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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
O R D E R
PER D. KARUNAKARA RAO, AM:
This appeal filed by the Revenue on 7.9.2014 is against the order of the CIT (A) -1, Mumbai dated 13.5.2014 for the assessment year 2011-2012. In this appeal, Revenue raised the following grounds which read as under:- “1. Whether on the facts and circumstances of the case and in law, the Ld CIT (A) was right in allowing the claim of exemption u/s 11 in spite of the fact that the trust has violated the provision of section 11 of the Act.
2. Whether on the facts and in the circumstances of the case and in law, the Ld CIT (A) was right in allowing the claim of exemption u/s 11 inspite of the fact that the object of the trust have been changed on 22.10.2008 without appreciating the fact that the same was finally approved by the charity commissioner only on 12.12.2011 and hence not applicable to the relevant AY 2011-2012.
3. Whether on the facts and circumstances of the case and in law, the Ld CIT (A) failed to appreciate the fact that all the changes in the Memorandum of Association has changed the nature of the assessee trust which become charitable trust to religious charitable trust.
4. Whether on the facts and circumstances of the case and in law, the Ld CIT (A) was right in ignoring the decision in the case of Allahabad Agriculture Institute vs. Union of India (291 ITR 116, 119) (All.) wherein it has been clearly held “however, where the objects of the trust or institution, which were the basis for grant of registration, are altered after such grant of registration, the very foundation of the registration having been removed by a voluntary act of the assessee, the registration would not survive.
5. Whether on the facts and circumstances of the case and in law, the Ld CIT (A) failed to appreciate the fact that the section 10(22) has been omitted w.e.f 1999 and hence the deduction under the aforesaid section was not allowable to the assessee.
6. Whether on facts and circumstances of the case and in law, the Ld CIT (A) failed to appreciate the fact that the assessee has also claimed the exemption u/s 10(23C)(vi) even though the assessee has not obtained approval from the competent authority for claiming exemption u/s 10(23C)(vi) of the Act. 7. Whether on the facts and circumstances of the case and in law, the Ld CIT (A) failed to appreciate the fact that the capital expenditure of Rs. 3.81 Crs spent by the assessee during the year on the objects of the trust was not brought to the notice of the Assessing Officer during the assessment proceedings nor during the appellate proceedings thereby violating the provisions of Rule 46A of IT Rules 1962. 8. Whether on the facts and circumstances of the case and in law, the Ld CIT (A) failed to appreciate the fact that the assessee should have spent 85% of the total income on the objects of the trust during the year. 9. Whether on the facts and circumstances of the case and in law, the Ld CIT (A) failed to appreciate the fact that the accumulation made u/s 11(2) for the AY 2005-06 by assessee should have been utilized till the year under consideration.” 2. The main issue raised in the above grounds relates to the denial of exemption u/s 11 of the Act in respect of excess income over the expenditure. There is also an allegation in the grounds regarding the violation of Rule 46A of the Act. During the assessment proceedings, AO noticed that the change in the objects of the Trust and the assessee is engaged in the building up of the higher profits. AO denied the exemption in respect of the entire such income and determined the taxable income of Rs. 5.52 Crs (rounded of). Matter travelled to the first appellate authority. 3. During the first appellate authority, assessee filed written submissions and eventually held that the assessee engaged in the educational activities and extended the same to other parts of the India. Existence of surplus is not the object of the Trust. Before the FAA, the case of the assessee is that the AO denied the exemption u/s 11 of the Act in respect of the excess income over the expenditure on the grounds viz (i) there is an amendment to the trust‟s objects and assessee has PAN India presence; (ii) name is changed from „Rajasthani Seva Sangh, Bombay‟ to „Shri Rajasthani Seva Sangh‟. With setting up of University at Rajasthan, assessee is offering vocational education, a commercial activity during the year. The provisions of the proviso to section 2(15) are attracted. But the facts are that the word „Mumbai‟ was never there with the name of the Trust. In support, Ld AR brought our attention to certain valid documents ie 12A Registration Certificate issued by the DIT (E), Return of Income, Assessment Order copy etc. Regarding PAN-India presence, there is no change in its objects and the core object continues to be the education ie primary, secondary and higher education. Vocational education is aimed at a transit group with the object of education and it is another mode of imparting of education to those who cannot go for formal education. Further, on the issue of not spending 85% of the income for objects of the trust within the prescribed limits during the year, it is the claim of the assessee that the AO erroneously calculated the said 85% and erred in not computing the same after considering the expenditure on the capital assets. Assessee relied on judicial precedents on the subject. CIT (A) appreciated the above contention of the assessee and allowed exemption u/s 11 of the Act. Aggrieved with the said decision of the CIT (A), Revenue is in appeal before the Tribunal.
Before us, Ld DR for the Revenue submitted that when there is an amendment in the objects of the Trust, there is a gross root level change and therefore, the original Registration u/s 12A of the Act does not survive. Consequently, assessee is not entitled for exemption u/s 11 of the Act. Ld DR relied on the judgment of the Allahabad High Court in the case of Allahabad Agriculture Institute vs. Union of India (291 ITR 116, 119) (All).
Per contra, Ld Counsel for the assessee submitted that the facts of the said judgment of the Allahabad High Court (supra) are entirely different and the same was delivered in the context of „stay proceedings‟. Referring to the amendment made to the objects of the Trust, one by one (chart filed), Ld AR demonstrated that objects never crossed the boundaries of “object of education”. Earlier, it was geographically restricted to Maharashtra and after the amendment, it has PAN-India scope to promote the educational activities though out India for charity. Regarding application of 85% of income for objects in the current year, it was demonstrated that the assessee has met this condition, of course, by including the amount expanded on capital account too. Ld AR also argued that the said judgment of the Ho‟ble Allahabad High Court is relevant for issues relating to registration u/s 12A of the Act. Ld AR reiterated that in the instant case, the registration u/s 12A was not disturbed. Regarding the intimation of the said amendments to the objects, Ld AR submitted that the amendments were necessitated for instituting an university in Rajasthan as part of the charity work. Immediately after passing resolution to amend the objects of the Trust, due intimation was given to the Charity Commissioner and eventually it is intimated to the DIT (E) too in 2013. Referring to allegation of commercial nature of certain educational activities, Ld AR submitted that assessee eligible to claim exemption u/s 11 of the Act. Referring to the provisions of section 10(22), 10(23) etc, Ld AR submitted that assessee got certification from the competent authority and assessee is eligible for exemption u/s 10(23)(vi) of the At.
We have heard both the parties and perused the orders of the Revenue Authorities as well as the relevant material placed before us. We have also perused the synopsis of the arguments containing the list of findings of the AO and the submissions of the assessee replying to each of such findings. AO alleged that the assessee is into commercial education, changed the name of the trust, failed to inform the Charity Commissioner and the DIT(E), claim of exemption u/s 10(22) or 10(23)(vi) or 11 of the Act etc, volition of the provisions relating to non application of 85% of the total receipts during the year etc.
Replying to the said allegations, we find the assessee submitted that the amendments to the objects of the trust in principle are aimed at the PAN India presence and without compromising on the education - charity as the principle object of the trust. The fact of not commercializing any of the charitable educational projects was also emphasized uncompromisingly. Referring to the allegation of change in name of the trust, assessee submitted that the name of trust has always been “Sri Rajasthani Seva Sangh” and the same was never changed in any form at any time. In support, assessee relied on the Registration u/s 12A dt 26/5/1973. Referring to the fact of intimation of the amended objects to the DIT (E), assessee submitted that there has never been any such requirement under the law till 31.3.2017 till the insertion of new clause to section 12A of the Act. Notwithstanding the same, assessee informed that the assessee intimated the o/o DIT(E) on 1.11.2013 prior to the date of the assessment order dated 28th Feb 2014. These submissions were made as part of the proceedings u/s 10(23)(vi) of the Act and the CCIT granted, vide the order dated 30.9.2015, necessary approval in this regard. Referring to the multiple provisions relating to non taxation of the excess profits of this kind, assessee submitted that there is no bar for the assessee to claim exemption of the profits u/s 11 of the Act which there are other provisions in the form of section 10(22) or 10(23)(vi) of the Act. Further, referring to allegation of non utilization of funds as per the provisions, assessee submitted that the applied funds as per the set provisions in this regard. Referring to various decisions, assessee justified the above stating that the utilisation of total receipts for “capital expenditure” should also be considered as application of total receipts. From the above, we find the assessee has filed exhaustive replies and written submissions meeting each and every objection raised by the AO in the assessment order. On consideration of the above submissions, we find, the allegations of the AO are not well founded. On considering the above, the CIT(A) has reversed the order of the AO and granted relief to the assessee.
In this regard the operational paragraphs at 4.9 and 4.14 of the CIT (A) are relevant and the said paragraphs read as under:
“4.9. …It is noticed that certain alterations/additions were made by the appellant trust in its MOA in the nature of prefixing title of the trust and for expansion of activities of education already being carried out from year to year. The reasons for such change is stated to be operational requirement and efficiency. Such alterations /additions have been approved by Asst. Commissioner of Charit, Greater Mu,bai Region vide order dated 12the December, 2011. It is also stated that the updated MOA was submitted to the I T D on 1.11.2013. Therefore, … the alterations and modifications under question taken upon 12.12.2011, do not come into operation for the relevant AY under appeal and could be considered as such for AY 2012-13 onwards and not to the current AY 2011-12. ….under the circumstances, the further discussion on the nature of change and its implications on the exemption u/s 11 of the I T Act is not relevant for the year under the appeal. In view of the above, the findings of the AO for denying exemption u/s 11 of the IT Act for the AY 11-12 are held to be invalid and there is no other material on this issue requiring further consideration because the appellant has confined its activities under the existing approved memborandum registered u/s 12A of the Act”. 8.1. Further, the issue of application of accumulation of total receipts to the extent of 85%, we find the contents of para 4.14 are relevant and the read as under:
“4.14 the discussion made by the AO in para 3.4 of the assessment order referring to accumulation of income from year to year is considered by AO in proving the profit motive involved in the operation of the appellant. However, since appellant is claiming exemption u/s 11 of the I T Act 1961 in reference to educational activities, the existence of surplus and profit motive irrelevant in view of Circular no 11/2008 dt 19.12.2008. As for as the issue of required application of 85% of income and accumulation of income within the prescribed limits during the year is concerned, there is no such finding given by the AO hence required compliance u/s 11 of the Act for claiming exemption are held to be fulfilled by the appellant.”
Thus, after considering the timing of the amendments dated 12.12.2011, CIT(A) rightly held that they are inapplicable to the current AY. Further, on the AO‟s allegation relating to non application of receipts to the extent of 85%, CIT(A) has rightly invoked the provisions of the CBDT Circular and various judgments and they permits for inclusion of „capital expenditure‟ also for the purpose of the calculation of 85%.
Therefore, to sum up, the alteration /amendments made to the objects of the trust are not substantial in nature that effects the charitable nature of the existing objects of the trust. They merely expand the operational scope geographically to various states in India only. Therefore, so long as the amendments in objects is restricted to the such scope expansion in India and large number Indians are roped in to reap the benefits of the charitable objects of the Trust, in our opinion, such amendments, if any, ought not work detrimental to the trust in any way. As such, it is on records that the CCIT approved the „charitable nature of the Object of the Trust‟ during the proceedings u/s 10(23)(vi) of the Act. Further, we find that the allegations of the AO ie change in name of the trust, and non-utilisation of the 85% of the total receipts, are ill-conceived. As stated earlier, it is a settled legal proposition that the utilization of receipts for „capital expenditure‟ needs to be considered for the purpose of working out the said 85%. Further also, it is an undisputed fact that, during the year, the assessee has not earned any commercial receipts relatable to the said amendments / alteration of the objects and no new projects of that nature were initiated by the trust in this year for earning such ineligible income for AO to deny the benefits of the provisions of section 11 of the Act. Next it is very important to note that the AO/DIT(E) have not disturbed the existing Registration granted u/s 12A of the Act. Therefore, while the registration u/s 12A is in force and while the objects and the activities of the trust are genuine, denying the benefits of the provisions of section 11 of the Act constitutes premature and unsustainable. In our view, the CIT(A) as discussed in his order vide para 4.9 extracted above is very categorical that the amendments are inapplicable to the year under consideration. Revenue has not given any contrary arguments or decisions that necessitate the reversal of the finding of the CIT(A) by us. Thus, we confirm the CIT (A)‟s findings and order for restoring the claim of deduction in favour of the assessee. 11. Therefore, we are of the view that the order of the CIT(A) is fair and reasonable and the judgment of Hon‟ble Allahabad High Court (supra) is inapplicable to the facts of the present case. We approve the arguments of the Ld AR. Accordingly, the grounds raised
by the revenue stand dismissed.
12. In the result, the appeal of the revenue is dismissed. Order pronounced in the open court on 26th April, 2017.