PARAS PRERNA TRUST, MUMBAI V. DIT(E), MUMBAI

ITA 4028/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48432 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: misc
• Appeal Filed On: 18-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K SAHUDR PER R K
• Keywords: Charitable institution
• Section: 12A; 28; 11

Judgement Text

1 ITA NO.4028/MUM/2010 IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI MUMBAI MUMBAI MUMBAI C CC C BENCH BENCH BENCH BENCH MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI R V EASWAR, R V EASWAR, R V EASWAR, R V EASWAR, PRESIDENT & PRESIDENT & PRESIDENT & PRESIDENT & SHRI R K PANDA, AM SHRI R K PANDA, AM SHRI R K PANDA, AM SHRI R K PANDA, AM ITA NO. ITA NO. ITA NO. ITA NO. 4028/MUM/2010 4028/MUM/2010 4028/MUM/2010 4028/MUM/2010 (ASST YEAR (ASST YEAR (ASST YEAR (ASST YEAR 2010 2010 2010 2010- -- -11) 11) 11) 11) PARAS PRERNA TRUST C/O P M CONSULTANCY SERVICES 102 OSIA FRIENDSHIP 51 GAOTHAN LANE NO.4 OFF J P ROAD, OPP RAM MANDIR ANDHERI WEST MUMBAI 58 VS THE DIR. OF INCOME TAX (EXEMPTION) MUMBAI ( (( (APPELLANT APPELLANT APPELLANT APPELLANT) )) ) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) PAN NO. PAN NO. PAN NO. PAN NO.AABTP5594K AABTP5594K AABTP5594K AABTP5594K A SSESSEE BY SHRI FIROZE B ANDHYARUJINA REVENUE BY SHRI S K SAHU/DR PER R K PANDA, AM PER R K PANDA, AM PER R K PANDA, AM PER R K PANDA, AM THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 19.4.2010 OF THE DIRECTOR OF INCOME TAX (EXEMPTION) MUMBAI REFUSING REGISTRATION UNDER SEC. 12A OF THE I T ACT. 2 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSE E TRUST FILED AN APPLICATION IN FORM 10A ON 16.11.2009 FOR REGISTRATION U/S 12A OF THE I T ACT 1961. THE DIT (EXEMPTION), ON EXAMINATION OF SOME OF THE CLAUSES OF THE SAID TRUST, FOUND THAT CERTAIN OBJECTS ARE OF NON CHARITABLE IN NATURE. HE , ACCORDINGLY, ISSUED SHOW CAUSE TO THE ASSESSEE TRUST, THE RELEVANT EXTRACT O F WHICH ARE AS UNDER: 2 ITA NO.4028/MUM/2010 ON PERUSAL OF THE TRUST DEED, IT IS SEEN THAT CERT AIN OBJECTS GIVEN IN THE TRUST DEED READ AS UNDER: 71. TO ENDEAVOUR TO EVALUATE BENEFITS AND DETRIMENT AL EFFECT OF THE PROVISION TO RESERVATION FOR THE BACKWARD CL ASSES ON THE BASIS OF CASTE AND SOCIAL AND ECONOMIC BACKWARDNESS . 72 TO UNDERTAKE INVESTIGATION, RESEARCH AND SURVEY AND TO TAKE ACTION FOR ULTIMATE TOTAL ABOLITION OF THE RES ERVATION POLICY IN A TIME BOUND PROGRAM WITH COOPERATION OF THE BEN EFICIARIES. FURTHER, ON PERUSAL OF THE TRUST DEED, IT IS SEEN T HAT OBJECT NO.73,74,75,76 & 77 ARE BASICALLY FOR THE FURTHERAN CE OF THE OBJECT NO.72 WHICH IS ALREADY ENUMERATED ABOVE. THE RESERV ATION POLICY IS FRAMED BY HONBLE PARLIAMENT AND IT IS A CONSTIT UTION RIGHT OF CERTAIN SECTION OF PUBLIC. THE ABOVE OBJECT OF THE TRUST GOES AGAINST THE POLICY OF THE GOVERNMENT. HENCE YOU ARE REQUESTED TO EXPLAIN AS TO HOW THE ABOVE ACTIVITIES ARE CHARITAB LE IN NATURE. CLAUSE NO.94 CONTAINS OBJECT REGARDING STARTING OF COACHING CLASSES WHICH IS PRIMA FACIE A NON CHARITABLE ACTIV ITY AS IT DOES NOT FALL UNDER THE DEFINITION OF EDUCATION. ALSO CLAUSE NO.201 CONTAINS OBJECT REGARDING ADVANCE/GIVE/GRANT LOAN WITH OR WITHOUT SECURITY, W HETHER PERSONAL/COLLATERAL OR BY WAY OF PERSONAL GUARANTEE OF SELF/SPOUSE/PARENTS/ANY OTHER PERSONS FOR ACQUIRING/BUYING/CONSTRUCTING A APARTMENT/DWELLING UNIT/FLAT/HOUSE/RESIDENCE AT SUCH RATE OF INTEREST AND SUBJECT TO SUCH TERMS AND CONDITIONS AS THE TRUSTEES MAY IN TH EIR ABSOLUTE DISCRETION DETERMINE FROM TIME TO TIME. THIS IS PRI MA-FACIE A COMMERCIAL ACTIVITY. HENCE, YOU ARE REQUESTED TO EXPLAIN AS TO HOW THE OBJECTS/ACTIVITIES OF THE TRUST REFERRED ABOVE ARE CHARITABLE WITHIN THE MEANING OF SECTION 2(15) OF THE I T ACT, 1961. IT IS ALSO SEEN THAT THE OBJECT CLAUSE IS VOLUMINOUS AND RUNS INTO 19 PAGES. IT IS IMPERATIVE FOR THE TRUST TO CLEARLY OUTLINE ITS OBJ ECTS AND ACTIVITIES WHICH IT INTENDS TO CARRY OUT. IN THE INSTANT CASE THE OBJECT CLAUSES ARE MYRIAD; HENCE, YOU ARE REQUESTED TO CLEARLY OUT LINE THE ACTIVITIES THE TRUST INTENDS TO CARRY OUT. 3 IN REPLY, TO THE ABOVE SHOW CAUSE, IT WAS SUBMITT ED THAT A TRUST TO BE CALLED AS CHARITABLE TRUST SHOULD HAVE THE FOLLOW ING PURPOSES: I) RELIEF TO POOR II) EDUCATION AND MEDICAL RELIEF, III) PRESERVATION OF ENVIRONMENT, MONUMENTS AND OBJECTS OF ARTISTIC OR HISTORIC INTER EST IV) ADVANCEMENT OF ANY OTHER OBJECTS OF GENERAL PU BLIC UTILITY. 3 ITA NO.4028/MUM/2010 IT WAS FURTHER SUBMITTED THAT IF THE OBJECTS INVOLV E CARRYING OF ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS, IT SHALL NOT BE CHARITABLE. 3.1 HOWEVER, THE DIT(EXEMPTION) WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE. HE NOTED THAT OBJECT NO.71, WHICH STATES OF EVALUATING DETRIMENTAL EFFECT OF RESERVATION AND OBJECT NO.72 WHICH STATES TO TAKE ACTION FOR ULTIMATE TOTAL ABOLITION OF THE RESERVATION POLICY IN A TIME BOUND PROGRAMME ARE CLEARLY AGAINST THE BASIC POLICY FORMULATED BY THE PARLIAMENT. FURTHER, CLAUSE NO. 76 STATES TO UNDERTAKE LARGE SCALE MASS CAMPAIG N FOR CRATING AWARENESS REGARDING BACKWARD CLASSES AND CLAUSE 77 STATES TO ENDEAVOUR TO CAUSE OF GRADUAL REDUCTION OF AT LEAST 1% OF RESERVATION AND FULLY ABOLISH THE RESERVATION QUOTA AT ALL LEVELS. ACCORDING TO THE DIT(EXEMPTIO N), THE OBJECTS ARE BLATANTLY DEFYING THE POLICIES OF THE SOVEREIGN STATES AND CL AUSE 76 ENUMERATING TO UNDERTAKE LARGE SCALE CAMPAIGN IS AN OBJECT WHICH C ALLS FOR CONFRONTATION WITH GOVERNMENT OF INDIA. HE REJECTED THE CONTENTION O F THE APPLICANT TRUST THAT ALL THE ABOVE CLAUSES ARE NOT OWING AGAINST THE PROVISI ONS OF CONSTITUTION OF INDIA AND IN FACT THE TRUST INTENDS TO UPLIFT THE STATUS OF ECONOMICALLY BACKWARD CLASSES. HE NOTED THAT PLAIN READING OF AFORESAID CLAUSES CLEARLY LAY OUT THE INTENTION OF THE TRUST I.E. IT IS AGAINST THE RESER VATION OF BACKWARD CLASSES, WHICH IS AGAINST THE POLICY OF GOVERNMENT OF INDIA AS ADO PTED BY THE PARLIAMENT. 3.2 THE DIT(EXEMPTION) FURTHER NOTED THAT CLAUSE 94 STATES TO WORK FOR COMMENCING COACHING CLASSES TO BE RUN AND MANAGED B Y MOST POPULAR TEACHERS. THIS ACTIVITY IS CLEARLY COMMERCIAL IN NATURE. REL YING ON THE DECISION OF THE 4 ITA NO.4028/MUM/2010 HONBLE SUPREME COURT IN THE CASE OF YOGIRAJ CHARIT ABLE TRUST VS CIT REPORTED IN 103 ITR 777, HE HELD THAT EVEN IF ONE OF THE OBJECT S IS NON-CHARITABLE AND OTHER OBJECTS MAY BE CHARITABLE AND ABSOLUTE POWER IS GIV EN TO THE TRUSTEES TO MAKE EXPENDITURE IN RESPECT OF ANY OF THE OBJECT, THE EX EMPTION WOULD BE LOST. HE ACCORDINGLY, REFUSED TO GRANT REGISTRATION U/S 12A OF THE I T ACT. 4 AGGRIEVED WITH SUCH ORDER OF THE DIT(EXEMPTION) THE ASSESSEE IS IN APPEAL HERE BEFORE US WITH THE FOLLOWING GROUNDS: I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD DIT(EXEMPTION) HAS ERRED IN REJECTING THE REGISTRATION OF TRUST U/ S 12A OF THE I T ACT. II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD DIT(EXEMPTION) HAS ERRED N HOLDING THAT CERTAIN OBJ ECTS OF THE TRUST ARE NOT CHARITABLE AND AGAINST THE POLICY OF THE GOVERN MENT. 5 THE LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT TH E OBJECTIONS RAISED BY THE DIT (EXEMPTION) ARE WITHOUT ANY BASIS AND THE O BJECTS ACTUALLY HELP THE BACKWARD CLASSES OF THE SOCIETY. REFERRING TO ARTI CLE 46 OF THE CONSTITUTION OF INDIA, HE SUBMITTED THAT THE CLAUSE CONTAINS PROMOT ION OF EDUCATIONAL AND ECONOMIC INTERESTS OF THE SCHEDULED CASTES AND SCHE DULED TRIBES AND OTHER WEAKER SECTIONS. IT FALLS ONLY UNDER THE DIRECTIVE PRINCIPLES AND NOT COMING UNDER THE FUNDAMENTAL RIGHTS. HE SUBMITTED THAT TOTALITY OF ALL THE CLAUSES SHOULD HAVE BEEN APPRECIATED BY THE DIT(EXEMPTION) INSTEAD OF HIGHLIGHTING ONLY ON ONE OR TWO CLAUSES. 5.1 REFERRING TO THE DECISION OF THE HONBLE KERALA HIGH COURT IN THE CASE OF MEDICAL ACCIDENT PREVENTION SOCIETY VS CIT REPORTED IN 278 ITR 165, HE 5 ITA NO.4028/MUM/2010 SUBMITTED THAT WHILE CONSIDERING THE APPLICATION U NDER 12A, WHAT IS REQUIRED TO BE ESTABLISHED IS THAT THE TRUST OR INSTITUTION IS A CHARITABLE ONE HAVING CHARITABLE PURPOSES. CIT HAVING REJECTED PETITIONS APPLICATIO N U/S 12A IN VIEW OF CERTAIN CLAUSES IN THE PREAMBLE WITHOUT GIVING DUE WEIGHTAG E TO THE IMPACT OF OTHER CLAUSES, THE ORDER WAS SET ASIDE BY THE HONLBLE HI GH COURT AND IT WAS DIRECTED TO THE CIT TO PASS A FRESH ORDER IN ACCORDANCE WITH LAW. 5.2 REFERRING TO THE DECISION OF THE HONBLE SUPREM E COURT IN THE CASE OF CIT VS KAMLA TOWN TRUST REPORTED IN 217 ITR 699(SC), HE SUBMITTED THAT TO FIND OUT WHETHER THE TRUST IS A CHARITABLE ONE, ONE HAS TO G O BY THE EXPRESS WORDS EMPLOYED IN THE DEED. 5.3 REFERRING TO CLAUSE 201 AT PAGE 31 OF THE PAPER BOOK, HE SUBMITTED THAT THE CLAUSE CONTAINS THE GRANT OF ADVANCE/GRANT OF L OAN WITH OR WITHOUT SECURITY TO SPOUSE/PARENTS OR OTHER PERSONS AS MENTIONED THEREI N FOR ACQUIRING/BUYING/CONSTRUCTING APARTMENT/DWELLING UN IT/FLAT/HOUSE/RESIDENCE AT THE DISCRETION OF THE TRUSTEE DURING THE NATURAL CA LAMITY. HE SUBMITTED THAT THIS ASPECT WAS COMPLETELY IGNORED BY THE DIT (EXEMPTION ). HE SUBMITTED THAT NONE OF THE CLAUSES OF THE TRUST DEED CONTAINS ANY PROVI SION WHICH IS COLLUSIVE WITH THE POLICIES ADOPTED BY THE GOVERNMENT. THEREFORE, DIT (EXEMPTION) WAS NOT JUSTIFIED IN REJECTING THE REGISTRATION U/S 12A OF THE I T ACT. 5.4 THE LD COUNSEL FOR THE ASSESSEE, FURTHER SUBMIT TED THAT THE COACHING CLASSES ARE ON COOPERATIVE BASIS AND THERE IS NO PR OFIT MOTIVE AND NO ELEMENT OF 6 ITA NO.4028/MUM/2010 PROFIT. THEREFORE, THE DECISION RELIED UPON BY THE DIT(EXEMPTION) IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. 5.5 THE LD DR, ON THE OTHER HAND, SUBMITTED THAT TH E OBJECTS OF THE TRUST ARE AGAINST THE POLICIES OF THE GOVERNMENT. REFERRING TO CLAUSE 76 OF THE TRUST DEED, HE SUBMITTED THE SAME IS DIRECTLY IN CONFRONTATION WITH THE POLICIES OF THE GOVERNMENT. HE SUBMITTED THAT THE ASSESSEE, IN TH E GUISE OF GIVING COACHING CLASSES IS HAVING COMMERCIAL OBJECTS, WHICH ARE NON -CHARITABLE AND IS HIT BY THE PROVISO TO SEC. 2(15) OF THE ACT IN VIEW OF THE DEC ISION OF THE HONBLE SUPREME COURT IN THE CASE OF YOGIRAJ CHARITABLE TRUST (SUPR A) RELIED ON BY THE DIT(EXMP). THEREFORE, THE ORDER OF THE DIT (EXEMPTION) REFUSIN G GRANT OF REGISTRATION U/S 12A IS JUSTIFIED. 6 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BOTH THE PARTIES, PERUSED THE ORDER OF THE ASSESSING OFFICER AND DIT( EXEMPTION) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS RELIED UPON BY BOTH THE PARTIES. WE FIND , THE DIT(EXEMPTION) REFUSED THE GRANT OF REGISTRATION OF THE TRUST U/S 12A OF THE I T ACT ON THE GROUND THAT SOME OF THE OBJECTS ARE AGAINST THE POLICIES OF THE GOVERNMENT I.E. AGAINST THE RESERVATION OF BACKWARD CLASSES AND FURTHER, THE AS SESSEE TRUST IS HAVING SOME COMMERCIAL OBJECTS IN THE NATURE OF CONDUCTING COAC HING CLASSES. ACCORDING TO THE LD COUNSEL FOR THE ASSESSEE, THE CLAUSES OF THE TRUST DEED RELATING TO RESERVATION OF BACKWARD CLASSES ACTUALLY HELP THE B ACKWARD CLASSES. FURTHER, THE COACHING CLASSES ARE RUN ON COOPERATIVE BASIS AND T HERE IS NO PROFIT MOTIVE. IN OUR OPINION, CLAUSE 71 & 72 OF THE TRUST DEED, WHIC H ARE ALREADY REPRODUCED AT 7 ITA NO.4028/MUM/2010 PARA 2 OF THIS ORDER CONTAIN ENDEAVOUR TO EVALUATE THE BENEFITS AND DETRIMENTAL EFFECT OF THE PROVISION OF RESERVATION FOR THE BACK WARD CLASSES ON THE BASIS OF CASTE AND SOCIAL AND ECONOMIC BACKWARDNESS AND TO U NDERTAKE INVESTIGATION, RESEARCH AND SURVEY AND TO TAKE ACTION FOR ULTIMATE TOTAL ABOLITION OF THE RESERVATION POLICY IN A TIME BOUND PROGRAMME WITH C OOPERATION OF THE BENEFICIARIES. THIS, IN OUR OPINION, CANNOT BE CON STRUED AS A DIRECT CONFRONTATION WITH THE GOVERNMENT. OURS, BEING A DEMOCRATIC COUNT RY, THE DEBATES/DISCUSSIONS, SEMINARS, RESEARCH ETC., CANNO T BE SHUTDOWN. THEREFORE, WE DO NOT FIND ANY MERIT IN THE LOGIC GIVEN BY THE DIT (EXEMPTION) THAT THE MOTIVE OF THE TRUST GOES AGAINST POLICIES OF THE GOVERNMENT. MERELY BECAUSE SOME OF THE CLAUSES OF THE TRUST DEED PROVIDE FOR EVALUATION OF THE BENEFITS OF RESERVATION AND TO UNDERTAKE SOME RESEARCH AND SURVEY FOR UL TIMATE ABOLITION OF THE RESERVATION POLICY IN A TIME BOUND PROGRAMME WITH COOPERATION OF THE BENEFICIARIES; THE SAME IN OUR OPINION CANNOT BE T REATED AS AGAINST RESERVATION OF BACKWARDS AND THEREBY AGAINST THE POLICY OF TH E GOVERNMENT OR CONFRONTATION WITH THE POLICIES OF THE GOVERNMENT. 7 SO FAR AS OTHER OBJECT OF THE DIT (EXEMPTION) TH AT THE ASSESSEE TRUST BY CONDUCTING COACHING CLASSES IS INDULGING IN COMMERC IAL ACTIVITY, WE FIND MERIT IN THE SUBMISSION OF THE LD COUNSEL FOR THE ASSESSEE T HAT THE SAME IS ON COOPERATIVE BASIS AND NO PROFIT ELEMENT IS INVOLVED. WE FIND C LAUSE 94 OF THE TRUST DEED READS AS UNDER: TO STRIVE AND WORK FOR COMMENCING COACHING CLASSES TO BE RUN AND MANAGED BY THE MOST POPULAR TEACHERS/PROFESSOR/LECT URERS OF THE SAME SCHOOLS/COLLEGES ON COOPERATIVE BASIS I.E. THE INCO ME THAT MAY ACCRUE FROM SUCH CLASSES MAY BE SHARED EQUALLY BY THE STUD ENTS, TEACHING FACULTY AND THE MANAGEMENT. 8 ITA NO.4028/MUM/2010 FROM THE ABOVE, IT CANNOT BE SAID THAT THE TRUST IS HAVING PROFIT MOTIVE BY CARRYING ON TRADE, COMMERCE OR BUSINESS. WHILE COND UCTING COACHING CLASSES THERE MAY BE SOME SURPLUS WHICH IS TO BE SHARED EQU ALLY BY THE STUDENTS, TEACHING FACULTY AND THE MANAGEMENT AS PER THE TRUS T DEED. THEREFORE, THIS IN OUR OPINION CANNOT BE A GROUND FOR DENYING REGISTRA TION U/S 12A OF THE I T ACT. 8 CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE , WE ARE OF THE OPINION THAT THE LD DIT (EXEMPTION) HAS NOT GIVEN DUE WEIGHTAGE TO THE VARIOUS CLAUSES OF THE TRUST DEED IN ITS PROPER PERSPECTIVE AND REUSED GRA NT OF REGISTRATION U/S 12A OF THE I T ACT. THIS IN OUR OPINION IS NOT JUSTIFIED. WE, THEREFORE, DIRECT HIM TO GRANT REGISTRATION U/S 12A OF THE I T ACT TO THE APPELLAN T TRUST. THE GROUNDS RAISED BY THE ASSESSEE ARE ACCORDINGLY ALLOWED. 9 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE I S ALLOWED. ORDER PRONOUNCED ON THE 8 TH DAY OF APRIL 2011. SD/- SD/- ( (( ( R V EASWAR R V EASWAR R V EASWAR R V EASWAR ) )) ) PRESIDENT ( (( ( R K PANDA R K PANDA R K PANDA R K PANDA ) )) ) ACCOUNTANT MEMBER PLACE: MUMBAI : DATED: 8 TH APRIL 2011 RAJ* 9 ITA NO.4028/MUM/2010 COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI 1 DRAFT DICTATED ON 28 MAR 11 SR PS 2 DRAFT PLACED BEFORE AUTHOR ON 29 MAR 11 SR PS 3 DRAFT PROPOSED & PLACE BEFORE THE 2 ND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY 2 ND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR PS SR.PS 6 KEPT FOR PRONOUNCEMENT ON SR PS 7 FILE SENT TO THE BENCH CLERK SR PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE ON WHICH FILE GOES TO THE AR 10 DATE OF DESPATCH SR PS