Sparsh Bharat Gospel Mission, Kottayam V. The CIT, Kottayam

ITA 377/COCH/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81337 (ITAT-COCHIN)
• Duration Of Justice: 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: misc
• Appeal Filed On: 13-08-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M ANIL KUMAR
• Assessee Lawyers: THOMAS K GEORGE
• Keywords: Charitable institution
• Section: 80G; 12A; 12AA; 12; 11

Judgement Text

ITA NO . 377/COCH/2014 1 IN THE INCOME TAX APPEL L A TE T R IBUNAL COCHIN BENCH , COCHIN BEFORE S/SH RI N.R.S. GANESAN, JM & CHANDRA POOJARI , AM ITA NO . 377/COCH/2014 SPARSH BHARAT GOSPEL MISSION 3 RD FLOOR - CYRILS TOWER LOGOS CENTER KOTTAYAM KERALA 686 001 VS THE COMMISSIONER OF INC OME TAX KOTTAYAM 686 001 KERALA ( APPELLANT) (RESPONDENT) PAN NO. AARCS6698C ASSESSEE BY SHRI THOMAS K GEORGE REVENUE BY SRI M ANIL KUMAR, CIT - DR DATE OF HEARING 13 TH OCT 2014 DATE OF PRONOUNCEMENT 17 TH OCT 2014 OR D ER PER CHANDRA POOJARI , A M: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 17.6.2014 OF THE CIT, KOTTAYAM. 2 THE ONLY SOLITARY ISSUE INVOLVED IN THIS APPEAL IS WITH REGARD TO REJECTION OF APPLICATION FILED FOR REGISTRATION U/S 12AA OF THE I T ACT. 3 THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INSTITUTION INCORPORATED UNDER SECTION 25 OF THE COMPANIES ACT 1956. THERE ARE ONLY THREE SHAREHOLDERS IN THE INSTITUTION AND THE TOTAL NUMBER OF SHARES SUBSCRIBED WAS 1000 AND THE VALUE OF EACH SHARE WAS RS. 100/ - . THE NUMBER OF SHARES ITA NO . 377/COCH/2014 2 SUBSCRIBED BY EACH SHAREHOLDER WAS 920,40 AND 40 RESPECTIVELY. THE CIT OBSERVED THAT THE OWNERSHIP OF THE COMPANY WAS HELD LIKE A CLOSE FAMILY BUSINESS/PARTNERSHIP FIRM AND A SINGLE PERSON WAS HOLDING THE MAJORITY OF THE SHAR ES AND THERE WAS NO WIDER PARTICIPATION. ON PERUSAL OF THE ACCOUNTS OF THE INSTITUTION, THE CIT(A) OBSERVED THAT SUBSTANTIAL AMOUNT HAS BEEN EXPENDED AS ADMINISTRATIVE EXPENSES VIZ MEETING EXPENSES AMOUNTING TO RS. 88,549/ - , MISCELLANEOUS EXPENSES RS. 1 6,354/ - , PRINTING AND STATIONARY RS. 20,422/ - , PROFESSIONAL CHARGES RS. 21,795/ - , RENT RS. 56,000/ - SALARIES AND ALLOWANCES RS. 1,23,333/ - , TRAVELLING EXPENSES RS. 17,667/ - . THE TOTAL AMOUNT WITH REGARD TO OTHER EXPENSES MENTIONED IN THE BALANCE S HEET WORKS OUT TO RS. 3,87,170/ - . THE CIT FURTHER OBSERVED THAT THE AMOUNT EXPENDED FOR CARRYING OUT THE OBJECT OF THE INSTITUTION VIZ ENGAGING IN RELIGIOUS ACTIVITIES COMES TO RS. 4,20,440/ - WHEREAS AN AMOUNT OF RS.3,87,170/ - HAS BEEN SPENT AS ADMINIST RATIVE EXPENSES. ACCORDING TO THE CIT(A), THE ASSESSEESS CASE WAS NOT FIT FOR GRANT OF REGISTRATION U/S 12AA OF THE ACT AND ACCORDINGLY, THE APPLICATION FILED BY THE ASSESSEE WAS REJECTED. AGAINST THE REJECTION OF REGISTRATION U/S 12AA, THE ASSESSEE IS IN APPEAL BEFORE US. 4 THE LD AR OF THE ASSESSEE SUBMITTED THAT THE APPLICATION OF THE ASSESSEE COMPANY SHOULD HAVE BEEN ALLOWED IN VIEW OF THE SETTLED LAW THAT THE SCOPE OF ENQUIRY OF CIT IS LIMITED ABOUT THE RELIGIOUS OBJECT OF THE TRUST AND GENUINENESS OF THE ACTIVITY. IN SUPPORT OF HIS CONTENTION, THE LD AR RELIED ON THE DECISION OF THE ITA NO . 377/COCH/2014 3 HONBLE GUJARAT HIGH COURT IN THE CASE OF DIRECTOR OF INCOME TAX(EXEMPTION) VS PANNA LALBHAI FOUNDATION IN TAX APPEAL NO. 853 OF 2012 VIDE ORDER DATED 2.4.2013. FURT HER, IT WAS SUBMITTED THAT THE CIT HAS REJECTED THE APPLICATION NOT EVEN VERIFYING THE INSPECTION REPORT OF THE TRUST. THE LD AR INVITED OUT ATTENTION TO THE COPY OF THE INSPECTION REPORT, WHICH IS PLACED ON RECORD WHEREIN IT WAS STATED THAT THE TRUST IS FOCUSED ON EDUCATION IN TRIBAL AREAS AND CONDUCTING DE - ADDICTION CAMPS THROUGH SPIRITUAL AWARENESS ON THE BASIS OF BIBLICAL TEACHINGS. ACCORDINGLY, IT WAS SUBMITTED THAT FROM THE VOUCHERS, ACCOUNTS AND REGISTERS, IT CAN BE SEEN THAT THE ACTIVITIES OF THE TRUST ARE FOUND TO BE GENUINE. 4.1 THE LD AR SUBMITTED THAT THE ASSESSEE WAS ABLE TO SPEND A REASONABLE AMOUNT FOR RELIGIOUS ACTIVITIES FROM THE LIMITED RESOURCES AVAILABLE. FURTHER, IT WAS SUBMITTED THAT SOME EXPENSES MENTIONED UNDER THE HEAD OTHER EXPENSES LIKE MEETING EXPENSES, SALARY AND ALLOWANCE TO PREACHERS , RENT ETC ARE INCURRED WHILE ENGAGING IN RELIGIOUS ACTIVITIES. THEREFORE, IT WAS SUBMITTED THAT THE AMOUNT OF RS. 6,36,129/ - WHICH INCLUDES RS. 4,20,440 FOR GOSPEL WORK EXPENSES; RS. 1,23,333 TOWARDS SALARY AND ALLOWANCES TO PREACHERS AND RS.88,549/ - FOR MEETING EXPENSES AND RS. 3,807/ - WAS SPENT FOR CARRYING OUT THE OBJECT OF THE INSTITUTION ENGAGING IN RELIGIOUS ACTIVITIES AND AN AMOUNT OF RS. 1,71,481/ - WAS SPE NT AS ADMINISTRATIVE EXPENSE. IT WAS FURTHER SUBMITTED THAT SINCE THE COMPANY WAS NOT HAVING 12A REGISTRATION, IT WAS DIFFICULT TO RAISE FUND FROM THE ITA NO . 377/COCH/2014 4 GENERAL PUBLIC. IN SUPPORT OF HIS CONTENTION, THE LD AR FILED A COPY OF THE ACCOUNT FOR THE FY 2012 - 1 3. 4. 2 THE LD AR SUBMITTED THAT THE CIT HAS IGNORED THE FACT THAT THE THREE SHAREHOLDERS/DIRECTORS OF THE COMPANY ARE THE INITIAL SUBSCRIBERS OF THE COMPANY AND PARTICIPATION TO THE COMPANY WAS NOT CONFINED TO THEM. IT WAS FURTHER SUBMITTED THAT SINCE IT IS A RELIGIOUS INSTITUTION AND ALL THE MEMBERS AND THE WORKERS ARE NOT REQUIRED TO TAKE SHARES IN THE COMPANY AND CAN, AT ANY TIME APPOINT MORE MEMBERS AND WORKERS. 4.3 THE LD AR FURTHER SUBMITTED THAT THE CIT HAS IGNORED THE FACT THAT THE ASSESSEE IS A COMPANY REGISTERED UNDER SECTION 25 OF THE COMPANIES ACT AND AS PER SECTION 2(18) OF THE I T ACT, A COMPANY REGISTERED UNDER THE SAID SECTION WAS A COMPANY IN WHICH PUBLIC ARE SUBSTANTIALLY INTEREST. IN SUPPORT OF HIS CONTENTION, HE REFERRED SECTION 2(1 8) OF THE I T ACT. 4. 4 THE LD AR SUBMITTED THAT THE CIT SHOULD HAVE APPRECIATED THE FACT THAT THE CHURCH TO GET ITSELF REGISTERED AS A COMPANY U/S 25 OF THE COMPANIES ACT, 1956 HAVE TO UNDERGO A LOT OF STRINGENT PROCEDURES AND COMPLIANCES. 4. 5 FURTHER, IT WAS SUBMITTED THAT THE DIRECTORS/SHAREHOLDERS OF THE COMPANY ARE THE TRUSTEES/AUTHORS OF THE CHURCH AND ARE NOT THE BENEFICIARIES. IT WAS ITA NO . 377/COCH/2014 5 FURTHER SUBMITTED THAT FOR A SECTION 25 OF THE COMPANIES ACT , THE MINIMUM REQUIRED CAPITAL WAS RS. 1,00,000/ - WHICH CAN BE ENHANCED WHENEVER REQUIRED AND THE MINIMUM NUMBER OF MEMBERS/SHAREHOLDERS ARE TWO. ACCORDINGLY, IT WAS SUBMITTED THAT THE COMPANY HAS SATISFIED THE INITIAL MINIMUM CAPITA AND MEMBERS REQUIREMENT. 4.6 THE LD AR SUBMITTED THAT THE CIT SHOULD H AVE APPRECIATED THAT THE ONLY PURPOSE FOR WHICH REGISTRATION WAS REQUIRED IS FOR ESTABLISHING THE IDENTITY OF THE COMPANY AS AN INSTITUTION THAT QUALIFIES TO CLAIM THE BENEFIT U/S 11 & 12 OF THE ACT. 4.7 IT WAS FURTHER SUBMITTED THAT AT THE STAGE OF GRAN T OF CERTIFICATE U/S 12A OF THE ACT, THE ONLY ENQUIRY WHICH COULD POSSIBLY BE MADE WOULD BE WHETHER THE COMPANY HAS ACTUALLY MADE AN APPLICATION IN TIME AND WHETHER THE ACCOUNTS OF THE COMPANY ARE MAINTAINED IN THE MANNER AS SUGGESTED BY THE LAW. IN SUPPO RT OF HIS CONTENTION, THE LD AR RELIED ON THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF NEW LIFE IN CHRIST EVANGELISTIC ASSOCIATION VS CIT IN 246 ITR 532 (MAD). 4. 8 ON THE OTHER HAND, THE LD DR RELIED ON THE ORDER OF THE CIT. ITA NO . 377/COCH/2014 6 5 WE HAVE HEARD THE PARTIES AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE MAIN REASON FOR REJECTING THE APPLICATION FOR REGISTRATION U/S 12AA OF THE ACT BY THE CIT WAS THAT THE ASSESSEE HAS NOT SPENT SUFFICIENT AMOUNT ON CHARITABLE OR RELIGIOUS ACTIVITIES AND THE CIT WAS NOT SATISFIED WITH THE GENUINENESS OF THE TRUST. AS PER PROVISIONS OF SEC. 12AA OF THE ACT, IF THE CIT SATISFIED ABOUT THE CHARITABLE OR RELIGIOUS NATURE OF THE OBJECTS AND GENUINENESS ACTIVITIES OF THE TRUST, HE WILL PASS THE ORDER GRANTING REGISTRATION. IF HE IS NOT SATISFIED WITH THE OBJECT AND GENUINENESS, HE WILL REFUSE THE REGISTRATION; BUT IT IS MANDATORY FOR THE CIT TO SATISFY ABOUT THE GENUINENESS OF THE ASSESSEES TRUST BEFORE GRANTING REGISTRATION. ON A QUERY MAD E BY THE CIT, IT WAS FOUND THAT THE ASSESSEE SPENT HUGE AMOUNT ON ADMINISTRATIVE EXPENSES AS COMPARED TO THE AMOUNT SPENT ON RELIGIOUS OR CHARITABLE ACTIVITIES AND IT IS NOT PROPERLY PURSUED THE OBJECT OF THE ASSESSEES TRUST. FURTHER, IT IS ALSO ADMIT TED BY THE LD AR BEFORE US THAT THE ASSESSEE IS A RELIGIOUS TRUST AND ACCORDING TO HIM, THE ASSESSEE BEING A RELIGIOUS TRUST, ENTITLE FOR REGISTRATION US 12AA OF THE ACT. 5.1 WE HAVE GONE THROUGH THE PROVISIONS OF SECTION 12AA OF THE ACT . IN SECTION 12AA , IT DOES NOT INDICATE THAT AN INSTITUTION OF RELIGIOUS NATURE CANNOT GET ITSELF REGISTERED U/S 12AA OF THE ACT. IN OTHER WORDS, THE INSTITUTION OF RELIGIOUS AS WELL AS FOR CHARITABLE PURPOSES CAN CLAIM REGISTRATION U/S 12AA OF THE ACT. WE FIND NO INDIC ATION THAT IN ORDER TO GET REGISTRATION U/S 12AA OF THE ACT, THE ITA NO . 377/COCH/2014 7 INSTITUTION MUST FIRST ESTABLISH AS TO HOW IT WOULD BE ABLE TO CLAIM EXEMPTION U/S 11 AND 12 OF THE I T ACT. 5.2 IN THE PRESENT CASE, THE MAIN OBJECT OF THE TRUST AS SEEN FROM THE MEMORANDUM OF ASSOCIATION IS AS FOLLOWS: I) TO SPREAD THE VALUABLE TEACHING OF JESUS CHRIST AND TO IMPLEMENT THE TOUCHING EFFECT OF JESUS CHRIST TO TRANSFORM THE SOCIETY FROM SOCIAL EVILS AND UNETHICAL PRACTICES AND TO CREATE HIGH STANDARDS OF HOLINESS AND CHRISTIA N COMMITMENT, NOT FOR PROFIT; II) TO ENCOURAGE AND EQUIP THE CONGREGATION FOR CHRISTIAN SERVICE THROUGH MISSION, EVANGELISM, TEACHING, TRAINING AND CHURCH PLANTING, NOT FOR PROFIT. UNDISPUTEDLY, WHICH ARE IN RELIGIOUS IN NATURE. RELIGIOUS ACTIVITIES AR E ALSO CONSTRUED TO BE CHARITABLE ACTIVITIES AS P ER THE DECISION IN THE CASE OF CIT VS RADHASWAMI SATSANG REPORTED IN 201 ITR 493 )ALL) AND HAZARAT PIRMAHOMED SHAH SAHEB ROZA COMMITTED VS CIT I 63 ITR 490 (SC). 5.3 MOREOVER , HONBLE SUPREME COURT IN THE CASE OF AHMEDABAD RANA CASTE ASSOCIATION VS CIT IN 82 ITR 704 HAS HELD THAT FOR SERVING A CHARITABLE PURPOSE, IT IS NOT NECESSARY THAT THE OBJECT SHOULD BE FOR THE BENEFIT OF THE WHOLE MANKIND OR ALL PERSONS IN A COUNTRY OR A STATE AND IT IS SUFFICIENT IF THE INTENTION IS TO BENEFIT, A SECTION OF THE PUBLIC AS DISTINGUISHED FROM A SPECIFIC INDIVIDUAL OR PERSON. IT WAS ALSO HELD THAT THE SECTION OF THE COMMUNITY SOUGHT TO BE BENEFITED MUST BE SUFFICIENTLY DEFINED AND IDENTIFIABLE BY SOME COMMON QUALITY OF A PUBLIC OR IMPERSONAL NATURE. HOWEVER, THE APEX COURT FURTHER FOUND ITA NO . 377/COCH/2014 8 THAT AFTER COMMENCEMENT OF 1961 ACT, A TRUST CREATED FOR THE BENEFIT OF ANY PARTICULAR RELIGIOUS COMMUNITY OR CAST IS NOT ELIGIBLE FOR EXEMPTION. THIS IS ALSO PROVIDED IN SECTION 13 OF 1 961 ACT. 5.4 IT IS NEEDLESS TO POINT OUT THAT I N THE SCHEME OF ACT BOTH THE CASES OF INSTITUTIONS MAY FALL UNDER EXCEPTION BENEFIT OF SEC. 11 OF THE A CT. HOWEVER, SECTION 80G PROVIDES NO SUCH RELIEF TO RELIGIOUS TRUST AND IT IS ONLY IN THE CASE OF CHA RITABLE INSTITUTIONS. AS SECTION 80G( 5 ) MAKE IT CLEAR THAT AN INSTITUTION OR FUND WHICH INCURS EXPENDITURE DURING ANY PREVIOUS YEAR TOWARD RELIGIOUS ACTIVITIES FOR A N AMOUNT NOT EXCEEDING 5% OF THE TOTAL INCOME BECOME S ELIGIBLE FOR THE BENEFIT U/S 80G( 5) OF THE ACT . THEREFORE, THE RELIGIOUS INSTITUTION IS NOT INDEPENDENTLY ENTITLE D FOR THE BENEFIT U/S 80G OF THE ACT. HOWEVER, LAW GRANTS SPECIFIC AND DIFFERENT STATUS TO THE CHARITABLE AND RELIGIOUS INSTITUTION BY TREATING THEM ON DIFFERENT FOOTINGS EVEN THOUGH THEY ARE REGISTERED U/S 12AA OF THE ACT. 5.5 IN VIEW OF THE FORGOING REASONS, WE FIND MERIT IN THE CONTENTION OF THE LD AR AND ACCORDINGLY RESTORE THE MATTER TO THE FILE OF THE CIT WITH THE DIRECTIONS TO REEXAMINE THE MATTER IN THE LIGHT OF VAR IOUS OBJECTS OF THE TRUST STIPULATED IN THE MEMORANDUM OF ASSOCIATION OF THE TRUST AND AFTER SATISFYING HIMSELF ABOUT THE GENUINENESS OF OBJECTS OF THE TRUST AND ITS ACTIVITIES, PASS APPROPRIATE ORDERS IN ACCORDANCE WITH LAW AFTER ALLOWING REASONABLE OPP ORTUNITY OF BEING HEARD TO THE ASSESSEE. ITA NO . 377/COCH/2014 9 6 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 17 TH DAY OF OCT L 2014 . SD/ - SD/ - ( N.R.S. GANESAN ) ( CHANDRA POOJARI ) JUDICIAL MEMBER ACCOUNTANT MEMBER COCHIN: DATED 17 TH OCT 201 4 RAJ* COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT , 5. DR 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, COCHIN