaining and or acquiring housing accommodation and for the purposes aforesaid to erect, construct, establish, acquire and maintain houses, flats, apartments tenements, structures and buildings and to allow the same to be used either on rental basis and or on leave and license basis and or
7 M/s. Muniwar Abad Charitable Trust
on any other basis upon such terms and conditions as the Trustees may from time to time decide.
(b) to make available houses, flats, apartments tenements, structures and buildings comprised in the trust fund for the use of the homeless and or the poor and or low income group individuals and or families and or deserving people and or middle class individuals and or families either on rental basis and or on leave and license basis and or any other basis upon such terms and conditions as the Trustees may decide and to charge economic or nominal rent or compensation and or such other consideration as may be determined by the Trustees.”
Other clauses of objectives are provide for repairing of tenements, promotion of housing association, promoting/assisting other institutions in this regard, compensating poor towards rent, opening of schools, hostels, give scholarships, promotion of hospitals etc.
The assessee has been carrying its objective of constructing houses and allotting them to the Lower income Group at subsidised rates and to middle income group at a price little over cost rate. The little profit earned in the sale of flats to middle income group was used to cross subsidise the loss and ultimately the project has resulted in deficit only, meaning thereby, the assessee has partially funded the cost of project in order to attain its objective of providing housing accommodation to poors.
There is no dispute with regard to the fact that the assessee had constructed flats in Versova area, Jogeshwari area, Pune, Vapi of Gujarat in the past and allotted them to the Lower and middle income groups. The details are available in page 5 of the assessment order. In all these projects, the assessee has incurred a sum of Rs.1386.17 lakhs in construction of flats and recovered only Rs.1020.25 lakhs, thus meeting the deficit of Rs.365.92 lakhs out of its own funds. The deficit so met by the assessee was to adhere with its objectives. Thereafter, the assessee has also been contributing to the repairs and renovations of tenements in accordance with its objectives. All the tenements are mainly sold to Lower Income Groups except in the case of Vapi
8 M/s. Muniwar Abad Charitable Trust
Project, sum of tenements have been sold to middle income group at a price little above the cost price, but still at subsidised rates. We notice that, all along, the revenue has accepted these activities of the assessee as charitable in nature aimed at relief to poor. The ld A.R invited our attention to the assessment order passed in the hands of the assessee in AY 1979-80, which is placed at page 179 of the paper book. In the said assessment order, the then assessing officer has accepted that the one of the objects of the assessee is to provide accommodation to homeless and or poor or the low income group of individuals. Similar is the position in AY 1980-81 also. However, there was no necessity in all these years to identify as to whether the activities carried on by the assessee falls in the category of “relief of poor” or under “any other object of general public utility”, till the time the provisions of sec. 2(15) was amended w.e.f. 1.4.2009. After introduction of the provisos to sec.2(15), the AO has held that the activities carried on by the assessee fits in the category of “advancement of any other object of general public utility”.
Even though the provisos to sec. 2(15) were introduced from 1.4.2009, i.e., from AY 2009-10, the AO has chosen to invoke the provisos only in Ay 2011-12 and 2012-13. The reason is that the assessee has sold a portion of land in the year relevant to AY 2011-12. The AO has considered the same as commercial activity and in that process, he has also taken the view that the process of purchase of land, construction of flats and sale of flats constitute commercial activity. Accordingly he has taken the view that the objects of providing subsidised accommodation would fall under the category of “any other object of general public utility”, while the claim of the assessee is that its activities fall under the category of “relief to poor”.
We have earlier noticed that the assessing officer has observed in AY 1979-80 that one of the objectives of the assessee is to provide accommodation to poor and homeless people. In the assessment year 1980-81 also, the AO has observed that the assessee is subsidising the cost of flats for the purposes of poor people. We have noticed that the assessee has applied its funds for
9 M/s. Muniwar Abad Charitable Trust
subsidising the flats sold to the LIC group. Even though, the AO has stated that the assessee has sold flats to MIG flats for a profit, yet it is noticed that the overall results of the project was in deficit only. Ultimately, the assessee has applied its funds for subsidising the flats allotted to the poor and needy people.
The AO has taken the view that the activity of buying land, constructing flats and selling them are in the nature of commercial activities carried on by a builder. No doubt, the said activities are akin to the activities carried on by a builder, but the moot point here is that a builder will not subsidise the flats and knowingly incur losses. The AO has observed that the assessee has been generating huge surplus year after year. We notice that the above said observation of the AO does not appear to be correct if we look at the financial statements of the assessee. We notice that the surplus is generated from out of other income of the assessee and not from the project of constructing and selling flats to the poor and needy at subsidised rates. Hence “absence of profit motive” supports the claim of the assessee that it is providing “relief to poor”. We may explain it by taking example of medical relief. Now days, many corporates have started Hospitals as a commercial activity and we have also got charitable hospitals. Merely because both the persons are carrying on same type of activities would not render charitable hospitals into commercial ones. The dominant objective in running the hospital determines the nature of activities. If the dominant objective is to earn profit, then it is commercial activity. On the other hand, the dominant nature is to serve people by providing medical relief to them, then it is charitable in nature. It is also well settled proposition that the charitable activities carried on by the assessee may result in surplus, but the same will not render the trust as non-charitable in nature. In the instant case, the assessee has not made any surplus from out of any of the projects. Hence the dominant objective of the assessee is to provide accommodation to the poor and needy people. Hence the legislature, in its wisdom, has made the provisos not applicable to “Education”, “medical relief” and “relief to poor”, i.e., even if the activities carried out in furtherance of
10 M/s. Muniwar Abad Charitable Trust
above said objectives may result in carrying on certain commercial activities, yet it would not be hit by the provisos to sec. 2(15) of the Act. We notice that the AO has taken the view that since the activities carried on by the assessee are commercial in nature, it would not fall under the category of “relief to poor”. In our view, the approach of the AO was not correct. One has to determine the object of the charitable trust first, i.e., whether it would fall under the category of advancement of education, medical relief, relief to poor or any other object for advancement of general public utility. Thereafter, one has to examine the nature of activities carried on by the charitable trust as to whether the same is in the nature of commercial activities or not. Then one has to examine the applicability of the provisos to the charitable trust.
The AO has also taken the view that the assessee has sold a land acquired by it in the earlier year and it constitutes commercial activity. We notice that the assessee had purchased 20,366.90 Sq.mts of land in the year 1973 at Yari Road in the village of Versova, off Andheri, Mumbai. The assessee trust constructed 344 flats during the years 1978 – 1985 and provided the flats at subsidised rates to Economically Weaker Section, after obtaining permission from Charity Commissioner, Mumbai. Out of the above land, a piece of land admeasuring 71 Sq. mts., was located on the other side of Road and hence the assessee could not effectively use it for its purposes. It was a narrow strip of land and it was lying idle. Since there was threat of encroachment, the assessee has sold the same for a sum of Rs.37.50 lakhs during the year under consideration, after obtaining due approval from the Charity Commissioner. The AO has treated the same as commercial activity and has also expressed the view that single sale instance may also fall under the category of commercial activity.
A perusal of the history narrated above would show that the assessee has sold the narrow strip of land, as it is separated from the main stream of land by the road and the assessee could not effectively use it. The entire land was purchased in the year 1973 and a small strip was sold during the year
11 M/s. Muniwar Abad Charitable Trust
under consideration. The assessee has also given credible reason for selling the land and the Charity Commissioner has also approved the sale after evaluating the plea of the assessee. Hence, we are of the view that there is no justification in treating the sale as a Commercial activity. In the case of CIT vs. Sri Magunta Raghava Reddy Charitable Trust (2017)(398 ITR 663), the Hon’ble Madras High Court has held that the sale of unusable land by a trust running educational institutions cannot be considered to be a commercial activity. Accordingly we are of the view that the land sold by the assessee cannot be fall under the category of commercial activity.
In view of the foregoing discussions, we are of the view that the activities carried on by the assessee in the nature of selling flats to the poor and needy at subsidised rates would fall under the category of “relief to poor” within the meaning of sec. 2(15) of the Act. In that case, the provisos to sec. 2(15) of the Act would not be applicable to the assessee. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to allow benefits u/s 11 of the Act to the assessee.
The next issue contested by the assessee relates to the denial of deduction for accumulation of income u/s 11(2) of the Act. In the return of income, the assessee had claimed deduction for accumulation of income u/s 11(2) of the Act. Even though the AO had held that the assessee is hit by the provisos to sec. 2(15) of the Act and hence not eligible for deduction u/s 11 of the Act, yet he proceeded to examine the claim for accumulation u/s 11(2) of the Act with the observation that even if the assessee is held to be eligible for exemption u/s 11 of the Act by the appellate authorities, the assessee will not be eligible for deduction u/s 11(2) of the Act for accumulation of income. The relevant observations made by the AO are extracted below:- 4 Disallowance of accumulation made u/s 11 (2) of the I.T. Act (Alternatively):
4.1 It is seen that during the year relevant to the assessment year the assessee has claimed accumulation u/s. 11 (2) of Rs.5,36,00,000 /-. Even otherwise if the assessee will make eligible for exemption u/s 11 by the
12 M/s. Muniwar Abad Charitable Trust
appellate proceedings, the accumulation made u/s 11 (2) should not be allowed as discussed in succeeding paras:
4.2 It is seen that the trust has claimed accumulation u/s 11(2) for Rs.5,36,00,000/-during the year. It is further seen that Resolution passed by the Trust dated 26th September 2011 enclosed with the Form No. 10 reads as under:-
RESOLUTION
"RESOLVED THAT out of the income of the previous year relevant to A.Y.2011-12 and subsequent four years such sums as exceeds 15% of the total income of the Trust for each of the said year be accumulated or set apart till the previous year ending 31st March, 2015 in order to enable the Trust to accumulate sufficient funds for carrying out the following purposes of the trust:-
a) To purchase suitable plots of lands/housing sites at any place in India for construction of housing for the families of economically weaker section of the society and families of middle income group.
b) To construct or acquire suitable residential units, flats and tenements for providing shelters and or otherwise accommodating the homeless, low income/middle class individual and or families either at concessional rate or without consideration.
c) To undertake or carry out major repairs and renovation of the houses/buildings (including structural repairs and reinforcement thereof) rendered into dilapidated/ vulnerable conditions due to natural calamities or otherwise which are in the occupation of the families of individuals of economically weaker section of society, who are not in a position to bear the cost involved with a view to make such houses/buildings safe, secure and sustainable for their habitation.
d) To construct multipurpose hall at the housing complex developed/to be developed. e) To purchase office premises for the trust f) To set us primary/secondary school educational and other institutions, research centers, laboratories, vocational training centers and quip the same. g) To set up health, centers, clinics, dispensaries, maternity homes, diagnostic centers, nursing homes and quip the same.
Resolved further that any on the present trustees i.e. Mr.Nasser Mukhtar Munjee, Mr. Pyarali Ismail Firasta, Dr. Naushad Ismail Padamsee, Mr. Sherali Hansanali Karim, Mr. Ahmed Akbarali Sundrani, Mrs, Bilkis
13 M/s. Muniwar Abad Charitable Trust
Akbar Merchant and Mr. Akbar Fazal Dhala be and is hereby authorized to sign the resolution and to give notice in writing to the assessing officer for accumulation of the amount U/s 11(2) (a) of the Income Tax Act, 1961.
4.3 The above resolution shows that the Accumulation is sought to be made for various general purposes and no specific and concrete projects are contemplated for utilization of these accumulated funds but purpose of accumulation is vague. Further, no specific fund is created in the books of accounts setting aside these funds for a specific project. In this connection, your attention is drawn to the ratio of DIT (E) Vs Trustees of Singhania Charitable Trust 199 ITR 819 wherein the Hon'ble Calcutta High Court has held that the accumulation is permissible only if detailed specific purpose is specified by the assessee. ……. 4.7 The above purposes are general in nature and cannot construed by any stretch of imagination to be definite and concrete purpose or purposes. The Assesses has also not been able to substantiate its above purposes of accumulation with any concrete plan of action supported with documentary evidences. The above purpose thus remains non concrete and cannot be considered definite. The mandate of the Hon'ble Calcutta High Court is very clear on the issue. The fulfillment of requirements for accumulation u/s.11(2) are statutory and in case of non-compliance of the same, such accumulation is not permissible and allowable under law. In view of the same the benefit of accumulation U/s 11 (2) is denied to the Assessee for not being for definite and concrete purposes and the amount of Rs.5,36,00,000 is included in the total income of the Assessee for the year. In view of the discussion above, the alternative computation of income u/s 11 will be as under:
Particulars Amount (Rs.) Amount (Rs.) Less: Establishment Expenses Income & 77,20,4317- Expenditure A/c Amount accumulated or set apart @ 1,08,09,2337- 15% of Rs 7,20,61, 5517- Amount accumulate du/s 11(2) but 5,36,00,0007- 1,85,29,6647- not allowed as discussed above
Total Taxable Income 5,35,31,8877-
The Ld CIT(A) also confirmed the view taken by the AO.
14 M/s. Muniwar Abad Charitable Trust
We notice that the AO has rejected the claim for accumulation only for the reason that the assessee has stated multiple objects in the “purpose of accumulation.” We notice that the AO had made identical disallowance in AY 2009-10 also for the reason that the assessee has stated multiple objects in the “purpose of accumulation”. The matter has reached the Tribunal in AY 2009-10. The Tribunal, vide its order dated 22.03.2013 passed in ITA No.171/Mum/2013, has allowed the accumulation made by the assessee u/s 11(2) of the Act. For the sake of convenience, we extract below the operative portion of the order passed by the Tribunal in AY 2009-10:-
We have carefully considered the rival submissions in the light of material placed before us. Copy of trust deed as has been mentioned earlier is filed in the paper book from pages 20 to 53 of the paper book. The objects are stated in clause (3) from sub-clause (a) to (z). From sub- clause (a) to (f) the object is stated to be providing accommodation to the homeless and or poor or low income group individuals and the housing facilities and assistance to them and to pay rent etc. for the needy persons. This also includes help and assistance to the association involved in similar activities. From sub-clause (g) to (k), the objects are regarding education and from sub-clause (l) to (m) the object is providing medical facilities. In sub-clause (n) the charitable object is stated to provide help to the aged persons and in remaining clauses the object stated is providing services of general utility to the needy persons. In short all the objects stated in the trust deed relates mainly to three activities; (i) to provide housing facilities to poor and need persons; (ii) to provide education and(iii) to provide medical facilities. The assessee trust has been recognized by the Commissioner as charitable institution and such status of the assessee is subsisting. Therefore, there cannot be any doubt that the objects stated by the assessee in the trust deed are in the nature of charitable activity. It is also not the allegation of the AO that the assessee trust is not carrying out charitable activities. The AO has only denied the benefit of accumulation of unspent income as provided in section 11(2). The objects for which the accumulation has been sought in the year under consideration have already been reproduced in para-5 of this order. The objects for which the accumulation was permitted by ITO in respect of immediate preceding assessment year i.e. for A.Y 2008-09 are also reproduced in para-5.4 of this order. The objects of accumulation for A.Y 2006-07 and 2007-08 are reproduced in paras 5.2 & 5.3 respectively. If the objects of accumulation of unspent income for assessment year under consideration are compared with the objects of accumulation of unspent income which have been accepted by the AO in A.Y 2008-09, then it will be observed that all the objects are same except
15 M/s. Muniwar Abad Charitable Trust
addition of object stated in sub-clause (c), which is the object to undertake or carry out major repairs and renovations of the houses/ buildings rendered into dilapidated and vulnerable condition due to natural calamities or otherwise which are in the occupation of the families of individuals of the economically weaker sections of the society who are not in a position to bear the cost involved with a view to make such houses/buildings, safe and secure and sustainable for their habitation. The said object is in accordance with the main object of the trust which requires to provide housing facility to weaker sections of the society. So additional object placed during the year under consideration cannot be said to be not falling within the main object of the assessee trust. Sub- clause (a) to (d) of the objects stated in the resolution are for the purpose of providing accommodation facilities to the weaker sections of the society and families of middle income group. Sub-clause (e) providing for purchase of office premises of the trust. Sub-clause (f) is for providing education facilities and clause (g) for providing health facilities. Thus all the objects stated in the resolution for the purpose of accumulation are within the main objects of the assessee trust and they are in the nature of charitable activity. The objection of the revenue is that the objects stated in the resolution passed for accumulation of unspent income are general in nature. They are not definite and concrete. As against this it is the case of assessee that considering the nature of charitable activities carried on by the assessee, it will be necessary to accumulate huge funds as the project of providing accommodation to needy persons will require huge investment depending upon locality and the size of the project, therefore, accumulation of large funds is required to fulfill the objects. For the purpose of fulfilling these objects assessee is accumulating unspent income from year to year. According to the provisions of the Act such accumulation has been permitted to be for a period of 10 years and where the project of the assessee involves huge investment and activity then it will take long time to take its shape and this position. Such situation has been recognized in the decision of ITAT in the case of Sir Shobha Singh Public Charitable Trust vs. ADIT (supra). In that case the assessee had stated six different objects for accumulation of unspent income out of 19 objects mentioned in the trust deed and it was the case of revenue that the objects for which accumulation has been sought are general in nature and were multiple objects. In that case also heavy reliance was also placed by the revenue on the decision of Hon’ble Calcutta High Court in the case of Trustees of Singhania Charitable Trust (supra). Considering those submissions, the observations of Third Member are as under:
“22. I have examined the rival contentions and have also perused minutely the orders passed by the learned Members constituting the Division Bench. Both the learned Members have set out at length the facts of the case as also the scheme of the Act vis-a-vis the point under consideration. There is definitely a distinction between the two relevant provisions of the Act—one allowing accumulation upto
16 M/s. Muniwar Abad Charitable Trust
25 per cent of the income where the objects do not have to be specific and the other allowing accumulation upto 75 per cent of the income and the period of accumulation being as long as 10 years but setting out specific objects. In the present case, the assessee while applying for accumulation in Form No. 10 mentioned six objects out of 19 and a minute perusal of these shows with reference to p 7 of the order of the learned A.M. that the first three broadly pertained to education since they mention about setting up of schools, colleges, libraries, reading rooms and hostels for boys and girls studying in school and colleges, etc. The next three objects i.e. 4, 5 and 6 are in the field of medical education and medical aid since these pertain to the setting up of health centres, nursing homes, maternity centres as also construction of Dharamshalas or Sarais in or around hospitals in Delhi or New Delhi to accommodate poor patients and their attendants. The setting out of six objects in the application for accumulation indicates due application of mind on the part of the trustees since they decided to confine themselves to two important aspects of charitable activities i.e. education and medical aid whereas in the trust deed there were 19 objects, some quite unconnected with the two categories in which the six objects can be categorized. In the judgment of the Calcutta High Court (supra) heavily relied upon by the Revenue all the objects of the trust were mentioned in the application in Form No. 10 and their Lordships considering this aspect of the matter took the view that there was no preciseness or definiteness or specifics about the objects and these were general and vague. Their Lordships, however, did not rule out the plurality of the purposes for which accumulation was intended. In the present case, the learned A.M. has rightly held after considering the provisions of law, facts of the case, the decisions cited, and lastly the judgment of the Hon’ble Calcutta High Court itself in the case of Singhania Charitable Trust (supra) that the assessee was entitled to accumulate the funds as provided under s. 11(2) of the Act since the application in Form No. 10 did mention specific objects/purposes for which the accumulation had been requested for. The learned counsel for the appellant, in my opinion, has rightly contended that it is not possible to specify the type of educational institution or medical institution which would be set up during the period of 10 years following and the assessee would be quite justified in making up its mind during the said long period and deciding at whatever stage it was feasible or practicable to work out the modalities vis-a-vis the type of institution which it wanted to set up and the nature of charitable activities which it wanted to engage itself in. It has been noted by both the learned Members of the Division Bench and on which there is no difference that the concession was provided by the Act:
17 M/s. Muniwar Abad Charitable Trust
“Perhaps to meet the contingency where the fulfillment of a project requires heavy outlay and calls for accumulation of funds as observed in the case of Singhania Charitable Trust
I would like to add further to this that a charitable institution which wants to accumulate its income for a long period of 10 years to carry out the charitable objects as set out in the trust deed does require time to think, time to plan and time to gamer its resources, etc. to fulfill those objects for which it has sought accumulation of funds and the legislature in its wisdom has allowed a long period of 10 years and I, therefore, really cannot appreciate the arguments of the learned Departmental Representative on behalf of the Revenue that even when the application for accumulation is filed the applicant trust must mention the type of institution medical or educational which it will set up as also the type of education or medical treatment which it will impart. This, in my opinion, was never the intention of the law-makers when the provision in the form of a concession was introduced whereby a charitable institution need not pay any tax on its income earned for a good period of 10 years provided it carried out charitable activities with a view to fulfilling the specific objects mentioned in the application seeking accumulation.
In the final analysis, I am of the view that the decision of the Hon’ble Calcutta High Court (supra) relied upon by the Department does not advance the Revenue’s case on the facts of the present case but the same in turn supports the viewpoint canvassed on behalf of the assessee. No other decision was relied upon by the learned Departmental Representative during the course of the hearing of the present reference as against which the learned counsel for the assessee reiterated reliance on certain decisions of the Tribunal which do advance the viewpoint canvassed. The current negotiations with the Delhi Government for acquiring land to set up Dharamshalas although a subsequent event does come in the period of 10 years for which accumulation was sought and even going by the argument of the learned Departmental Representative that the assessee has woken up towards the fag end of the decade stipulated my view is that this is not strictly relevant to the point at issue and if there is a violation of law on the part of the assessee, the same can be taken care of by other provisions of the IT Act, 1961. In conclusion, I agree with the view expressed by the learned A.M.” “emphasis ours”.
8.1 Therefore, according to aforementioned decision, so far as it relates to accumulation of unspent income, more than one object can be specified and accumulation cannot be denied just for the reason that there are multiple objects for which the accumulation has been sought.
18 M/s. Muniwar Abad Charitable Trust
8.2 According to the decision of Hon’ble Delhi High Court in the case of DIT(E) vs. Daulat Ram Education Society(supra) so long as one or more of the purposes specified by the assessee for accumulation of unspent income find place in the objects for which the society has been incorporated and so long as the purposes are charitable in character, the benefit admissible under section 11 must flow to the assessee. In the present case it is not the case of the revenue that any of the objects specified by the assessee in its resolution is either not charitable or the same did not figure in the objects stated in the Trust Deed. If it is so the benefit of accumulation under section 11(2) cannot be denied to the assessee.
8.3 Now coming to the decision of Hon’ble Bombay High Court in the case of CIT vs. State Bank of India (supra), which is relied upon by Ld. CIT(A) and Ld. D.R, we found that the said case has no application to the facts of the present case. In the said case the question regarding accumulation was not under consideration before Hon’ble High Court. It was an alternative contention of the assessee that to the extent of 25% the assessee could accumulate the income, therefore, on that ground the exemption to the extent of 25% should be allowed. On such request of the assessee their Lordships have observed that accumulation as mentioned in the provisions has to be conscious accumulation and not just mass of unexplained and unapplied profits. However, in the present case the assessee had stated specific purposes for accumulation of unspent income, therefore, in the present case accumulation is a conscious accumulation and it is not just mass of decision of Hon’ble Bombay High Court cannot be applied to the facts of the present case.
8.4 There is one more aspect upon which the stand taken by the revenue in this year cannot be accepted. It has already been pointed out that in A.Y 2008-09 for almost similar objects, the accumulation was permitted by way of an order passed under section 143(3) of the Act. The additional object taken during the year is regarding carrying out major repair and renovation etc. in the buildings which require such repair. In the note on activities submitted by the assessee before AO as reproduced in para 5.1 of this order, it was clearly mentioned that assessee trust was established in 1972 and it has provided housing colony to 338 families at subsidized rate in 1983. Similarly 93 flats were provided to deserving persons on subsidized rate in 1992 and 1996. Apart from these activities, the assessee has provided 684 units of house hold bath rooms under several rural development programmes and sanitary units also. Therefore, to make repair etc. of those buildings and other old buildings such object can be included which is in the line of object of the assessee trust for providing housing accommodation to the weaker sections of the
19 M/s. Muniwar Abad Charitable Trust
society. Therefore, the objects of accumulations sought are no more different from the objects for which the accumulation has been permitted in the earlier years. Earlier year orders have not been shown to be subject of either revision or reassessment. Therefore, revenue cannot take a different stand in the year under consideration as there is no material change in the facts and circumstances of the case. This is against the doctrine of consistency and is against the decision of Hon’ble Supreme Court in the case of Radhasoami Satsang 193 ITR 321 (SC), wherein their Lordship have observed that strictly speaking, resjudicata does not apply to Income Tax proceedings as each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as the fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not at all be appropriate to allow the position to be changed in a subsequent year in the absence of any material change justifying the revenue to take a different view of the matter. Moreover, the assessee has started spending the accumulated income towards objects and evidence in this regard was submitted. A period of ten years has been prescribed under the Act for the use of accumulated unspent income. The assessee has started the utilization of accumulated unspent income for the objects of the trust.
8.4 In view of the above discussions, we are of the opinion that benefit of exemption under section 11 cannot be denied to the assessee and assessee should be permitted to accumulate the unspent income for the year under consideration. Accordingly, we direct the AO to grant the benefit to the assessee for accumulation of unspent income and consequently allow the benefit of section.11.
Since the facts prevailing in the instant year are identical with the facts of AY 2009-10, following the order passed by the co-ordinate bench, we hold that the assessee is entitled for accumulation u/s 11(2) of the Act. Accordingly we set aside the order passed by Ld CIT(A) on this issue and direct the AO to allow deduction for accumulation made u/s 11(2) of the Act.
We shall now take up the appeal filed by the assessee for AY 2012-13. The issues contested in this year also relate to rejection of claim for exemption u/s 11 of the Act and also rejection of accumulation of income u/s 11(2) of the Act. The decision rendered by us in the preceding paragraphs in AY 2011-12 shall apply to this year also, as the facts are identical in nature. Accordingly we set aside the order passed by Ld CIT(A) in AY 2012-13 and direct the AO to
20 M/s. Muniwar Abad Charitable Trust
allow exemption u/s 11 of the Act as well as accumulation of income u/s 11(2) of the Act.
In the result, both the appeals of the assessee are allowed. Order has been pronounced in the Court on 11.10.2018.
SD/- SD/- (RAMLAL NEGI) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai; Dated : 11/10/2018 Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT 5. DR, ITAT, Mumbai 6. Guard File. BY ORDER, //True Copy// (Senior Private Secretary) PS ITAT, Mumbai