M/s. Maheshwari Foundation, Bangalore V. DIT, Bangalore

ITA 1456/BANG/2008

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9416 (ITAT-BANGALORE)
• Duration Of Justice: 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-08-2009
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 19-12-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SWATHI S PATIL
• Assessee Lawyers: V CHANDRASHEKAR
• Keywords: Depreciation; Charitable institution
• Section: 80G

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI K.P.T. THANGAL, VICE PRESIDENT AND SHRI N.L. KALRA, ACCOUNTANT MEMBER ITA NO.1456/BANG/2008 ASSESSMENT YEAR : 2009-10 M/S .MAHESHWARI FOUNDATION, NO.336, IDEAL HOMES SOCIETY, 17 TH CROSS, RAJARAJESHWARI NAGAR, BANGALORE 560 098. : APPELLANT VS. THE DIRECTOR OF INCOME-TAX (EXEMPTIONS), BANGALORE. : RESPONDENT APPELLANT BY : SHRI V. CHANDRASHEKAR RESPONDENT BY : SMT. SWATHI S. PATIL O R D E R PER K.P.T. THANGAL, VICE PRESIDENT THE ASSESSEE-TRUST, AGGRIEVED BY THE ORDER OF LD.DI T(E) IN REFUSING TO RENEW THE GRANT OF RECOGNITION U/S 80G OF THE AC T, HAS COME UP WITH THE PRESENT APPEAL. 2. ON A PERUSAL OF THE GROUNDS RAISED BY THE ASSESS EE-TRUST, WE FIND THAT GROUND NOS: 1, 2, 5 AND 6 ARE GENERAL AND NOT SPECIFIC WHICH, IN OUR CONSIDERED VIEW, DO NOT SURVIVE FOR ADJUDICATION. IN THE REMAINING GROUNDS, THE ESSENCE AND CRUX OF THE ISSUE IS THAT THE DIT(E) WAS NOT JUSTIFIED IN ITA NO.1456/B/08 PAGE 2 OF 7 REFUSING TO RENEW THE GRANT OF RECOGNITION U/S 80G OF THE ACT THE ASSESSEE TRUST. 3. THE ASSESSEE-TRUST WHICH CAME INTO EXISTENCE ON 12/7/2000, FURNISHED AN APPLICATION FOR RENEWAL OF RECOGNITION U/S 80G OF THE ACT ON 31.3.2008. ON VERIFICATION OF THE DETAILS FURNISHE D BY THE ASSESSEE-TRUST IN RESPONSE TO A CALL MEMO, IT WAS NOTICED BY THE LD. DIT (E) THAT THE ASSESSEE TRUST WAS RUNNING A HOSTEL FOR COLLEGE STU DENTS FOR WHICH CHARGES WERE COLLECTED FOR BOTH BOARDING AND LODGING. IT W AS THE STAND OF THE DIT (E) THAT NO EDUCATIONAL INSTITUTION WAS BEING RUN B Y THE ASSESSEE TRUST AND, HENCE, IT CANNOT BE SAID THAT THIS ACTIVITY WAS INC IDENTAL TO THE MAIN OBJECT OF THE ASSESSEE TRUST. IT WAS, FURTHER, POINTED OU T BY THE LD. DIT(E) THAT SINCE THE ABOVE ACTIVITY DID NOT FALL WITHIN THE AM BIT OF S.2(15) AS AMENDED W.E.F.1.4.2008 (SIC) 1.4.2009 [FOR THE AY 2009-10 ], THE ASSESSEE TRUST WAS REQUIRED TO SHOW CAUSE AS TO HOW THE SAID ACTIVITY WAS CHARITABLE WITHIN THE MEANING OF S.2(15), FOR WHICH, THE ASSESSEE TRUST H AD RESPONDED THAT RUNNING OF HOSTEL FOR STUDENTS WAS PROMOTION OF EDU CATION AND, HENCE, WAS WITHIN THE MEANING OF S.2(15) OF THE ACT. 3.1. BRUSHING ASIDE THE ASSESSEE-TRUSTS CONTENTION , THE DIT(E) TOOK A VIEW THAT THE ASSESSEE-TRUST WAS NOT RUNNING ANY ED UCATIONAL INSTITUTION AND, HENCE, THE ACT OF RUNNING A HOSTEL FOR THE STU DENTS CANNOT BE SAID TO BE INCIDENTAL AND, THEREFORE, BY ITSELF, THIS ACTIV ITY DOES NOT PROMOTE EDUCATION. BUTTRESS HIS ARGUMENT, THE DIT (E) POI NTED OUT THAT THE ASSESSEE TRUST WAS RUNNING A HOSTEL FOR WHICH CHARG ES WERE COLLECTED FROM THE INMATES OF THE HOSTEL AND A PRESCRIBED FEE WAS BEING COLLECTED FROM THE ITA NO.1456/B/08 PAGE 3 OF 7 INMATES OF THE HOSTEL, IT COULD BE SAID THAT THE AD MISSION TO THE SAID HOSTEL WAS NOT FREE OF CHARGE AND, HENCE, IT WAS LIKE ANY OTHER COMMERCIAL ESTABLISHMENT WHICH COLLECTS A FEE FOR PROVIDING TH ESE FACILITIES. THEREFORE, THE DIT(E) WAS OF THE VIEW THAT THE ACTIVITY OF THE ASSESSEE TRUST DOES NOT COME WITHIN THE SCOPE OF AMENDED PROVISIONS OF S.2( 15) OF THE ACT AND, ACCORDINGLY, THE ASSESSEE TRUSTS APPLICATION FOR RENEWAL OF RECOGNITION U/S 80G OF THE ACT WAS REJECTED. 4. AGITATED OVER THE TREATMENT OF LD. DIT (E), THE ASSESSEE-TRUST HAS COME UP BEFORE US WITH THE PRESENT APPEAL. THE LD. A R HAD VEHEMENTLY ARGUED THAT THE LD. DIT(E) WAS NOT JUSTIFIED IN HOL DING THAT THE OBJECTS OF THE ASSESSEE-TRUST WAS NOT RUNNING ANY EDUCATIONAL INST ITUTION AND THE SAID ACTIVITY WAS NOT INCIDENTAL TO THE MAIN OBJECTS OF THE ASSESSEE TRUST. IT WAS, FURTHER, CONTENDED THAT THE DIT (E) HAD GROSSLY ERR ED IN HOLDING THAT THE HOSTEL TO THE COLLEGE STUDENTS WAS NOT AN ACTIVITY WHICH WAS INCIDENTAL IN PROMOTING EDUCATION AND, THUS, THE REFUSAL OF THE R ENEWAL OF RECOGNITION, PURPORTEDLY ON THE BASIS OF THE AMENDED PROVISIONS OF S.2(15) OF THE ACT. TO STRENGTHEN HIS ARGUMENTS, HE HAD PLACED STRONG R ELIANCE ON THE BOARDS CIRCULAR NO:11/2008 AND ALSO THE DECISION OF HONBL E MADRAS HIGH COURT IN THE CASE OF CIT V. K.S.VENKATASUBBIAH REDDIAR RE PORTED IN 221 ITR 18. 4.1. ON THE OTHER HAND, THE LD. D R WAS OF THE VIEW THAT THE LD. DIT(E) HAD RIGHTLY REJECTED THE PLEA OF THE ASSESSEE TRUST AS RUNNING OF A HOSTEL IS NOT INCIDENTAL TO THE MAIN OBJECT OF THE ASSESSEE T RUST. SHE HAD, THEREFORE, PLEADED THAT THE IMPUGNED ORDER DOESNT REQUIRES AN Y MODIFICATION AND THE SAME MAY BE UPHELD. ITA NO.1456/B/08 PAGE 4 OF 7 5. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND ALSO PERUSED THE RELEVANT RECORDS AND OTHER DOCUMENTS FU RNISHED DURING THE HEARING. 5.1. THE AMENDED PROVISIONS OF S.2(15) SAY S CHARITABLE PURPOSE INCLUDES RELIEF OF THE POOR, EDUCATION, MEDICAL RELIEF , AND THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC U TILITY : 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 ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS, OR AN Y ACTIVITY OF RENDERING ANY SERVICE IN RELATION TO ANY TRADE, COMMERCE OR B USINESS, FOR A CESS OR FEE OR ANY OTHER CONSIDERATION, IRRESPECTIVE OF THE NAT URE OF USE OR APPLICATION, OR RETENTION, OF THE INCOME FROM SUCH ACTIVITY. 5.2. THE LD. DIT(E) HAD, ON EXAMINING THE DETAILS F URNISHED BY THE ASSESSEE, NOTICED THAT THE ASSESSEE WAS RUNNING A H OSTEL FOR COLLEGE STUDENTS FOR WHICH CHARGES WERE BEING COLLECTED FOR BOTH BOARDING AND LODGING. FURTHER, ACCORDING TO THE DIT (E), THE AS SESSEE WAS NOT RUNNING ANY EDUCATIONAL INSTITUTION AND, HENCE, IT CANNOT B E SAID THAT THIS ACTIVITY WAS INCIDENTAL TO THE MAIN OBJECT OF THE ASSESSEE. 5.3. TO REFUTE THE DIT(E)S ASSERTION, THE ASSESSEE VIDE ITS LETTER 6/10/2008 HAD MAINTAINED THAT THE RUNNING OF HOSTEL FOR STUDENTS IS PROMOTION OF EDUCATION AND, HENCE, WAS WITHIN THE M EANING OF S.2(15) OF THE ACT. 6. WE HAVE CRITICALLY ANALYSED THE RIVALS STAND. ON A CLOSE SCRUTINY OF THE OBJECTS OF THE TRUST, WE FIND THAT ONE THE OBJE CTS WERE THAT THE SETTING UP HOSTELS ETC. FOR THE BENEFIT OF STUDENTS AND THE NE EDY. HOWEVER, ON A ITA NO.1456/B/08 PAGE 5 OF 7 PERUSAL OF THE INCOME & EXPENDITURE ACCOUNT FOR THE YEARS-ENDED 31/3/2005, 31/3/2006 AND 31/3/2007, IT IS OBSERVED THAT THE TRUST HAS RECEIVED THE FOLLOWING REVENUE, WHICH ARE VERY CRU CIAL TO DECIDE THE ISSUE AND THEY ARE EXTRACTED HEREBELOW: YEARD ENDED MESS CHARGES MAINTENANCE GUEST CHARGES CHARGES 31.3.2005 RS.5,48,061 RS .10,38,049 RS.19,325 31.3.2006 7,51,439 13,10,300 36,700 31.3.2007 8,58,159 14,66,300 13,750 THE ABOVE FIGURES AMPLY DEMONSTRATE THAT THE MAIN O BJECT OF THE ASSESSEE WAS NOT TO OPEN, FOUND (SIC) FUND, ESTABLISH, PROMOTE, SET- UP, RUN, MAINTAIN, ASSIST , FINANCE , ENCOURAGE, SUPPORT, AID OR HELP IN THE SETTING UP AND/OR RUNNING OF HOSTELS, BOARDING HOUSES, LIBRARIES, REA DING ROOMS, GYMNASIUMS, PHYSICAL AND OTHER TRAINING AND VOCATIONAL INSTITUT ES FOR THE BENEFIT OF STUDENTS AND THE NEEDY . IF THE OBJECT OF THE ASSESSEE WERE TO RUN THE HOSTEL TO ASSIST AND HELP FOR THE BENEFIT OF STUDEN TS AND THE NEEDY AS MADE OUT IN THE TRUST DEED, THE ASSESSEE WOULD NOT HAVE COLLECTED THE REVENUE AS ABOVE. FURTHER, FROM THE INCOME & EXPENDITURE STA TEMENT, IT COULD ALSO BE SEEN THAT THERE IS A SURPLUS WHEN THE NOTIONAL EXPE NDITURE VIS DEPRECIATION IS EXCLUDED. THE AMOUNT IS WORKED OUT HEREBELOW F OR REFERENCE: EXCESS OF NOTIONAL SURPLUS EXPENDITURE EXPENDITURE PERIOD OVER INCOME VIS DEPRECIATON 1.4.04 TO 31.3.05 9,28,895.69 11,77,815.09 2,48,9 19.40 1.4.05 TO 31.3.06 4,32,927.96 10,07,110.00 5,74, 182.04 1.4.06 TO 31.3.07 8,03,998.75 9,17,839.00 1,13, 840.25 TOTAL OF SURPLUS 9,36,941.69 ITA NO.1456/B/08 PAGE 6 OF 7 THEREFORE, FROM THE INCOME AND EXPENDITURE STATEMEN TS OF THE ASSESSEE FOR THE ABOVE PERIOD, IT COULD BE OBSERVED THAT ASS ESSEE HAS MADE A SURPLUS OF 9,36,941.69 FOR THE THREE YEARS AS STATE D ABOVE. HENCE, THE MAIN ACTIVITIES OF THE ASSESSEE WAS, UNDOUBTEDLY, I S IN THE NATURE OF TRADE, COMMERCE OR BUSINESS ONLY . THE MAIN INTENTION OF THE LEGISLATURE TO BRING SUCH AN AMENDMENT WAS TO CURB ANY ACTIVITY IN THE N ATURE OF TRADE, COMMERCE OR BUSINESS IN THE GUISE OF CHARITABLE PURPOSE . OTHER THAN RUNNING A HOSTEL, NO WORTHWHILE ACTIVITY OF THE ASS ESSEE TRUST WAS FORTH- COMING. 6.1. EVEN AT THIS STAGE, THE ASSESSEE HAS NOT COME UP WITH ANY COMPREHENSIVE EVIDENCE TO DRIVE HOME ITS POINT THAT THE RUNNING OF HOSTEL WAS NOTHING BUT INCIDENTAL TO THE MAIN OBJECT OF TH E TRUST. 6.2. THE LD.A R HAS PLACED STRONG RELIANCE ON THE D ECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT V. K.S.VENKATA SUBBIAH REDDIAR REPORTED IN (1996) 221 ITR 18, WHEREIN THE ISSUE BE FORE THE HONBLE COURT THAT THE ASSESSEE ACQUIRING RACE HORSES, TRAINING THEM A ND USING THEM REGULARLY FOR RACING AND THE ACTIVITIES OF THE ASSE SSEE CONSTITUTED BUSINESS AND HELD THAT THE ASSESSEE WAS ENTITLED TO DEDUCTI ON OF LOSS ETC. 6.2.1. WITH RESPECTS, WE ARE OF THE CONSIDERED VIEW THAT THE FINDING OF THE HONBLE COURT SUPRA ON WHICH THE ASSESSEE TRUST PLACED STRONG RELIANCE IS ON THE DIFFERENT FOOTING WHICH HAS NO RELEVANCE EVEN REMOTELY TO THE ISSUE ON HAND. 6.3. IN OVER ALL CONSIDERATION OF THE FACTS AN D CIRCUMSTANCES OF THE ISSUE, WE ARE OF THE CONSIDERED VIEW THAT THE FINDI NG OF THE LD. DIT(E) THAT , ITA NO.1456/B/08 PAGE 7 OF 7 THE APPELLANT IS NOT RUNNING ANY EDUCATIONAL INSTI TUTION, HENCE THE ACT OF RUNNING A HOSTEL FOR THE STUDENTS CANNOT BE SAID TO BE INCIDENTAL AND, THEREFORE, BY ITSELF, THIS ACTIVITY DOES NOT PROMOT E EDUCATION DOESNT REQUIRES ANY INTERFERENCE AT THIS STAGE. IT IS ORD ERED ACCORDINGLY. 7. IN THE RESULT, THE ASSESSEE-TRUSTS APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 7 TH DAY OF AUGUST, 2009. SD/- SD/- ( N.L. KALRA ) (K.P.T. THANGAL ) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED, THE 7 TH AUGUST, 2009. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.