Malkolak Knowledge Centre, Hyderabad V. Director of Income-Tax (Exemptions), Hyderabad

ITA 1138/HYD/2014

• Counselvise Citation: 113822514 RSA 2014
• Duration Of Justice: 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 26-03-2015
• Assessment Year: misc
• Appeal Filed On: 05-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G APARNA RAO
• Assessee Lawyers: B VIJAYA KUMAR
• Keywords: Charitable institution
• Section: 11; 12AA

Judgement Text

ITA NO.1138 OF 2014 MALKOLAK KNOWLEDGE CENTRE HYDER ABAD PAGE 1 OF 9 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER & SMT.ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 1138/HYD/2014 (ASSESSMENT YEAR: NA) MALKOLAK KNOWLEDGE CENTRE, HYDERABAD PAN- AACTM 3146 M VS. DIRECTOR OF INCOME TAX (EXEMPTIONS) HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI B. VIJAYA KUMAR FOR REVENUE : SMT. G. APARNA RAO, DR DATE OF HEARING : 26/3/2015 DATE OF PRONOUNCEMENT : 27 /3/2015 O R D E R PER SMT. ASHA VIJAYARAGHAVAN, J.M. THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE DIRECTOR OF INCOME TAX (EXEMPTIONS ) DATED 28.03.2014 U/S 12AA OF THE ACT, 1961. 2. BRIEFLY STATED, MALKOLAK KNOWLEDGE CENTRE IS A T RUST FORMED VIDE TRUST DEED EXECUTED ON 17.03.2005. THE TRUST HAD FILED AN APPLICATION IN FORM NO.10A ON 25.09.2013 S EEKING REGISTRATION U/S 12AA OF THE INCOME TAX ACT, 1961. THE DIRECTOR ITA NO.1138 OF 2014 MALKOLAK KNOWLEDGE CENTRE HYDER ABAD PAGE 2 OF 9 OF INCOME TAX (EXEMPTIONS) WHILE REJECTING THE REGI STRATION UNDER 12AA OF THE ACT, HELD AS FOLLOWS: 2. FROM THE PREAMBLE TO THE TRUST DEED, WHICH WAS EXECUTED ON 17-03-2005, IT IS SEEN THAT, APART FROM PROMOTION OF ACADEMICS, THE SETTLER HAS ALSO DESIRED TO FORM THE ABOVE TRUST FOR INVESTMENT AND AS AN INVESTMENT AGENCY. AT PAGE.2 OF THE TRUST DEED, I T IS MENTIONED WHEREAS THE SETTLER IS DESIROUS OF ESTABLISHING A KNOWLEDGE CENTER IN THE FORM OF A TRUST FOR THE PURPOSE OF PROMOTION OF ACADEMICS, RESEARCH & D EVELOPMENT, CONSULTANCY INVESTMENT ADVISORY AND AN INVESTMENT AGENCY. OBJECTIVES OF CONSULTANCY INVESTMENT ADVISORY AND AN INVESTMENT AGENCY ARE NOT CHARITABLE IN NATURE. THUS, IT SHOWS THE APPLICANT TRUST IN THIS CASE HAS NOT BEEN FORMED WITH, ENTIRELY CHARITABLE OBJECTIVES AND HENCE, UNDER SUCH CIRCUMSTANCE, IT WILL NOT BE ELIGIBLE FOR REGISTRATION U/S 12AA OF THE ACT. 2.1 FURTHER, FROM THE OBJECTS OF THE ASSESSEE TRUST, IT IS NOTICED THAT IT ALSO INTENDS TO ENGAGE IN CONSULTANCY ACTIVITIES. IN THIS CONTEXT, IT IS RELEVANT TO REFER TO THE FIRST OBJECT CLAUSE 3(A) WHICH READS AS UNDER: TO DEVISE AND CONDUCT PROGRAMS TO PROMOTE ACADEMIC, RESEARCH & DEVELOPMENT AND CONSULTANCY ACTIVITIES AND FOR THIS PURPOSE TO EDUCATE, FOSTER AND DEVELOP INTELLECTUAL, MORAL AND SCHOLASTIC TALENTS AMONG STUDENTS/SCHOLARS IN INDIA AND ABROAD' CONDUCTING PROGRAMME FOR CONSULTANCY ACTIVITIES IS NOT OF CHARITABLE NATURE. THE SAME IS NON-CHARITABLE. FROM SUCH AN OBJECTIVE, AS CONTAINED IN THE TRUST DEED, IT SHOWS ALL THE OBJECTS IN THE CASE OF APPLICANT TRUST ARE NOT CHARITABLE. FURTHER AS SEEN FROM THE STIPULATIONS MADE IN CLAUSE 4(B), THE TRUSTEES ARE EMPOWERED TO ITA NO.1138 OF 2014 MALKOLAK KNOWLEDGE CENTRE HYDER ABAD PAGE 3 OF 9 APPLY WHOLE OR ANY PART OF INCOME OF THE TRUST OR THE TRUST FUND TO ANYONE OR MORE OF THE OBJECTS OF THE TRUST. SIMILAR STIPULATION IS THERE IN THE CLAUSE, 4(N), WHERE IT IS MENTIONED 'TO SET APART AND/OR ALLOCATE THE WHOLE OR A PART OF THE INCOME OR THE CORPUS OF THE TRUST FUND OR PART THEREOF FOR ANY OF THE OBJECTS OF THE TRUST'. IN VIEW OF THE SAME AND SINCE THE ASSESSEE TRUST IN THIS CASE, IS HAVING OBJECTS OF BOTH CHARITABLE AND NON-CHARITABLE NATURE, IT CANNOT BE CONSIDERED AS A VALID TRUST AND ITS INCOME WOULD NOT BE ELIGIBLE FOR EXEMPTION U/S 11 OF THE ACT. THEREFORE, IN MY VIEW, THE ASSESSEE TRUST WOULD NOT BE ELIGIBLE FOR REGISTRATION U/S 12AA OF THE ACT. IN THIS CONTEXT, RELIANCE IS PLACED ON THE FOLLOWING OBSERVATIONS MADE BY THE HON'BLE SUPREME COURT MADE IN THEIR DECISION IN THE CASE OF YOGIRAJ CHARITY TRUST VS. CIT (1976) 103 ITR 777. WHERE THERE ARE SEVERAL OBJECT OF A TRUST, SOME OF WHICH ARE CHARITABLE AND SOME NON-CHARITABLE, AND THE TRUSTEES IN THEIR DISCRETION ARE TO APPLY THE INCOME TO ANY OF THE OBJECTS, THE WHOLE TRUST FAILS AND NO PART OF THE INCOME IS EXEMPT FROM TAX. WHERE THE OBJECTS ARE DISTRIBUTIVE, EACH AND EVERY ONE OF THE OBJECT MUST BE CHARITABLE IN ORDER THAT THE TRUST MIGHT BE UPHELD AS A VALID CHARITY. IF NO DEFINITE PART OF THE PROPERTY OR ITS INCOME IS ALLOCATED TO CHARITABLE PURPOSES AND IT WOULD BE OPEN TO THE TRUSTEES TO APPLY THE WHOLE INCOME TO ANY OF THE NON-CHARITABLE OBJECTS, NO' EXEMPTION CAN BE CLAIMED. (SEE EAST INDIA INDUSTRIES (MADRAS) PVT. LTD. V. COMMISSIONER OF INCOME-TAX ([1967] 6S-- ITR 611 (SC) AND MOHAMMAD IBRAHIM RIZA MALAK V. COMMISSIONER OF INCOME-TAX (AIR 1930 PC 226)). , 2.2. FURTHER, FROM THE OBJECTS OF THE TRUST AS MENTIONED UNDER CLAUSE 3, IT IS NOTICED THAT, THE APPLICANT TRUST ALSO INTENDS TO CARRY ON ACTIVITIES OUTSIDE INDIA. THE SAME IS EVIDENT FROM THE OBJECT CLAUSE (A) ITA NO.1138 OF 2014 MALKOLAK KNOWLEDGE CENTRE HYDER ABAD PAGE 4 OF 9 REFERRED TO IN PARA 2.1 ABOVE AND FROM THE OBJECT CLAUSE (D): (2)&(3). IN THE FIRST ONE I.E SUB-CLAUSE (2), THERE IS REFERENCE TO ESTABLISHING DIFFERENT WINGS/UNITS AT STATE, NATIONAL AND INTERNATIONAL. LEVELS AND IN THE SUB-CLAUSE (3), THERE IS MENTION TO CONDUCT ACADEMIC AND RESEARCH EXCHANGE TOURS, CAMPAIGNS ETC. IN INDIA AND ABROAD. FROM SUCH OBJECTIVES, SHOWING INTENTION TO CARRY OUT SUCH ACTIVITIES ABROAD, IT SHOWS THE ASSESSEE INTENDS TO APPLY ITS INCOME ALSO OUTSIDE INDIA. UNDER THAT CIRCUMSTANCE, HAVING REGARD TO THE PROVISIONS OF SECTION 11(1)(A), WHERE THERE IS STIPULATION FOR APPLICATION OF INCOME ONLY IN INDIA AND THE PROVISIONS CONTAINED IN SECTION 12A(1) AND CLAUSE (AA) THERE UNDER R.W.S 12AA(1) OF THE ACT, THE APPLICANT TRUST IN THIS CASE, IN MY VIEW, WOULD NOT BE ELIGIBLE FOR REGISTRATION U/S 12AA OF THE ACT. 3. VIDE QUERY NO.2 OF THE QUESTIONNAIRE, ASSESSEE WAS ASKED TO FURNISH A NOTE ON PRECISE ACTIVITIES UNDER TAKEN BY THE TRUST. IN RESPONSE, VIDE REPLY DATED 2C.0-1.201 4, IT WAS SUBMITTED THAT IN FURTHERANCE OF ITS OBJECTIVES, MA LKOLAK KNOWLEDGE CENTRE (MKC) STARTED CONDUCTING SEMINARS AND PUBLISHING NEWS LETTERS TO PROMOTE ACADEMIC ACTIVIT IES. IT HAS SETUP A CENTRE FOR MARINE STUDIES IN GOA AND ST ARTED RESEARCH AND TRAINING ACTIVITIES. IT IS FURTHER STA TED, MKC ALSO CONDUCTED THE FOLLOWING TRAINING PROGRAMME DUR ING FINANCIAL YEAR 2012-13: ITA NO.1138 OF 2014 MALKOLAK KNOWLEDGE CENTRE HYDER ABAD PAGE 5 OF 9 1. ADVANCING FRONTIERS FOR BIO-TECHNOLOGY 2. WORKSHOP ON ROBOTICS - TODAY AND TOMORROW 3. INDIAN PHARMACEUTICAL INDUSTRY PERSPECTIVES 4. ORIENTATION ON MOLECULAR AND IMMUNOLOGICAL TECHNIQUES 5. STANDARDS AND GUIDELINES FOR QUALITY ASSURANCE 6. TRAINING ON PATENT LAWS 7. BIO-SPACE TRAINING PROGRAM 8. BIO INFORMATICS AND MOLECULAR MODELLING 9. GENETIC DISORDERS AWARENESS PROGRAM. 4. THE DIRECTOR OF INCOME TAX (EXEMPTIONS) OBSERVED THAT THE CLAIM OF THE ASSESSEE IN ESTABLISHING A MARINE STUD Y CENTRE AT GOA WAS NOT EVIDENT FROM THE BALANCE SHEET OF THE A BOVE TRUST AS ON 31.03.2013. FURTHER, AFTER ELABORATELY DISCUSSIN G AT PARA 3.1, THE DIT (E) CONCLUDED THAT THE ACTUAL ACTIVITIES CA RRIED ON BY THE TRUST ARE NOT VERIFIABLE. 5. SIMILARLY, THE DIT (E) OBSERVED IN THE PROCEEDINGS, THE ASSESSEE FILED SOME PRINTED BROACHERS IN/RESPECT OF MALKOLAK INSTITUTE OF MARINE STUDIES (M-IMS), UNDER THE LOGO OF MALKOLAK KNOWLEDGE CENTRE AND SHOWING ITS ADDRES S AT 8, VIMAL APARTMENTS, NAGALI HILL, DONA PAULA, GOA. FUR THER, IT HAS FILED A PRINTED BROCHURE IN RESPECT OF MALKOLAK INSTITUTE ITA NO.1138 OF 2014 MALKOLAK KNOWLEDGE CENTRE HYDER ABAD PAGE 6 OF 9 OF LIFE SCIENCES, UNDER THE LOGO OF MALKOLAK KNOWLE DGE CENTRE. THE ADDRESS OF SUCH INSTITUTE OF LIFE SCIEN CES AT C-4, SUNSHINE PARK CO-OP HOUSING SOCIETY, BALEWADI, PUNE , IS SHOWN IN ANOTHER BROCHURE. HOWEVER, AS MENTIONED EA RLIER, THE ASSESSEE HAS NOT BEEN ABLE TO EXPLAIN ITS ROLE AND ACTIVITIES WITH REGARD TO THE SAID CENTRE FOR MARIN E STUDIES AT GOA. 6. THE DIT (E) CONCLUDED THAT THE ASSESSEE HAS NOT BEEN ABLE TO EXPLAIN ABOUT THE ACTUAL ACTIVITIES UNDERTAKEN D URING DIFFERENT ACCOUNTING YEARS WITH REFERENCE TO OBJECTS IN THE T RUST DEED AND HENCE REGISTRATION U/S 12AA IS TO BE REFUSED TO THE TRUST. 7. THE LD COUNSEL FOR THE ASSESSEE SHRI B. VIJAYA K UMAR APPEARED BEFORE US. THE LD COUNSEL SUBMITTED BEFORE US THAT THE ASSESSEE WOULD AMEND THE OBJECTS WHICH ARE NOT CHAR ITABLE IN NATURE. THE LD COUNSEL FAIRLY POINTED OUT THAT THE DIT (E) HAD POINTED OUT THAT THE OBJECTIVE INCLUDED THE FOLLOWI NG PHRASE: WHEREAS THE SETTLER IS DESIROUS OF ESTABLISHING A KNOWLEDGE CENTER IN THE FORM OF A TRUST FOR THE PURPOSE OF PROMOTION OF ACADEMICS, RESEARCH & D EVELOPMENT, CONSULTANCY INVESTMENT ADVISORY AND AN INVESTMENT AGENCY ITA NO.1138 OF 2014 MALKOLAK KNOWLEDGE CENTRE HYDER ABAD PAGE 7 OF 9 WHICH SHALL BE MODIFIED AND IN ITS PLACE, THE ASSES SEE SHALL INCORPORATE SPECIFIC OBJECTS WHICH ARE CHARITABLE A ND WHICH WOULD PROVIDE NECESSARY AID FOR THE POOR AND NEEDY. SINCE THE LD COUNSEL ASSURED THAT THE INTENTION OF CREATING THE TRUST WAS FOR THE PURPOSE OF PROMOTION OF ACADEMIC RESEARCH & DEV ELOPMENT FOR THE BENEFIT OF PERSONS WHO HAD NO MEANS OR FINA NCIAL CAPACITY IN PURSUING THE SAME. IN SHORT THE TRUST W AS FORMED FOR THE PURPOSE OF MAKING AVAILABLE THE FACILITIES OF R ESEARCH AND DEVELOPMENT FOR THE UNDER PRIVILEGED. IN THIS CONTE XT, THE BENCH DIRECTED HIM TO INCORPORATE OBJECTS WHICH CLEARLY S TATE THE INTENTION OF THE TRUST AND TO TAKE NOTE THAT THE TR UST DEED TO BE HAVING OBJECTS PURELY CHARITABLE AND SHOULD BE DEVO ID OF MIXED OBJECTS. 8. THE LD DR RAISED NO OBJECTION FOR THE MATTER TO BE SENT BACK TO THE FILE OF THE DIT (E) FOR GIVING AN OPPOR TUNITY TO THE ASSESSEE AFRESH AND AMEND THE OBJECTS OF THE TRUST WHICH ARE TO BE CHARITABLE IN NATURE. 9. WE FIND THAT THE DIT (E) HAS DENIED REGISTRATION U/S 12AA BASED ON THE FOLLOWING COUNTS: (I) THAT THE OBJECTIVES OF THE TRUST ARE NOT CHARI TABLE IN NATURE, MERELY BECAUSE THE OBJECTIVES INCLUDED ITA NO.1138 OF 2014 MALKOLAK KNOWLEDGE CENTRE HYDER ABAD PAGE 8 OF 9 THE WORDS CONSULTANCY, INVESTMENT ADVISORY AND AN INVESTMENT AGENCY. (II) THAT THE TRUST DEED CONTAINED BOTH CHARITABLE AND NON CHARITABLE OBJECTIVES AND THUS HOLDING THAT THE TRUST IS NOT A VALID TRUST, AND RELYING ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F YOGIRAJ CHARIT TRUST VS. CIT (1976) 103 ITR 777 (III) THAT THE TRUST INTENDS TO CARRY ON ACTIVITIE S OUTSIDE INDIA BY INTERPRETING THE OBJECT CLAUSE (A) AND (D) OF THE TRUST DEED EXECUTED ON 17.12.2009 (IV) THAT THE ACTIVITIES CARRIED OUT BY THE ASSESS EE TRUST IN RESPECT OF ITS RESEARCH AND TRAINING ACTIV ITIES IN GOA ARE NOT VERIFIABLE ON THE GROUND THAT THE ASSESSEE TRUST FURNISHED A PART OF STATEMENT OF A BANK ACCOUNT WITH CANARA BANK (V) THAT THE ASSESSEE TRUST HAS NOT BEEN ABLE TO EXPLAIN ABOUT ITS ACTUAL ACTIVITIES UNDERTAKEN DURI NG DIFFERENT ACCOUNTING YEARS. 10. IN THESE CIRCUMSTANCES, WE SHALL REMIT THE ISSU E BACK TO THE FILE OF THE DIT (E) TO CONSIDER DE NOVO AND GIV E AN OPPORTUNITY TO THE ASSESSEE WHO SHALL AMEND THE PRESENT OBJECTS OF THE TRUST WITH SPECIFIC OBJECTS TOWARDS RESEARCH AND DEVELOPM ENT AND ALSO DIT (E) SHALL VERIFY WHETHER ASSESSEE HAS DELE TED THE CLAUSE WHICH ENABLE THE ASSESSEE TO CARRY ON ACTIVITIES OU TSIDE INDIA. THE DIT (E) SHALL DECIDE THE ISSUE AFTER PERUSING T HE AMENDED OBJECTS OF THE TRUST DEED IN ACCORDANCE WITH LAW. ITA NO.1138 OF 2014 MALKOLAK KNOWLEDGE CENTRE HYDER ABAD PAGE 9 OF 9 11. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH MARCH, 2015. S D/ - S D/ - (P.M. JAGTAP) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 27 TH MARCH, 2015. VNODAN/SPS COPY TO: 1. MALKOLAK KNOWLEDGE CENTRE, 101, MAITHRIVANAM, HYDERABAD 500038 2. THE DIRECTOR OF INCOME TAX (EXEMPTIONS), HYDERABAD 3. THE DDIT (E)-II HYDERABAD 4. THE DR, ITAT, HYDERABAD 5. GUARD FILE BY ORDER