PR. COMMISSIONER OF vs. M/S. EMBASSY CHARITABLE TRUST

1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 27TH DAY OF JANUARY 2022 PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND THE HON’BLE MR. JUSTICE M.G.S. KAMAL I.T.A. NO.458 OF 2019 BETWEEN: PR. COMMISSIONER OF INCOME TAX EXEMPTIONS UNITY BUILDING ANNEXE MISSION ROAD BANGALORE-560027 .... APPELLANT (BY MR. E.I. SANMATHI, ADVOCATE) AND: M/S. EMBASSY CHARITABLE TRUST ROYAL OAKS, EMBASSY GOLF LINKS BUSINESS PARK OFF INERMIDIATE RING ROAD BANGALORE-560037. ... RESPONDENT (BY MR. SURYANARAYANA T, SR. COUNSEL FOR MRS. TANMAYEE RAJKUMAR, ADVOCATE) - - - THIS I.T.A. IS FILED UNDER SEC. 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 15.03.2019 PASSED IN ITA NO.110/BANG/2019, PRAYING TO (i) DECIDE THE FOREGOING QUESTION OF LAW AND/OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON'BLE COURT AS DEEMED FIT. (ii) SET ASIDE THE APPELLATE ORDER DATED 15.03.2019 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, 'A' BENCH,

2 BENGALURU (ANNEXURE-A) IN APPEAL PROCEEDINGS NO.ITA NO.110/BANG/2019 AS SOUGHT FOR IN THIS APPEAL AND TO GRANT SUCH OTHER RELIEF AS DEEMED FIT IN THE INTEREST OF JUSTICE. THIS I.T.A. COMING ON FOR HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING: JUDGMENT This appeal under Section 260-A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’, for short) has been filed by the revenue. The appeal was admitted on the following substantial questions of law: "1. Whether on the facts and in the circumstances of the case, the Tribunal is right in directing the Commissioner of Income Tax to grant registration under section 12A and consequently under section 80G of the Act as well ignoring the fact that though the assessee- trust was formed predominantly for carrying out commercial activities such as construction and development, ignoring that no charitable activities were carried on by it till the date of application for approval under section 12A as well as 80G of the Act? 2. Whether on the facts and in the circumstances of the case, the Tribunal is right in not appreciating the fact that the assessee has failed to prove with financial

3 statements and activities carried out earlier, that they are charitable in nature as provided under Rule 11AA(3) of the Rules, 1962? 3. Whether on the facts and in the circumstances of the case, the Tribunal is right in not considering the fact that satisfaction on the part of the authority granting approval for recognition under section 12A and 80G is necessary in terms said provisions of the Act read with Rule 11AA of the Act? 4. Whether on the facts and in the circumstances of the case, the Tribunal is right in not following the decision of the jurisdictional High Court in the case of Ganjam Nagappa & Son Trust (supra). Wherein, it has been held that "grant of exemption or renewal is not automatic in character", in allowing the assessee's appeal?" 2. Facts leading to filing of this appeal in a nutshell are that pursuant to a registered deed of trust dated 21.02.2018, the assessee came into existence. The assessee filed an application for registration under Section 12AA of the Act on 20.03.2018 and also filed an application seeking approval under Section 80G(5)(vi) of the Act. The Commissioner of

4 Income Tax, by an order dated 18.09.2018, rejected the application inter alia on the ground that primary object of the assessee is erection, construction and maintenance of townships and housing which is commercial in nature and not charitable in nature. It was further held that clause 3(v) of the Trust Deed promotes industrial and commercial activities and is therefore not charitable in nature. It was also held that clause 5 of the Trust Deed gives an absolute discretion to the trustees to sell and convert trust funds and properties into other properties. 3. The assessee thereupon filed an appeal before the Tribunal. The Tribunal, by an order dated 15.03.2019, inter alia held that primary object of the Trust is undoubtedly for a charitable purpose and each of the activities and incidental objects are to be read along with primary object of the Trust. It was further held that there is no material on record to hold that objects of the Trust are either not charitable in nature or its activities are not genuine. The Tribunal accordingly granted registration to the assessee under Section 12AA of the Act as well as held that the assessee is entitled to

5 benefits under Section 80G of the Act. In the aforesaid factual background, this appeal has been filed. 4. Learned counsel for the revenue submitted that the Tribunal ought to have appreciated that primary object of the Act was not charitable and the Trust was engaged in the erection and construction of building which was a commercial activity. It is further submitted that the Tribunal while passing the impugned order, has failed to take into account the Trust Deed in its entirety and has misread the provisions of the Trust Deed. It is also urged that since the assessee is not engaged in systemized schooling, therefore, its activities are not covered within the ambit and scope of the expression 'education' within the meaning of Section 2(15) of the Act. It is also urged that dominant nature underlying the setting up of the Trust has not been considered by the Tribunal and therefore, the matter deserves reconsideration by the Tribunal. In support of aforesaid submission, reliance has been placed on the decisions in 'SOLE TRUSTEE, LOK SHIKSHANA TRUST Vs. COMMISSIONER OF INCOME TAX' 101 ITR 234 'AGRAWAL SABHA Vs.

6 COMMISIONER OF INCOME TAX-I' 365 ITR 244 (ALL) AND 'ANANDA SOCIAL AND EDUCATIONAL TRUST Vs. COMISSIONER OF INCOME TAX AND ANR.' 426 ITR 340 (SC). 5. On the other hand, learned Senior counsel for the assessee submitted that the Tribunal has recorded a finding a fact that primary object of the assessee is for charitable purpose and the aforesaid finding of fact has not been demonstrated to be perverse. Therefore, no substantial questions of law arises for consideration. It is further submitted that since the object of the Trust is education, therefore, the nature of activity of the assessee being commercial or for business, cannot be gone into as the object of the assessee is not for advancement of any other object of general public utility. It is further submitted that since the activities of the Trust have not yet commenced, therefore, no inference with regard to its nature of activity can be drawn. It is also urged that at the time of registration of the Trust, the Commissioner should not go into the genuineness of its activity. It is also pointed out that decision of the Supreme

7 Court in SOLE TRUSTEE, LOK SHIKSHANA TRUST, supra is no longer a good law. In support of aforesaid submission, reliance has been placed on the decisions in 'ADDITIONAL COMMISSIONER OF INCOME TAX Vs. SURAT ART SILK CLOTH MANUFACTURERS ASSOCIATION' (1979) 2 Taxman 501 (SC), 'SUDARSHAN SILK AND SAREES Vs. COMMISSIONER OF INCOME TAX' (2008) 161 Taxman 321 (SC), 'DIRECTOR OF INCOME TAX Vs. GARDEN CITY EDUCATIONAL TRUST' (2010) 191 Taxman 238 (KAR) AND 'ANANDA SOCIAL AND EDUCATIONAL TRUST Vs. COMMISSIONER OF INCOME TAX' (2020) 114 Taxmann.com 693 (SC). 6. We have considered the submissions made by the learned counsel for the parties and have perused the record. The Act provides for exemption of income of charitable institutions under Section 11 of the Act. Section 2(15) of the Act defines the expression 'charitable purpose' and includes the relief of the poor, education, yoga, medical relief, reservation of environment (including water sheds, forest and wild life) and preservation of monuments or places or

8 objects of artistic or historic interest and the advancement of any other object of general public utility. It is well settled in law that where the purpose of a Trust is education, the requirement of definition of 'charitable purpose' would be satisfied even if an activity of profit is carried on in the course of actual carrying out of the primary purpose of the Trust or the Institution. If a Trust's claim for charitable purpose is covered under the head of 'advancement of any other object of general public utility', the question would arise whether the purpose of Trust or Institution involves the carrying on of any activity of profit. However, it would not be relevant where the purpose of the Trust is relief of the poor, education or medical relief, etc. (See: DHARMADEEPTI Vs. CIT' (1974) 114 ITR 454). 7. Section 12AA of the Act provides for procedure for registration. The Commissioner of Income Tax is required to satisfy himself about the objects of the Trust and genuineness of its activities and has to grant registration only if it is so satisfied. The scope of examination is confined in ascertaining whether the Trust is constituted genuinely for

9 carrying on charitable activities or whether it has the capacity to carry out its professed objects. It is also well settled legal proposition that at the time of grant of registration, Commissioner of Income Tax is not required to examine the application of income and has to examine whether the objects of the Trust are charitable and whether the application is made in consonant with requirements of Section 12A of the Act read with Rule 17F of the Income Tax Rules. The genuineness of the activities of the Trust is not a matter to be looked into at the time of dealing with the issue of registration of the Trust under Section 12AA of the Act. (See: 'DIRECTOR OF INCOME TAX Vs. GARDEN CITY EDUCATIONAL TRUST' (2010) 191 Taxman 238 (KAR) AND 'ANANDA SOCIAL AND EDUCATIONAL TRUST Vs. COMMISSIONER OF INCOME TAX' (2020) 114 Taxmann.com 693 (SC)). 8. In the backdrop of aforesaid well settled legal propositions, we may advert to the facts of the case in hand. Clauses 2, 2(b), 3(1) and 3(2), 5, 6, 11, 13 and 8 of the Trust Deed are reproduced below for the facility of reference:

10 2. xxxxx (b) Subject to the provisions of sub- clause (a) of clause 2, the Trustees shall hold the Trust Funds upon Trust so that as far as practicable the corpus shall always remain intact and only the income thereon shall be used, but with liberty to the Trustees at their discretion to use the corpus from time to time either wholly or in part or parts on such public educational purposes including (i) Spiritual activities which are beyond any specific religion; (ii) Research in the region of raising human consciousness and such practices as to aid such activities; (iii) Well being, welfare, recreation and education of children and adults, mentally retraded , normal, invalid, or handicapped; (iv) Research in the region of collective and community living in harmony, unity and peace and growth of human consciousness to higher levels of spirituality; (v) Any purpose that the law and the provisions of the Income Tax Act, 1961 regard as educational purpose; and in such manner as the Trustees may think fit and for one or more of the aforesaid purposes to the exclusion of other or

11 other or others as the Trustees may think fit. Provided that income as well as capital as well as corpus shall be applied only towards educational purpose as aforesaid and nay accumulation of income shall also be applicable to such educational purposes as aforesaid. 3. Without prejudice to the generality of the foregoing objects or purposes and without limiting the scope of the Trust which is to carry out any activity for the purpose of education, but subject as aforesaid, IT IS DECLARED that the Trustees shall each year apply the income of the Trust Fund and may at their discretion at any time and from time to time apply also the Trust Fund or any part or parts of the Trust Fund in or towards any one of more of the following specific educational objects or purposes (which according to taxation law be educational objects or purposes) to the exclusion of the other or others of them in such proportion and manner in all respect as the Trustees may in their absolute discretion think proper, that is to say: (i) To establish, erect, equip and maintain or contribute, or aid, towards establishment, erection, construction, maintenance of research centres, and/or spiritual centres, bodies, and establishments, townships,

12 halls and housings, needed for such pursuits, to assist activities such as farms, workshops, schools, meditation halls, reading rooms, libraries, homes, gardens, furnishings, to provide for physical and other needs or such spiritual life, facilities to provide for publications producing needs of the establishments and inmates and to aid in general any non-religious spiritual activity aimed at raising human consciousness, meditation, yogic practices, yogic centres for development of health, hygiene and body, experiment in peaceful, harmonious, truth seeking human life on this earth to aid any individual or institute or organization following similar objectives or helping or aiding others to promote such a life; (ii) To establish, erect, equip and maintain or contribute or aid, towards establishment, erection, construction, maintenance of townships, research centres, communities, bodies of people, experimenting for community living and collective living irrespective of caste, religion, sex, or age or country, but aspiring for community living for higher spiritual pursuits, for a life in harmony, peace, and unity and for achieving a growth of consciousness towards divine, and contribute towards

13 maintenance and support of the inmates of such centres, to assist such activities and provide, meditation halls, reading rooms, libraries, homes, gardens, nurseries, furnishings, equipment yoga centres for development of health, hygiene and body and in general to provide for facilities and physical needs of such life, to provide for publications, printing facilities, or contribute towards publication expenses of such activities, and to aid in general any individual institution, or organization, or group of individuals, promoting or aiding or assisting others, to lead aforesaid community life leading towards higher goals of spirituality, human consciousness, unity, harmony and peace; XXX (v) To assist, to establish, to promote any industrial and commercial activity or activities, whose entire proceeds are utilized for supporting for the benefit of activities in 3(i) and 3(ii) (vi) To establish, erect, equip and maintain or contribute towards establishment, erection equipment and maintenance of colleges, schools, kalamandirs, libraries and free reading rooms. XXX

14 (xi) To establish, promote, assist educational institutions encouraging literature, arts, medicine, science, crafts, history, technology education in all branches. XXX (xiii) To give endowments to boarding houses and hostels; XXX (8) The Trust property or any part thereof shall not be applied for any of the purposes mentioned in this Deed which are not or cease to be educational objects and purpose but only to such of the objects and purpose as may be educational objects or purposes in law and such other objects and purposes of the educational nature as the Trustees may think fit and proper. 9. From conjoint reading of the aforesaid clauses of the Trust Deed, it is axiomatic that primary purpose / objects of the assessee enumerated in the Trust Deed are charitable in nature. The other clauses of the Trust Deed had to be necessarily read in the context of the aforesaid clauses. The Tribunal, after taking into account the relevant clauses of the Trust Deed in paragraphs 5 to 10, has recorded a finding of fact that the primary object of the Trust is charitable in

15 nature. Even otherwise, the activities of the assessee as set out in the Trust Deed are covered within the ambit of charitable purpose being primarily for education. The aforesaid finding by the Tribunal has not been assailed as perverse in this appeal. Therefore, the issue with regard to the activity of the assessee being commercial or business in nature, cannot be gone into at the time of consideration of the application under Section 12AA of the Act. 10. Even otherwise, at the time of grant of registration the Commissioner of Income Tax, in the facts of the case could not have examined the genuineness of the activities of the assessee as its activity had not commenced. The issue regarding the satisfaction of genuineness of activity of a Trust is not a matter which can be looked into at the time of grant of registration under Section 12AA of the Act. 11. For the aforementioned reasons, the substantial questions of law Nos.1 to 3 involved in this appeal are answered against the revenue and in favour of the assessee. Sofar as 4th substantial question of law is concerned, the

16 decision of the High Court in 'GANJAM NAGAPPA & SONS TRUST Vs. DIRECTOR OF INCOME TAX' 269 ITR 59 KAR has no application to the facts of the case and therefore, aforesaid question is also answered against the revenue. In the result, the appeal fails and is hereby dismissed. Sd/- JUDGE Sd/- JUDGE RV