BHANSALI TRUST,MUMBAI vs. ITO (E) 1(1), MUMBAI

Accounts as per Section 35AC and has spent 90.18% of 4receipts which are part of Accounts produce before AO and CIT(A), hence the enhancement is bad in law and the same may be quashed.

4. Aggrieved by the order of the AO, the assessee preferred appeal before the CIT(A), who not only dismissed the appeal of the assessee but also enhanced the assessment from Rs.98,19,681/- to Rs.12,86,05,122/- on the ground that the assessee had not maintained separate books of accounts for its claim u/s. 35AC of the Act and the Trust had not spent 85% of its income.

Further, the learned AR brought to our notice that similar issue was raised by the revenue in A.Y. 2009-10, which was decided in favour of the assessee by the CIT(A) and the revenue preferred appeal before the ITAT, which was decided vide order dated 21.08.2015 in favour of the assessee. The learned counsel submitted that the case of the assessee is thus, covered in its favour by the said order of the Tribunal.

The relevant paras of the said order are reproduced as under:

“7. We have carefully considered the rival submission. In the present case, as the aforesaid discussion shows, the only plea raised by the Assessing Officer to deny the exemption under section 11/12 of the Act is to the effect that there has been an addition in the object clause of the assessee Trust, subsequent to the grant of registration under section 12A of the Act, which has not been intimated to DIT(E). Thus, as per the Assessing Officer, it has to be presumed that the registration originally granted under section 12A of the Act does not survive, which would lead to the denial of the benefits of section 11/12 of the Act. 7.1 Factually speaking, the respondent assessee is a Trust set up on the basis of Trust Deed dated 19/3/1969 and it has undergone amendments vide orders of the Charity Commissioner dated 20/3/1975 and19/7/1979 under section 50A of the Bombay Public Trust Act, 1952, which is subsequent to the registration of the Trust under section 12A of the Act as a ‘charitable institution’ dated 27/11/1973. 7.2 There is no denying the fact that so far as the objects contained in the original Trust Deed dated 19/3/1969 are concerned, they are charitable in nature because not only assessee was granted registration under section 12A of the Act on 27/11/1973 but it has also been allowed exemption under section 11/12 of the Act. The moot question is as to whether assessee can be said to be a charitable institution even after the amendment to the Trust Deed dated 20/3/1975 and 19/7/1979. The aforesaid point is relevant because in the impugned order of assessment there is no finding by the Assessing Officer that the activities added in 1975 and 1979 do not fall within the purview of charitable purpose. In fact the only basis for the Assessing Officer to have denied the exemption under section 11/12 of the Act is the failure of the assessee to intimate the amendments of 1975 and 1979 and reregister with the DIT(Exemption) for the purposes of section 12A of the Act. The registration granted to the assessee under section 12A of the Act can be cancelled only as per the statutory requirements, which prescribe that either the activities being carried out are not genuine or that they are not being carried out in accordance with the objects, meaning thereby that the amended objects being pursued are non charitable. 7.3 In fact the decision in the case of Board of Control for Cricket in India. vs. ITO (supra) relied upon by the Ld. Departmental Representative before us is a case where the amendments in the Memorandum of Association were found to be ‘substantial and material changes’ and, therefore, the Tribunal opined that such activities were required to be examined by the income tax authorities so as to enable the assessee to continue availing the benefits of section 11/12 of the Act. Notably, in this context, the impugned order of the Assessing Officer does not contain any adverse finding as to whether the additions in the objects have rendered the activities of the assessee as non- charitable. 7.4 In our considered opinion, a mere non-intimation of the amendments in the Trust Deed to the Department cannot ipso-facto lead to cancellation of registration because the statutory requirement of cancellation of registration contained in section 12AA(3) of the Act prescribe that the cancellation of registration cannot be effectuated unless a case is made out that the new objects do not fit-in with the existing objects (i.e. new objects are ‘non- charitable’ in nature) or that the activities are in-genuine. A pertinent question is as to whether, on facts, can such a finding be reached in the present case. For this purpose, we have perused the amendments to the Trust Deed made in 1975 and 1979, which have been tabulated by the Assessing Officer in the assessment order and a comparative chart has also been placed in the Paper Book filed before us at pages 52 to 53. A perusal of the same shows that in the original Trust Deed the objects of the assessee are in the sphere of education purpose, medical purpose and relief of poverty, etc. In the context of the objects of medical purpose and relief to poverty, the activities enumerated inter-alia, included:- “aid and relief in kinds such as giving clothes, grains and free distribution of medicines or providing free medical aid.” Subsequently, in the 1975 amendment, the activities of aid or relief in kind has been supplemented by enabling providing of loan and relief in cash also. 7.5 Further, the medical purpose and other objects meant for the benefit of general public in India was contained in the original deed in the context of giving donations to hospitals and charitable dispensaries, etc. This aspect was extended in the amendment of 1975 to include running and managing of hospitals, Panjarapoles, etc., notably, in the original Trust Deed also, objects of the assessee included the sphere of schools, colleges, educational institutions, etc. 7.6 Thirdly, in the original Trust Deed the assessee envisaged help by way grants and contributions to institutions carrying on the work of public charitable purpose in India. In the amendment made in 1975 such activities was supplemented by incorporating the activity of giving loans alongwith the activity of giving grants and contributions to institutions carrying on work for public charitable purposes in India. 7.7 Lastly, in the original Trust Deed assessee was having activity of providing grants and contributions to institutions established for carrying on an object of general public utility not involving an activity for profit. In the amendment made in 1979, it was incorporated that assessee would also promote rural development, including the programme of promoting socio and economic welfare and up-lift in rural areas. 7.8 In the background of the above analysis of the changes in the object clause, in our view, there is no change in the tone and tenor of the objects pursued by the assessee in a real sense. In fact, our aforesaid analysis of the changes in the Trust deed, do not reflect that the objects of the assessee Trust has undergone changes but the amendments are merely enabling clauses which provide only ‘means’ or ‘power’ to achieve objects in the Trust Deed. In our considered opinion, having regard to the aforesaid fact situation, it would be inappropriate to construe the amendments of 1957 and 1979 as insertions of any new objects of the assessee Trust, rather the amendments only seek to provide enabling powers to the Trust to accomplish its original objects which are in the fields of educational purpose, medical purpose, relief of poverty and objects of general public utility not involving carrying on any activity for profit. In fact, Hon’ble Bombay High Court in the case of Deccan Gymkhana vs. CIT, 262 ITR 459 (Bom) as well as the judgment of Hon’ble Supreme Court in the case of PHD Chamber of Commerce & Industry vs. DIT,130 ITR 186 (SC) has laid down that a distinction has to be made between the ‘purpose’ of a Trust and the ‘powers’ conferred upon the Trustees as being incidental to accomplish the purpose of the Trust. In our considered opinion, the amendments in 1975 &1979, which have been noticed above only seek to enable the Trustees to carry out activities for accomplishing the purpose of the Trust which we have found earlier to be for a ‘charitable purpose’ as per original Trust deed. Therefore, factually speaking, even if one has to consider the amendments of 1975 & 1979 made in the Trust Deed, in our view it does not signify that the registration granted to the assessee on 27/11/1973 under section 12A of the Act is rendered nugatory. 7.9 At the time of hearing, the Ld. Departmental Representative had relied upon the judgment of the Mumbai Bench of the Tribunal in the case Board of Control for Cricket in India. (supra) as also the judgment of Hon’ble Allahabad High Court in the case of Allahabad Agricultural Institute & Another (supra). In this context, it has to be observed that so far as the decision of the Mumbai Tribunal in the case of Board of Control for Cricket in India (supra) is concerned, the same has been rendered in the context of the fact situation therein. In the case of Board of Control for Cricket in India (supra), the Tribunal found the amendments to the Memorandum of Association as being substantive, which included amendment of rules and regulations providing for promotion of commercial interests towards administration of IPL Championship League, etc. Quite clearly in the present case, there is no such fact situation and for that matter, there is no charge against the assessee that the amendments of 1975 and 1979 have resulted in carrying on of any commercial activity by the assessee. Rather, in the present case, in the assessment finalized u/s. 143(3) of the Act on 7/11/2006 for assessment year 2004-05, the Assessing Officer allowed exemption to the assessee under section 11/12 of the Act. While doing so, the Assessing Officer has specifically noted that the activities of the assessee are in the field of education and health and running of Angadwadies in 600 villages and five High Schools with hostel facilities in backward areas. It was also specifically noted that the Trust was running 190 bedded General hospital at Dissa, where poor people were being treated. Similarly, in the assessment order for assessment year 2007-08 passed under section 143(3) of the Act dated 11/12/2009, the Assessing Officer has noticed the activities of the assessee in the field of education, income generation for Angadwadies, de- addiction and other social and economic fields. The Assessing Officer has also noticed that assessee has carried out various projects during natural calamities, apart from the activities of running Angadwadies in villages, High Schools in backward areas and the providing of medical facilities to the poor people. Therefore, the fact situation in the present case, which the AO has also accepted in the scrutiny assessment in past, does not reflect any charge that the activities of the assessee as consequence of the amendment in the Trust Deed of 1975 and 1979 have been of noncharitable nature. Thus, the decision in the case of Board of Control for Cricket in India stands on a different footing and, is of no help to the Revenue in the present case.

8. The issue raised in ground nos. 3 & 4 relates to enhancement of income by the CIT(A) without issuing specific notice or providing any opportunity to the assessee for enhancement of its income to Rs.12,86,05,122/- from Rs. 98,19,681/-.

9. The brief facts of the case are that the CIT(A) during the course of appeal proceedings noticed that the assessee carried new activities u/s 35AC of the Act and the asked the AO to send a remand report vide letter dated 27.11.2013 which was filed 24.02.2014. The ld AO in the remand report submitted the details of donations above Rs. 1,00,000/- to institutions which were not registered u/s 12A. The report also contained details as to receipts of Rs. 2,51,75,000/- u/s 35AC of the Act which were not included in the income and expenditure account of the assessee and no separate accounts in respect eligible projects and schemes and enhanced the income of the assessee trust to Rs. 12,86,05,122/- from the income assessed by AO Rs. 98,19,681/- by giving various reasons which were discussed from para 5.6 to 5.27 of the appeal order. The said disallowance of Rs.12,86,05,122/- was worked out in the light of the fact that registration of the trust u/s 12A of the Act ceased to exist.

“2. On page no.17 at para no.5.20 Your Honour has mentioned that no separate account has been maintained for the activities carried out u/s. 35AC. This is also not factually correct. The assessee has maintained a separate account for 35AC and separate income and expenditure account and balance sheet has been prepared and the same has been filed with Your Honour in the Appeal proceedings. However, we attach herewith the separate account for 35AC, income and expenditure account and balance sheet. So, kindly rectify this mistake.

3. On page no.17 at Para 5.22 Your Honour has mentioned that expenditure incurred at Radhanpur General Account, Deesa General Account and Bihar Eye Camp totalling Rs.6,58,60,574/- is for 35AC project. This is factually not correct. There are the expenditures incurred at various centres of the trust which are not under 35AC. Kindly rectify above mistakes which are apparent from record and kindly amend your order and oblige.”

12.1. In view of the above, we are of the opinion that the finding of facts as recorded by the CIT(A) is factually incorrect and needs to be re-examined. We, therefore, in the interest of justice, restore the issue back to the file of the AO with the direction to verify the claim of the assessee of separate books and allow deduction u/s. 35AC as claimed by the assessee. Thus, the issue is allowed for statistical purpose.

Order pronounced in the open court on this day of 6th January, 2016.