Krishna Kriti Foundation, Sec'bad, Secunderabad V. CIT(Exemptions), Hyd, Hyderabad

ITA 1022/HYD/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 98828 (ITAT-HYDERABAD)
• Duration Of Justice: 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 24-11-2016
• Assessment Year: misc
• Appeal Filed On: 06-08-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KONDA RAMESH
• Assessee Lawyers: MURALI KRISHNA MURTHY
• Keywords: Charitable institution; Principle of natural justice
• Section: 80G; 12AA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI P.MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHAMAN, ACCOUNTANT MEMBER ITA NOS. 1021 & 1022/HYD/2015 KRISHNA KRITI FOUNDATION, SECUNDERABAD. PAN AAATK 8993Q VS. DIRECTOR OF INCOME-TAX (EXEMPTIONS), HYDERABAD (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI MURALI KRISHNA MURTHY REVENUE BY : SHRI KONDA RAMESH DATE OF HEARING : 24-11-2015 DATE OF PRONOUNCEMENT : 18-12-2015 O R D E R PER S. RIFAUR RAHMAN, A.M.: THESE APPEALS ARE PREFERRED BY THE ASSESSEE AGAINS T THE ORDER OF CIT(E), HYDERABAD DATED 28/05/2015. ASSESSEE PRE FERRED TO FILE TWO SEPARATE APPEALS FOR 12AA AND 80G OF THE ACT. F OR THE SAKE OF CONVENIENCE, WE DISPOSE OF THESE APPEALS BY WAY OF THIS CONSOLIDATED ORDER. 2. THE ASSESSEE IS A TRUST ESTABLISHED ON 16 TH AUGUST, 2004. IT HAD FILED AN APPLICATION IN FORM NO. 10A ON 07/11/2014, SEEKING REGISTRATION U/.S 12AA AND GRANT OF APPROVAL U/S 80 G OF THE INCOME- TAX ACT, 1961 (IN SHORT ACT). THE ABOVE APPLICATI ONS FOR GRANT OF REGISTRATION AND APPROVAL WERE REJECTED BY CIT(E) W ITH THE FOLLOWING OBSERVATIONS: 4. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPLICANT. HOWEVER, I AM UNABLE TO AGREE WITH SUCH CONTENTION OF THE APPLICANT TRUST 2 ITA NOS. 1021 & 1022 /HYD/2015 KRISHNA KRITI FOUNDATION THAT THE ACTIVITIES UNDERTAKEN BY IT ARE AS PER IT S OBJECTS. THE SPECIFIC THREE OBJECTS IN THE CASE OF THE APPLICANT TRUST, AS PER THE TRUST DEED, ARE REFERRED TO PARA 3 ABOVE. AS PER SUCH OBJECTIVES, THE APPLICANT INTENDS TO ESTABLISH SCHOLARSHIP IN THE FIELD OF EDUCATION AN D ART ETC, TO ESTABLISH AND SUPPORT SCHOOL, COLLEGE AND ORPHANAGES AND OTHER INSTITUTIONS AND TO GIVE RELIEF OR AID TO FINANCIALLY POOR AND NEEDY P ERSONS FOR THEIR EDUCATION. HOWEVER, AS NOTICED FORM THE INCOME & EXPENDITURE ACCOUNTS OF THE APPLICANT TRUST FOR THE ACCOUNTING YEAR ENDED ON 3 1.03.2013 & 31.03.2014, ITS MAIN ACTIVITY WAS, CARRYING OUT SALES INCOME F ROM WHICH IS SHOWN UNDER THE HEAD 'LOCAL SALES'. FURTHER, AS NOTICED FROM T HE PROFIT & LOSS ACCOUNT, FOR THE .YEAR ENDING 31.03.2014, THE APPL ICANT TRUST HAS CLAIMED HUGE AMOUNT OF RS. 10,48,074/- TOWARDS TRAVELLING EXPENSES. IT IS NOT KNOWN AS TO HOW THE APPLICANT HAS CLAIMED SUCH EXP ENDITURE, WHICH HAS NO-NEXUS WITH THE OBJECTS OF THE APPLICANT TRUST. FURTHER, AS MAY BE NOTICED SUCH EXPENDITURE TOWARDS TRAVELLING AND SUCH ACTIV ITY OF SALES AS SHOWN IN THE ACCOUNTS OF THE APPLICANT, ARE NOT AT ALL RELA TED TO THE .OBJECTS. IN' THE CASE OF THE APPLICANT TRUST. IN FACT, SUCH ACTIVIT IES UNDERTAKEN BY THE APPLICANT TRUST, AS PER ITS ACCOUNTS, ARE NOT IN A CCORDANCE WITH THE OBJECTS OF THE APPLICANT TRUST. IT MAY BE MENTIONED HERE THAT, UNDER THE SHELTER OF SUCH CLAUSE 6 OF THE TRUST DEED FOR RAISING FUNDS, THE APPLICANT TRUST IS NOT PERMITTED TO CARRYON ANY ACTIVITY INCLUDING TRADIN G ACTIVITY ETC., WHICH IS NOT IN ACCORDANCE WITH THE OBJECTS OF THE TRUST. UNDER THESE CIRCUMSTANCES, AND AS IN THE INSTANT CASE, THE ACTIVITIES CARRIED ON BY THE APPLICANT, ARE FOUND TO BE NOT IN ACCORDANCE WITH ITS OBJECTS, HA VING REGARD TO THE PROVISIONS CONTAINED IN SUB-SECTION (1) OF SECTION 12AA OF THE ACT, THE APPLICANT TRUST, THUS CANNOT BE GRANTED REGISTRATI ON U/S 12AAOF THE ACT. 3. AGGRIEVED WITH THE ABOVE ORDER, ASSESSEE HAS RAI SED THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE LD' DIRECTOR OF INCOME TAX (EX EMPTIONS) DLT(E) IS AGAINST THE PRINCIPLES OF NATURAL JUSTICE IN SO FA R AS IT RELATES TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LD. DLT(E) FAILED TO APPRECIATE THE FACTS O F THE CASE AND OUGHT TO HAVE GRANTED REGISTRATION U/S 80G OF THE ACT. 3. THE LD. DIT (E) FURTHER FAILED TO APPRECIATE TH AT THE TRUSTEES ARE EMPOWERED TO MOBILIZE FUNDS TO CARRY OUT THE OBJEC TS OF THE TRUST AND IN PURSUANCE THEREOF ONLY HAD CONDUCTED EXHIBITIONS O F EMINENT ARTISTES FROM INDIA AND ABROAD AND OUT OF THE PROCEEDS THEREOF G AVE SCHOLARSHIPS TO MERITORIOUS STUDENTS. THE LD' DIT (E) FAILED TO UN DERSTAND THE SAME IN SPITE OF THE EXPLANATIONS SUBMITTED IN DETAIL DURING THE PERSONAL HEARING. 4. THE APPELLANT RESERVES THE RIGHT TO ADD, ALTER, DELETE OR MODIFY ANY OF THESE GROUNDS OF APPEAL AT THE TIME OF HEARING. 5. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED A T THE TIME OF HEARING, THE APPELLANT PRAYS THAT THE TRUST BE GRANTED REGI STRATION UNDER 80-G OF THE ACT SO AS TO ENABLE THE TRUST TO CARRY OUT ITS ACT IVITIES. 4. LD. AR SUBMITTED THAT THE ASSESSEE WAS NOT IN A POSITION TO SUBMIT THE ORIGINAL TRUST DEED TO THE CIT(E) DUE TO THE FACT THAT IT HAD KEPT ITS ORIGINAL DOCUMENTS AT GS PLAZA, BANJARA HI LLS, HYDERABAD. OWING TO FIRE AT THE ABOVE PLAZA, ALL THE DOCUMENTS KEPT AT THAT PLACE 3 ITA NOS. 1021 & 1022 /HYD/2015 KRISHNA KRITI FOUNDATION INCLUDING ORIGINAL TRUST DEED WERE BURNT. THE SAME WAS REPORTED AND FILED THE COPY OF FIR FILED WITH LOCAL POLICE STATI ON(REFER PAGE 8 & 9 OF THE PAPER BOOK). LD. AR ALSO SUBMITTED THAT THE TRU ST WAS FORMED WITH THE FOLLOWING OBJECTS & PURPOSES: A) TO ESTABLISH SCHOLARSHIP IN THE FIELD OF EDUCATI ON, ART AND SPORTS IN MEMORY AND NAME OF LATE SRI KRISHNACHAND RA B LAHOTI FOR NEEDY AND MERITORIOUS STUDENTS. B) TO ESTABLISH AND OR SUPPORT, MAINTAIN OR GRANT UP TO THE SCHOOLS, COLLEGES, ORPHANAGES AND SUCH OTHER INSTI TUTES FOR THEIR RELIEF AND UPLIFT, AS TRUSTEES MAY IN THEIR ABSOLU TE DISCRETION THINK FIT. C) TO GIVE RELIEF OR AID TO THE FINANCIALLY POOR O R NEEDY PERSONS F OR THEIR EDUCATION DIRECTLY THROUGH CHEQUES TO THE SCHOOLS, COLLEGES AND HOSTELS. 5. LD. AR SUBMITTED THAT AS PER CLAUSE 5 & 6 OF THE TRUST, THE TRUSTEES ARE AT LIBERTY AT THEIR DISCRETION TO ACCE PT CONTRIBUTION, COLLECTIONS OR DONATIONS TO THE TRUST PROPERTIES AN D FIND METHODS AND WAYS TO RAISE FUND FROM TIME TO TIME. 6. LD. AR SUBMITTED THAT THE ASSESSEE SELLS THE PAI NTINGS AT EXHIBITIONS, WHICH THE ASSESSEE ALONG WITH THE OTHE R GROUP ENTITIES M/S KALAKRITI ART GALLERY AND LAHOTI FOUNDATION EXH IBITS THE PAINTINGS OF REPUTED ARTISTS FROM INDIA AND ABROAD. THESE PRO CEEDS WERE RECORDED AS SALES IN THE FINANCIAL BOOKS OF THE TRU ST. THE SAME WAS APPLIED FOR THE MAIN OBJECTS OF THE TRUST I.E. CLAU SE 4(C) OF THE DEED, MERITORIOUS STUDENTS ARE SELECTED AFTER GRILLING PR OCEDURE AND SENT TO HIGHER EDUCATION TO FRANCE. ALL THE TRAVELLING EXPE NSES INCURRED IS RELATING TO THE STUDENTS WHO HAVE GONE ABROAD FOR T HEIR STUDIES. 7. LD. DR RELIED ON THE OF CIT(E). 8. CONSIDERING THE SUBMISSIONS OF BOTH THE COUNSELS AND PERUSED THE MATERIAL FACTS AND DOCUMENTS ON THE RECORD. WE ARE OF THE VIEW THAT THE TRUST OBJECTS ARE CHARITABLE IN NATURE. FO R CLAIMING EXEMPTION U/S 11, TWO CONDITIONS MUST BE SATISFIED: 4 ITA NOS. 1021 & 1022 /HYD/2015 KRISHNA KRITI FOUNDATION A) TRUST MUST BE CREATED FOR ANY LAWFUL PURPOSE B) SUCH TRUST MUST BE FOR CHARITABLE OR RELIGIOUS PURPOSE THE CHARITABLE PURPOSE WAS DEFINED IN SECTION 2(15) OF THE ACT, WHICH IS AS FOLLOWS: 'CHARITABLE PURPOSE' INCLUDES RELIEF OF THE POOR, EDUCATION, [ YOGA, ] MEDICAL RELIEF, PRESERVATION OF ENVIRONMENT (INCLUDING WATE RSHEDS, FORESTS AND WILDLIFE) AND PRESERVATION OF MONUMENTS OR PLACES OR OBJECTS OF ARTISTIC OR HISTORIC INTEREST, AND THE ADVANCEMENT OF ANY OTHER OBJECT O F GENERAL PUBLIC UTILITY: PROVIDED THAT THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERA L PUBLIC UTILITY SHALL NOT BE A CHARITABLE PURPOSE, IF IT INVOLVES T HE CARRYING ON OF ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS, OR ANY A CTIVITY OF RENDERING ANY SERVICE IN RELATION TO ANY TRADE, COMMERCE OR BUSIN ESS, 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 AGGR EGATE VALUE OF THE RECEIPTS FROM THE ACTIVITIES REFERRED TO THEREI N IS TWENTY-FIVE LAKH RUPEES OR LESS IN THE PREVIOUS YEAR; IN THE PRESENT CASE, THE ASSESSEE IS EXTENDING BENE FITS TO THE STUDENTS BY WAY OF SCHOLARSHIP, SENDING STUDENTS TO PURSUE HIGHER STUDIES IN ABROAD WITH ALL THEIR TRAVELLING EXPENDI TURES BY FOLLOWING CAREFUL SELECTION PROCESS OF DESERVING STUDENTS. TH ESE ACTIVITIES WILL COME UNDER CHARITABLE PURPOSE. 9. WITH REGARD TO THE OBSERVATION OF THE CIT(E) ON THE SALES AND TRAVELLING EXPENSES, WE FIND FROM THE DOCUMENTS SUB MITTED BEFORE US BY LD. AR BY WAY OF PAPER BOOK, IT IS CLEAR THAT TH E SALES WERE MADE ON EXHIBITIONS CONDUCTED BY THE ASSESSEE AND THEIR GROUP ENTITIES. THE TRUSTS ARE ALLOWED TO CARRY OUT COMMERCIAL ACTI VITIES UNDER ADVANCEMENT OF ANY OTHER OBJECTS OF GENERAL PUBLIC UTILITY UP TO 25 LAKHS. THESE SALES CANNOT BE CONSIDERED AS COMMERCI AL ACTIVITY, CONSIDERING THE MEANING OF THE TERM AS BELOW: A 'COMMERCIAL ACTIVITY' MEANS EITHER A REGULAR CO URSE OF COMMERCIAL CONDUCT OR A PARTICULAR COMMERCIAL TRANSACTION OR ACT. THE COMM ERCIAL CHARACTER OF AN ACTIVITY SHALL BE DETERMINED BY REFERENCE TO THE NATURE OF THE CO URSE OF CONDUCT OR PARTICULAR TRANSACTION OR ACT, RATHER THAN BY REFERENCE TO IT S PURPOSE. 5 ITA NOS. 1021 & 1022 /HYD/2015 KRISHNA KRITI FOUNDATION IN THE PRESENT CASE, THE ONLY SOURCE OF THIS TRUST IS SALE OF PAINTINGS, WHICH IS IN THE NATURE OF WORK OF ART BY ARTISTS AN D STUDENTS, WHICH ARE DISPLAYED IN THE EXHIBITIONS. THE SAME WAS PURCHASE D BY THE PEOPLE WHO LOVE THE ARTS OF PAINTINGS. THERE IS NO INVOLVE MENT OF BUYING AND SELLING OF THE PAINTINGS, WHICH ARE THE BASIC INGRE DIENTS FOR COMMERCIAL ACTIVITIES. ON THE TRAVELLING EXPENSES, THE SAME WAS SPENT BY THE ASSESSEE FOR TRAVELLING OF THE STUDENT S TO ABROAD AND LOCAL TRAVEL OF THE ARTISTS WHO ARE INVITED TO THE EXHIBITION. 10. BASED ON THE ABOVE OBSERVATIONS, WE ARE INCLINE D TO REMIT THE MATTER BACK TO THE FILE OF CIT(E) FOR CONSIDERING O F REGISTRATION U/S 12AA AND APPROVAL U/S 80G OF THE ACT. CIT(E) CAN CH ECK THE FINANCIAL STATEMENTS OR ANY OTHER RECORD FOR FURTHER EVALUATI ON. AT THE SAME TIME, ASSESSEE BE GIVEN A FAIR CHANCE OF BEING HEAR D. 11. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 18 TH DECEMBER, 2015. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAHM AN) JUDICIAL MEMBER ACCOU NTANT MEMBER HYDERABAD, DATED: 18 TH DECEMBER, 2015 KV COPY TO:- 1) KRISHNA KRITI FOUNDATION, C/O M/S CH. G. KRISHNA MURTHY & CO., CAS, 133/1, PRENDARGHAST ROAD, SECUNDERABAD. 2) CIT(E), HYDERABAD 3) ITO(E), HYDERABAD 4) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 6 ITA NOS. 1021 & 1022 /HYD/2015 KRISHNA KRITI FOUNDATION