AMUL RELIEF TRUST V. ASSISTANT DIRECTOR OF INCOME TAX (EXEMPTION)

TAXAP/1391/2007

AI Insights

The case involves the Amul Relief Trust, a charitable organization, which appealed against the decision of the Income Tax Appellate Tribunal concerning the taxability of certain funds. The Trust had received donations for the purpose of providing relief to earthquake victims in Gujarat and claimed tax exemptions under section 80G(5C) of the Income Tax Act, 1961. The dispute centered on whether the Trust had appropriately applied the funds for the specified relief purposes by the deadline of 31.03.2004, and whether the late transfer of unutilized funds to the Prime Minister's National Relief Fund affected their tax-exempt status. The High Court found that the Trust had indeed applied the funds as required, and the late transfer did not constitute a breach of the conditions for tax exemption.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 694474 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 12-06-2018
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax vs. Thanti Trust, Commissioner of Income Tax, Andhra Pradesh-I vs. Trustees of H.E.H. The Nizams Charitable Trust
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Applicant
• Court: HIGH COURT
• Department Lawyers: MAUNA BHATT
• Assessee Lawyers: MANISH SHAH
• Keywords: Application of funds; Charitable Trust; Earthquake relief; Prime Minister's National Relief Fund; Tax Exemption
• Section: 12(3); 80G(5C)(iv)

Judgement Text

"C/TAXAP/1391/2007 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 1391 of 2007 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE B.N. KARIA ========================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ? ========================================================== AMUL RELIEF TRUST Versus ASSISTANT DIRECTOR OF INCOME TAX (EXEMPTION) ========================================================== Appearance: MR MANISH J SHAH(1320) for the PETITIONER(s) No. 1 MRS MAUNA M BHATT(174) for the RESPONDENT(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE B.N. KARIA Date : 12/06/2018 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. This appeal is filed by the assessee challenging the judgement of the Income Tax Appellate Tribunal dated 22.06.2007 to the Page 1 of 13 C/TAXAP/1391/2007 JUDGMENT extent it is adverse to the appellant. Following questions were framed while admitting the appeal. “(i) Whether on the facts and in circumstances of the case, the Tribunal was right in law in holding that Rs. 1 crore was not applied for the earthquake relief in Asst. Year 2004-05, and therefore, was income of the assessee Trust in that year in terms of section 80G(5C)(iv) read with section 12(3) of the Income Tax Act, 1961? (ii) If the reply to question No. 1 is in the affirmative i.e. in favour of the Department, whether the assessee Trust had fulfilled the terms of section 80G(5C)(iv) by depositing one crore of rupees in Prime Minister's National Relief Fund on 31.12.2004, and therefore, it is not taxable thereon as income?” 2. These questions arise in following background: Appellant is a registered charitable Trust and is also approved u/s. 80G(5) of the Income Tax Act, 1961 ['the Act' for short]. It was created for a specific object of providing relief to the earthquake victims of Gujarat. As part of its charitable activities, the Trust would receive donations. As is well known, State of Gujarat and, in particular, Kutch District experienced severe earthquake on 26.01.2001 leaving behind a trail of loss of human lives and widespread destruction of properties. To encourage the activity of rehabilitation of earthquake victims, the central legislature made certain tax concession provisions in the Income Tax Act, 1961. Clause (d) was added w.e.f. 03.02.2001 to sub-section (2) of section 80G Page 2 of 13 C/TAXAP/1391/2007 JUDGMENT providing exemption from tax in respect of any sums paid by the assessee during the period beginning on 26.01.2001 and ending on 30.09.2001 to any trust, institution or fund to which, the said section applies for providing relief to the victims of earthquake in Gujarat. Correspondingly, sub-section 5(C) of section 80G was inserted also w.e.f. 03.02.2001 which provided as under: “[5C] This [section] applies in relation to amounts referred to in clause (d) of sub-section (2) only if the trust or institution or fund is established in India for a charitable purpose and it fulfills the following conditions namely:- (i) it is approved in terms of clause (vi) of sub-section (5); (ii) it maintains separate accounts of income and expenditure for providing relief to the victims of earthquake in Gujarat; (iii) the donations made to the trust or institution or fund are applied only for providing relief to the earthquake victims of Gujarat on or before the 31st day of March, [2004] [(iv) the amount of donation remaining unutilized on the 31st day of March, [2004] is transferred to the Prime Minister's National Relief Fund on or before the 31st day of March, [2004];] (v) it renders accounts of income and expenditure to such authority and in such manner as may be prescribed on or before the 30th day of June, [2004]” 3. Sub-section (3) was added to section 12 of the Act w.e.f. 03.02.2001 which provides as under: Page 3 of 13 C/TAXAP/1391/2007 JUDGMENT [(3) Notwithstanding anything contained in section 11, any amount of donation received the trust or institution in terms of clause (d) of sub-section (2) of section 80G [in respect of which accounts of income and expenditure have not been renderred to the authority prescribed under clause (v) of sub- section (5C) of that section, in the manner specified in that clause, or]which has been utilized for purposes other than providing relief to the victims of earthquake in Gujarat or which remains unutilised in terms of sub-section (5C) of section 80G and not transferred to the Prime Minister's National Relief Fund on or before the 31st day of March [2004] shall deemed to be the income of the previous year and shall accordingly be charged to tax.]” 4. Combined reading of the said two provisions would show that the donations received by the Trust would be eligible for tax benefit provided the conditions contained in sub-section (5C) of section 80G are satisfied. The principal conditions applicable in our case are that the donations made to the trust or institution are applied only for providing relief to the earthquake victims on or before the specified date which initially was 31.03.2002 but was later on extended upto 31.03.2004. The other condition was that the amount of donation remaining unutilized on such last date i.e. 31.03.2004, if it is transferred to the Prime Minister's National Relief Fund before 31.03.2004, the benefit of the tax exemption would not be withdrawn. In this context, sub- section (3) of section 12 inter alia provides that notwithstanding anything contained in section 11, any amount of donation received by the trust or institution which has neither been applied for providing relief to the earthquake Page 4 of 13 C/TAXAP/1391/2007 JUDGMENT victims of Gujarat before 31.03.2004 and which has also not been transferred to Prime Minister's National Relief Fund before such date, shall be deemed to be the income of the assessee of the previous year and would accordingly be charged to tax. 5. For the assessment year 2004-05, the assessee had filed return of income and claimed exemption in terms of section 80G(5C) contending that a sum of Rs. 3.89 crores (rounded off) was applied for the relief to the earthquake victims during the period relevant to the said assessment year. During the scrutiny assessment, the assessee pointed out to the Assessing Officer that the Trust had undertaken the work of construction of schools for which, the contract was awarded to the construction contractors. A sum of Rs. 2.17 lacs was spent during the assessment year 2000-01. A sum of Rs. 1.59 crore was spent in the subsequent year and lastly, a sum of Rs. 3.89 crores was applied in the year 2002-03. It was pointed out that such amount was committed for application and that therefore, the necessary conditions contained in the statute have been fulfilled. 6. The Assessing Officer doubted the stand of the assessee. He was of the opinion that a sum of Rs. 3.19 crores was neither applied for the purpose of earthquake relief nor surrendered to the Prime Minister's National Relief Fund before 31.03.2004. He therefore, issued a show-cause notice calling for further Page 5 of 13 C/TAXAP/1391/2007 JUDGMENT response from the assessee. The assessee contended that such sum of Rs. 3.19 crores was committed which would amount to application. Actual spending was not necessary. It was pointed out that such committed fund was utilized for making payments for the ongoing construction activity. It was eventually found that after making full payments, there was balance of Rs. 1 crore which was transferred to the Prime Minister's National Relief Fund on 31.12.2004. 7. The Assessing Officer was unmoved. He was of the opinion that the assessee neither applied sum of Rs. 3.19 crore before 31.03.2004 nor transferred the same to the Prime Minister's National Relief Fund. He therefore, with the aid of section 12(3) of the Act, added a sum of Rs. 3.19 crore to the income of the assessee. 8. The assessee carried the matter in appeal. CIT(A) dismissed the assessee's appeal approving the stand of the Assessing Officer, upon which, the assessee carried the matter in further appeal before the Tribunal. Before the Tribunal, the assessee pointed out that the assessee had applied an amount of Rs. 3.89 crores by way of donation during the financial year 2003- 04 out of which, a sum of Rs. 69.89 lacs was utilized for reconstruction of the schools in Phase-I. Remaining amount of Rs. 3.19 crores was also applied for providing relief to the earthquake victims for construction of the school building in Phase-IV. For such purpose, entries were made on 31.03.2004. Page 6 of 13 C/TAXAP/1391/2007 JUDGMENT This would be the amount applied for the specified purpose. At the end of completion of the project however, it was noticed that actual sum spent was Rs. 2.19 crores which left a surplus of Rs. 1 crore which was transferred to the Prime Minister's National Relief Fund on 31.12.2004. The assessee relied on certain decisions to contend that for the purpose of sub-section (5C) what was required was application of the fund and not the actual spending. 9. The Tribunal accepted the assessee's contention that for the benefit of the statutory provisions in question, application of the fund was sufficient and not its actual spending before 31.03.2004. The Tribunal also believed that the necessary entries made by the assessee in the accounts amounted to application of fund. The Tribunal thereafter however made a distinction between the sum of Rs. 2.19 crores which was actually later on spent and Rs. 1 crore which remained unutilized. To the extent of Rs. 2.19 crores, the Tribunal granted the benefit of exemption. With respect to the remaining amount of Rs. 1 crore, the Tribunal was of the opinion that having not actually spent later on such benefit cannot be granted. The Tribunal was of the opinion that the assessee could have avoided these consequences only if the amount was transferred to the Prime Minister's National Relief Fund on or before 31.03.2004. Page 7 of 13 C/TAXAP/1391/2007 JUDGMENT 10. Learned counsel Mr. J P Shah for the appellant submitted that the contract for construction of the school was awarded. The contractor had raised a bill of Rs. 3.13 crores on 15.03.2004 for such construction. Supplementary bills were raised shortly thereafter. The assessee had passed an entry on 31.03.2004 crediting the said sum of Rs. 3.13 crores in the account of the contractor. Similar entries were made for other sundry sums. Tax of Rs. 6,42,038/- was also deducted at source simultaneously and credited to the Government account on 20.09.2004. Section 80G(5C) requires application of the funds and not actual spending. The assessee had accepted the bill raised by the contractor and committed to the payment by making entries. There was thus sufficient application of the fund. The Tribunal committed an error in bifurcating the sum of Rs. 3.19 crores into Rs. 2.19 crores which was later on actually spent and Rs. 1 crore which remained surplus, though the same was transferred to the Prime Minister's National Relief Fund. Counsel submitted that the last date for transferring the fund contained in clause (iv) of sub-section (5C) of section 80G is only directory and not mandatory. He stressed on the bona fides of the assessee. He pointed out that the effect of the Tribunal's judgement would be that though the assessee had surrendered the surplus unutilized donation amount of Rs. 1 crore to the Prime Minister's National Relief Fund, the assessee would be taxed on such amount as if it was the assessee's income. Counsel relied on certain decisions of Division Bench which we would refer to at later stage. Page 8 of 13 C/TAXAP/1391/2007 JUDGMENT 11. On the other hand, learned advocate Ms. Bhatt for the department opposed the appeal contending that the trust had neither applied the fund before 31.03.2004 nor surrendered it to the Prime Minister's National Relief Fund. Both conditions have been breached. Sub-section (3) of section 12 would ensure that the same would be taxed in the hands of the assessee as its income. The Tribunal therefore, committed no error. 12. We have noticed that principal requirement of sub- section (5C) of section 80G is of the donations made to the Trust are applied for providing relief to the earthquake victims of Gujarat before 31.03.2004. The legislature has advisedly used the expression “applied” and “not actually spent”. In case of Commissioner of Income Tax vs. Thanti Trust reported in [1999] 239 ITR 502 (SC), the Supreme Court approved the judgement of the High Court in which it was held that the assessee having made the credit entry in favour of educational institution had not retained any control over the monies and thus funds were made available to the institution by the Trust. The Supreme Court therefore held that the assessee could claim benefit of exemption u/s. 11 of the Act. 13. In case of Commissioner of Income Tax, Andhra Pradesh-I vs. Trustees of H.E.H. The Nizams Charitable Trust reported in 131 ITR 297 (AP), Division Bench of Andhra Pradesh High Court considered the question of Page 9 of 13 C/TAXAP/1391/2007 JUDGMENT exemption u/s. 11(1) of the Act which also used the expression “applied to”. It was held that the act of the assessee to debit the amount in accounts of donee and to make a communication to the donee amounted to application of funds. Actual spending was not necessary. It was observed as under: “We shall first consider the second question referred to us for decision. From the facts set out earlier, it is clear that the donees concerned make a request for a grant from the trust and the trustees after considering the request, sanction certain amounts in deserving cases. As soon as the resolution passed, the secretary informs the institution that such and such amounts have been sanctioned by the trustees at a meeting held on a particular date and also intimates the purposes for which they are sanctioned. In cases where the amounts are not disbursed during the amounting year, the amounts are debited to the income and expenditure account and credited to the outstanding payment account which contains the amount due to the various donees as per the resolutions passed by the board. When the payment is made, this Amount is debited. The amounts debited to the income and expenditure account but which are not actually disbursed are shown as liabilities in the balance sheet. In our view, these facts and circumstances would constitute application of the funds for charitable purposes within the meaning of s.11(1)(a) of the Act. We agree with the Tribunal that it is not correct to equate the word “applied” with the word “spent”. If the Legislature intended that the amounts should actually be spent, there was nothing preventing it from using that word. There cannot be any doubt that the money which was sanctioned was applied for a specific purpose as there was nothing else to be done except the actual payment. The Tribunal was right in holding that the actual payment is irrelevant for purposes of finding out whether there has been an application of the funds. In this connection, we may refer Page 10 of 13 C/TAXAP/1391/2007 JUDGMENT with the word “applied” in the Indian I.T.Act, 1922, the learned judges observed as follows: “The word 'applied' in this clause means actually spent and it was pointed out that while in cl.(i) of sub-s.(3) of s. 4 of the act, the words used are “income applied or finally set apart', the words 'finally set apart' have not been repeated incl. (ia) of that sub-section. We do not think that the word 'applied' necessarily means 'spent'. Even if it has been earmarked and allocated for the purposes of the institution, it might, to our minds, be deemed to have been applied for the purpose.” 14. Facts in the present case are very similar. The assessee, in the process of constructing schools, had awarded a contract. The contractor had raised the bill. The assessee had accepted the bill and also passed the credit entries in favour of the contractor. All these things happened on or before 31.03.2004. The assesse had simultaneously also deducted tax at source and in due course, deposited the same with the Government revenue. This was thus a clear case of application of fund for the benefit of victims of earthquake before 31.03.2004. 15. In fact the Tribunal also accepted this proposition to the extent the sum of Rs. 2.19 crores was concerned. Even though this amount was not actually spent or in strict terms, paid over to the contractor, the Tribunal referred to the judgement of Andhra Pradesh High Court in case of Trustees of H.E.H. The Nizams Charitable Trust (supra) and accepted the assessee's contention that it amounted to application of the fund. If that be so, we fail to see how the Tribunal could take a different Page 11 of 13 C/TAXAP/1391/2007 JUDGMENT view with respect to the remaining amount of Rs. 1 crore. This was part of entire amount of Rs. 3.19 crore for which, the bill was raised and credit entries were made. Merely because subsequently part of the amount was actually spent and rest remained unutilized, would not change the legal position. 16. The record would suggest that the assessee having committed to spend total of Rs. 3.19 crores for construction of the school buildings ended up paying Rs. 1 crore short to the contractor for the reasons which are neither clear nor very important for us. Had the assesse retained such amount, a serious question of its taxability would have arisen. However, the assessee almost, as soon as it becomes clear that the amount is not to be actually paid, transferred the same to the Prime Minister's National Relief Fund. This was of-course on 31.12.204 as against the prescribed deadline of 31.03.2004 contained in sub-section (5C) of section 80G of the Act. However, the assessee would not have a hindsight on 31.03.2004 that a part of the amount already committed would remain unspent. It was therefore not possible for the assesse to foresee and transfer any part of such amount in the Prime Minister's National Relief Fund. In such a situation, the deadline on 31.03.2004 contained in clause (iv) of sub-section (5C) of section 80G must be held to be directory and not mandatory. Any other view would lead to an anomalous situation of irreconcilable legal complication. As in the present case, an assessee would apply the total funds for earthquake Page 12 of 13 C/TAXAP/1391/2007 JUDGMENT relief by 31.03.2004. In a given case for variety of reasons, it may turn out that the actual spending was short of the sum initially envisaged. The residue even if the assessee is desirous of surrendering to the Prime Minister's National Relief Fund and actually so does, would be taxed in its hand merely because such transfer took place after 31.03.2004. 17. In the result, in our opinion, the Tribunal has committed an error. We give common answer to the two questions framed as under: The Tribunal committed an error in holding that sum of Rs. 1 crore was not applied for earthquake relief before 31.03.2004 and in view of the fact that such sum remained unspent after 31.03.2004 was also transferred by the assessee to the Prime Minister's National Relief Fund though after 31.03.2004, the adverse consequence of sub-section (3) of section 12 would not apply. Decision of the Tribunal is reversed. Tax Appeal is disposed of. (AKIL KURESHI, J) (B.N. KARIA, J) JYOTI V. JANI Page 13 of 13 "