ACIT, Calicut V. Islamic Welfare Trust, Calicut

ITA 394/COCH/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58191 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 1999-2000
• Appeal Filed On: 16-06-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: VIJAYAPRABHA
• Assessee Lawyers: DR K B MOHMED KUTTY
• Keywords: Charitable institution; Benefit of exemption
• Section: 12A; 263; 12; 11

Judgement Text

1 I.T.A. NO 394, 395 & 396/COCH/2010 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.R.S. GANESAN (JM) & SHRI B.R. BASKARA N (AM) ITA NO.394, 395 & 396/COCH/2010 (ASSESSMENT YEARS 1999-2000, 2000-01 & 2001-02) ASSIST.COMMISSIONER OF INCOME-TAX VS ISLAMIC WELFA RE TRUST CIRCLE-2(1), KOZHIKKODE OMASSERY, KOZHIKODE PAN : AAATI1046C (APPELLANT) (RESPONDENT) APPELLANT BY : MS. VIJAYAPRABHA RESPONDENT BY : DR K.B. MOHMED KUTTY DATE OF HEARING : 03-01-2012 DATE OF PRONOUNCEMENT : 06-01-2012 O R D E R PER N.R.S. GANESAN (JM) ALL THE THREE APPEALS OF THE REVENUE ARE DIRECTED AGAINST THE COMMON ORDER OF THE COMMISSIONER OF INCOME-TAX(A)-I, CALIC UT DATED 17-03-2010 FOR THE ASSESSMENT YEARS 1999-2000, 2000-01 & 2001-02. SINCE COMMON ISSUE IS INVOLVED WE HEARD ALL THE THREE APPEALS TOGETHER AN D DISPOSING OF THE SAME BY THIS COMMON ORDER. 2. THE ONLY ISSUE ARISES FOR CONSIDERATION IN ALL T HE THREE YEARS IS EXEMPTION U/S 11 OF THE INCOME-TAX ACT. 2 I.T.A. NO 394, 395 & 396/COCH/2010 3. MS. VIJAYAPRABHA, THE LD.DR SUBMITTED THAT THE A SSESSEE IS A RELIGIOUS TRUST. HOWEVER, THE ASSESSEE SPENT THE MONEY ON RE LIGIOUS AS WELL AS ON CHARITABLE ACTIVITY. ACCORDING TO THE LD.REPRESENT ATIVE, THE ASSESSEE HAS TO CONFINE ITS ACTIVITY EITHER TO RELIGIOUS OR CHARITA BLE ACTIVITY. REFERRING TO ORDER U/S 263 PASSED BY THE ADMINISTRATIVE COMMISSIONER, THE LD.DR POINTED OUT THAT THIS TRIBUNAL QUASHED THE ORDER OF THE ADMINIS TRATIVE COMMISSIONER IN ITAS NO.491 TO 493/COCH/2006 BY AN ORDER DATED 14-1 0-2009. HOWEVER, THE DEPARTMENT HAS ALREADY FILED APPEALS BEFORE THE HIG H COURT WHICH ARE PENDING. ON A QUERY FROM THE BENCH WHETHER THE HIG H COURT HAS STAYED THE OPERATION OF THE ORDER OF THE TRIBUNAL, THE LD.DR S UBMITTED THAT NO INTERIM ORDER WAS PASSED BY THE HIGH COURT ON THE APPEAL FI LED BY THE REVENUE. HOWEVER, THE LD.DR SUBMITTED THAT IN VIEW OF THE JUD GMENT OF THE JAMMU & KASHMIR HIGH COURT IN THE CASE OF GULAM MOHIDIN TRU ST VS COMMISSIONER OF INCOME-TAX 248 ITR 587(J&K), WHEN THE OBJECTS OF THE TRUST ARE BOTH RELIGIOUS AND CHARITABLE PURPOSE, THE ASSESSEE IS N OT ENTITLED FOR EXEMPTION U/S 11 OF THE ACT. 4. ON THE CONTRARY, DR K.B. MOHMED KUTTY, THE LD.SE NIOR COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE KERALA HIGH COURT IN TH E CASE OF MUSLIM SERVICE SOCIETY HAD AN OCCASION TO CONSIDER SIMILAR ISSUE. THE KERALA HIGH COURT IN THE CASE OF MUSLIM SERVICE SOCIETY IN UNREPORTED DE CISION IN ITA NO. 116 OF 2010 & OTHERS DATED 02-08-2010 HELD THAT WHEN THE I NCOME WAS USED FOR RELIGIOUS AS WELL AS CHARITABLE PURPOSE, THE ASSESS EE IS ENTITLED FOR EXEMPTION U/S 11 OF THE ACT. ACCORDING TO THE LD.SENIOR COU NSEL, IN VIEW OF THE 3 I.T.A. NO 394, 395 & 396/COCH/2010 JUDGMENT OF THE JURISDICTIONAL HIGH COURT, THE ASSESS EE IS ENTITLED FOR EXEMPTION U/S 11 OF THE ACT. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ONLY ISSUE ARISES FOR CONSIDERATION IS EXEMPTION U/S 11 OF THE INCOME-TAX ACT. A PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT THE ASSESSING OFFICER D ISALLOWED THE CLAIM OF THE ASSESSEE U/S 11 OF THE ACT ON THREE COUNTS, VIZ: (I) SINCE THE OBJECT OF THE TRUST AND ACTIVITY ARE BOTH FOR RELIGIOUS AND CHARITABLE PURPOSE, THE DECISION OF GULAM MOHIDIN T RUST VS COMMISSIONER OF INCOME-TAX 248 ITR 587(J&K) IS APPL ICABLE. (II) THE AMALGAMATION WITH SHANTI HOSPITAL TRUST WHICH D OES NOT HAVE IDENTICAL OBJECT AND WHICH DOES NOT ENJOY EXEMPTION U /S 12A PARTICULARLY THAT THE APPROVAL OF THE COMMISSIONER OF INCOME-TAX(A) MAKES THE ASSESSEE TRUST INELIGIBLE FOR EXEMPTION; AND (III) THE ASSESSEE HAS NOT PRODUCED BOOKS OF ACCOUNT FOR VERIFYING THE ADDITION TO THE BUILDING FUND. 6. WE HAVE CAREFULLY GONE THROUGH THE JUDGMENT OF T HE JAMMU & KASHMIR HIGH COURT CITED SUPRA. IN THE CASE BEFORE THE JAMMU & KASHMIR HIGH COURT THE ASSESSEE TRUST CLAIMED EXEMPTION U/ S 11 OF THE INCOME-TAX ACT. THE OBJECT OF THE TRUST WAS PROMOTION OF MUSLI M THEOLOGY AMONG MUSLIM INTELLIGENTSIA AND TO PROMOTE SCIENCE AND TE CHNOLOGY. ANOTHER 4 I.T.A. NO 394, 395 & 396/COCH/2010 OBJECT OF THE TRUST WAS TO GIVE FINANCIAL ASSISTANCE BY WAY OF EX GRATIA GRANTS OR LOAN ON EASY TERMS TO SCHOLARS OF EDUCATIONAL IN STITUTIONS TO ENABLE THEM TO PROSECUTE THEIR FURTHER STUDIES AND RESEARCH IN SCIENCE AND TECHNOLOGY. HOWEVER, THE ACTIVITIES WOULD BE CONFINED TO MUSLIM S ONLY. THE HIGH COURT, AFTER EXAMINING THE OBJECT OF THE ASSESSEE TRUST, M ORE PARTICULARLY, IN CLAUSE 13 AND 14 OF THE INSTRUMENT OF TRUST FOUND THAT THE OBJECT WAS ONLY FOR PROMOTION OF MUSLIM THEOLOGY AMONG THE MUSLIM INTEL LIGENTSIA AND PROMOTION OF SCIENCE AND TECHNOLOGY AMONG THE MUSLI MS. THEREFORE, IN VIEW OF SECTION 13(1) OF THE INCOME-TAX ACT, THE ASSESSE E IS NOT ENTITLED FOR EXEMPTION U/S 11 OF THE INCOME-TAX ACT. THE JAMMU AND KASHMIR HIGH COURT ON PAGES 594 & 595 OF THE I.T.R. HAS HELD AS FOLLOW S: IT IS CLEAR FROM THE RATIO OF THE DECISIONS OF TH E SUPREME COURT SET OUT ABOVE THAT IN THE INSTANT CASE, THE ASSESSE E TRUST IS NOT ENTITLED TO EXEMPTION UNDER SECTION 11 OF THE ACT E VEN IF THE CONTENTION OF THE ASSESSEE-TRUST THAT AT LEAST ONE OF THE OBJECTS, VIZ., PROMOTION OF SCIENCE AND TECHNOLOGY AMONG THE MUSLIM INSTELLIGENTSIA IS NOT A RELIGIOUS PURPOSE IS ACCEP TED, BECAUSE ABSOLUTE DISCRETION HAS BEEN GIVEN TO THE TRUSTEES TO SPEND THE INCOME OF THE TRUST OR INCOME FROM THE PROPERTY HEL D UNDER THE TRUST FOR ANY OF THE TWO PURPOSES, I.E. PROMOTION O F SCIENCE AND TECHNOLOGY AMONG THE MUSLIM INTELLIGENTSIA. THE LA TTER OBJECT UNDOUBTEDLY FALLS UNDER CLAUSE (A) OF SECTION 13(1) OF THE ACT. AS INDICATED EARLIER, IN VIEW OF THE ABSOLUTE DISCRETI ON GIVEN TO THE TRUSTEES TO SPEND THE WHOLE OF THE INCOME FROM THE PROPERTIES HELD UNDER THE TRUST OR THE INCOME OF THE TRUST FOR ANY OF THE OBJECTS OF THE TRUST WHICH DO NOT ENURE FOR THE BENE FIT OF THE PUBLIC BUT FOR THE BENEFIT OF A PARTICULAR RELIGIOU S COMMUNITY, EVEN IF THE TRUST IS HELD TO BE PARTLY CHARITABLE A ND PARTLY RELIGIOUS, IT WOULD NOT BE ENTITLED TO THE BENEFIT OF EXEMPTION 5 I.T.A. NO 394, 395 & 396/COCH/2010 UNDER SECTION 11 OF THE ACT BECAUSE NO DEFINITE PAR T OF THE PROPERTY OR ITS INCOME IS ALLOCATED TO CHARITABLE P URPOSES AND IT WOULD BE OPEN TO THE TRUSTEES TO APPLY THE WHOLE OF THE INCOME TO ANY OF THE NON-CHARITABLE PURPOSES AND OBJECTS. THEREFORE, IT IS OBVIOUS THAT IN THE CASE BEFORE TH E JAMMU AND KASHMIR HIGH COURT, THE OBJECT OF THE TRUST WAS CONFINED TO A PAR TICULAR COMMUNITY, VIZ. MUSLIMS, THEREFORE, THE HIGH COURT FOUND THAT THE A SSESSEE IS NOT ENTITLED FOR EXEMPTION U/S 11 OF THE INCOME-TAX ACT. IF THE OBJE CT OF THE ASSESSEE IS CONFINED TO A PARTICULAR COMMUNITY, THEN THE MATTER WOULD STAND ON DIFFERENT FOOTING IN VIEW OF THE JUDGMENT OF THE JAM MU AND KASHMIR HIGH COURT. HOWEVER, FROM THE ORDER OF THE LOWER AUTHOR ITY IT APPEARS THAT NOBODY EXAMINED THE TRUST DEED WITH REGARD TO THE O BJECT OF THE TRUST AND THE CONSIDERED AS TO WHETHER THE OBJECT OF THE ASSES SEE IS CONFINED ONLY TO A PARTICULAR COMMUNITY OR NOT. THE COPY OF THE TRUST DEED IS ALSO NOT PRODUCED BEFORE US. THEREFORE, THIS TRIBUNAL IS OF THE OPIN ION THAT THE OBJECT OF THE TRUST NEEDS TO BE EXAMINED ON THE BASIS OF THE TRUS T DEED. 7. WE HAVE ALSO CAREFULLY GONE THROUGH THE UNREPORT ED DECISION OF THE KERALA HIGH COURT IN THE CASE OF MUSLIM SERVICE SOC IETY (SUPRA). NO DOUBT, THE KERALA HIGH COURT HELD THAT WHEN THE OBJECT OF T HE TRUST WAS FOR BOTH RELIGIOUS AND CHARITABLE ACTIVITY THE ASSESSEE IS E NTITLED FOR EXEMPTION U/S 11 OF THE ACT. FOR THE PURPOSE OF CONVENIENCE, WE ARE REPRODUCING THE JUDGMENT OF THE KERALA HIGH COURT FROM THE UNREPORTE D DECISION, FILED BY THE ASSESSEE: 6 I.T.A. NO 394, 395 & 396/COCH/2010 THE QUESTION RAISED IS WHETHER THE TRIBUNAL WAS R IGHT IN GRANTING EXEMPTION TO THE RESPONDENT-ASSESSEE WHICH IS A CHARITABLE SOCIETY ENGAGED IN VARIOUS RELIGIOUS ACT IVITIES AS WELL. THE APPELLANT-REVENUE HAS NO DISPUTE THAT RE SPONDENT IS ENGAGED IN CHARITABLE ACTIVITIES. HOWEVER, THE REA SON FOR DENYING EXEMPTION UNDER SECTION 11(A) OF THE I.T. A CT IS ON THE GROUND THAT THE RESPONDENT IS ALSO ENGAGED IN RELIG IOUS ACTIVITIES. ADMITTEDLY INCOME EARNED BY A TRUST EN GAGED IN RELIGIOUS OR CHARITABLE PURPOSE ENJOYS EXEMPTION. I F EXEMPTION IS AVAILABLE TO BOTH THESE ACTIVITIES IND EPENDENTLY WE SEE NO REASON HOW THE EXEMPTION CAN BE DECLINED TO AN INSTITUTION ENGAGED IN BOTH THE RELIGIOUS AND CHARI TABLE ACTIVITIES. DEPARTMENT HAS NO CASE THAT INCOME OF THE TRUST IS UTILIZED FOR ANY PERSONAL BENEFITS OF THOSE IN CONT ROL OF THE TRUST. IN OTHER WORDS, INCOME IS ADMITTEDLY USED F OR RELIGIOUS AS WELL AS CHARITABLE PURPOSES, SO MUCH SO, WE FIND NO MERIT IN THE APPEALS FILED BY THE REVENUE AND CONSEQUENTLY A LL THE APPEALS ARE DISMISSED. THEREFORE, WHEREVER THE OBJECT OF THE TRUST IS AIMED AT RELIGIOUS AS WELL AS CHARITABLE ACTIVITY, THE EXEMPTION CANNOT BE DENIED U/S 11 ON THE GROUND THAT THE ASSESSEE IS UTILIZING THE FUNDS FOR THE PU RPOSE OF CHARITABLE AND RELIGIOUS ACTIVITY. AS SUCH, WE DO NOT FIND ANY ME RIT IN THE CONTENTION OF THE LD.DR THAT MERELY BECAUSE THE ASSESSEE WAS APPLYING ITS FUNDS FOR RELIGIOUS AS WELL AS CHARITABLE ACTIVITY IT IS NOT ENTITLED F OR EXEMPTION. BY RESPECTFULLY FOLLOWING THE JUDGMENT OF THE KERALA HIGH COURT IN T HE CASE OF M/S MUSLIM SERVICE SOCIETY WE HOLD THAT THE ASSESSEE IS ENTITL ED FOR EXEMPTION U/S 11 EVEN THOUGH THE INCOME HELD UNDER TRUST WAS APPLIED FOR CHARITABLE AS WELL AS RELIGIOUS ACTIVITY. HOWEVER, AS WE HAVE ALREADY OBSERVED, THE OBJECT OF THE TRUST NEEDS TO BE EXAMINED BY THE LOWER AUTHORI TY. IT NEEDS TO BE 7 I.T.A. NO 394, 395 & 396/COCH/2010 FOUND OUT WHETHER IT IS MEANT FOR PUBLIC AT LARGE O R IT IS CONFINED TO A PARTICULAR RELIGIOUS COMMUNITY AS HELD BY THE JAMMU AND KASHMIR HIGH COURT IN THE CASE CITED SUPRA THAT IF THE OBJECT OF THE TRUST IS CONFINED ONLY TO A PARTICULAR RELIGIOUS COMMUNITY, THEN THE ASSES SEE MAY NOT BE ENTITLED FOR EXEMPTION. 8. THE NEXT REASON FOR REJECTION OF THE APPLICATION WAS THAT THE ASSESSEE WAS AMALGAMATED WITH SHANTI HOSPITAL TRUST. THE RE ASONS RECORDED BY THE ASSESSING OFFICER, IN FACT, NOT ARGUED BY EITHER PA RTY BEFORE US. THE COMMISSIONER OF INCOME-TAX(A) ALSO SIMPLY ALLOWED T HE APPEAL OF THE ASSESSEE ON THE BASIS OF THE ORDER OF THE TRIBUNAL AGAINST THE ORDER U/S 263 PASSED BY THE ADMINISTRATIVE COMMISSIONER. THE ASS ESSEE HAS ALSO NOT PRODUCED THE BOOKS OF ACCOUNT BEFORE THE ASSESSING OFFICER FOR VERIFICATION. THE ASSESSING OFFICER IS BOUND TO VERIFY THE BOOKS OF ACCOUNT AND FIND OUT WHETHER THERE WAS ANY VIOLATION OF SECTIONS 11, 12 & 13 OF THE INCOME-TAX ACT BEFORE GRANTING EXEMPTION U/S 11 OF THE ACT. I N THE ABSENCE OF ANY BOOKS OF ACCOUNT, THE ASSESSEE TRUST CANNOT CLAIM A NY EXEMPTION AT ALL. THE ASSESSEE TRUST HAS TO PRODUCE BOOKS OF ACCOUNT BEFO RE THE ASSESSING OFFICER AND ESTABLISH THAT THE FUNDS WERE APPLIED AS PER TH E OBJECT OF THE TRUST MENTIONED IN THE TRUST DEED. THIS ASPECT WAS NOT E XAMINED BY THE COMMISSIONER OF INCOME-TAX(A). IN OUR OPINION, THE MATTER NEEDS TO BE RECONSIDERED. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND THE ENTIRE ISSUE OF EXEMPTION U/S 11 IS REMITTE D BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL REC ONSIDER THE ISSUE AND BRING ON RECORD THE OBJECT OF THE TRUST AND THEREAFTER DEC IDE WHETHER THE 8 I.T.A. NO 394, 395 & 396/COCH/2010 ASSESSEE IS ENTITLED FOR EXEMPTION U/S 11 OR NOT. IT IS ALSO INCUMBENT UPON THE ASSESSING OFFICER TO EXAMINE THE BOOKS OF ACCOU NT FOR THE PURPOSE OF EXAMINATION OF VIOLATION OF PROVISIONS OF SECTIONS 11, 12 & 13 OF THE ACT. IT IS MADE CLEAR THAT REGISTRATION OF THE ASSESSEE TRU ST UNDER SECTION 12A IS ONLY TO IDENTIFY THE TRUST AND MERE REGISTRATION WO ULD NOT AUTOMATICALLY EXEMPT THE INCOME OF THE ASSESSEE. EXEMPTION WOULD ALWAYS BE DEPEND UPON THE PROVISIONS OF I.T. ACT U/S 11, 12 AND 13. 9. IN THE RESULT, THE APPEALS OF THE REVENUE ARE AL LOWED, FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 06 TH DAY OF JANUARY, 2012 SD/- SD/- (B.R. BASKARAN) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN, DT : 06 TH JANUARY, 2012 PPK/- COPY TO: 1. ACIT, CIRCLE 2(1), KOZHIKKODE 2. ISLAMIC WELFARE TRUST, OMASSERY 3. THE COMMISSIONER OF INCOME-TAX(A), CALICUT 4. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL, COCHIN BENCH