Hari On Education & Charitable Trust, V. The Commissioner of Income Tax, Rajkot-1, RAJKOT-GUJARAT

ITA 476/RJT/2013

• Counselvise Citation: 47624914 RSA 2013
• Duration Of Justice: 3 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 13-02-2014
• Assessment Year: misc
• Appeal Filed On: 04-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M L MEENA
• Assessee Lawyers: J C RANPURA
• Keywords: Charitable institution
• Section: 6; 11; 12A; 12AA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBULAL, SMC BENCH, RAJKOT BEFORE SHRI T. K. SHARMA, JM ITA NO. 476/RJT/2013 ASSESSMENT YEAR : 2012-13 HARI OM EDUCATION & CHARITABLE TRUST, AT. THORADI, TAL. KOTDA SANGANI, DIST. RAJKOT PAN : AAATH 9760 N ( / APPELLANT) THE COMMISSIONER OF INCOME-TAX-I RAJKOT / RESPONDENT / ASSESSEE BY SHRI J.C. RANPURA, CA / REVENUE BY SHRI M. L. MEENA, DR / DATE OF HEARING 13.02.2014 !'# / DATE OF PRONOUNCEMENT 28.03.2014 / ORDER THIS APPEAL BY THE ASSESSEE-TRUST IS AGAINST THE OR DER DATED 27.09.2013 OF COMMISSIONER OF INCOME-TAX, RAJKOT-I, RAJKOT REJECT ING THE APPLICATION OF ASSESSEE- TRUST FOR REGISTRATION U/S 12A OF THE INCOME-TAX AC T, 1961. 2. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE-TRUST MADE AN APPLICATION FOR REGISTRATION U/S 12A ON 30.03.2013 IN FORM NO.10A. IN THE IMPUGNED ORDER, LD. CIT REJECTED THE APPLICATION OF THE ASSESSEE-TRUST FOR REGISTRATION U/S 12A ON THE GROUND THAT THE INSTRUMENT CREATING TRUST EMPOWERS THE TRU STEES TO RUN VARIOUS KIND OF INDUSTRIES, PRODUCTION UNITS AND THE SELLING CENTER S AS WELL AS TO ORGANIZE PRIZE PROGRAMMES AND CULTURAL EVENTS TO EARN PROFIT; THER EFORE, SUCH OBJECTS CANNOT BE TERMED AS CHARITABLE BUT ARE OF COMMERCIAL NATURE. AGGRIEVED WITH THIS ORDER OF LD. CIT, THE ASSESSEE-TRUST IS NOW IN APPEAL BEFORE THI S TRIBUNAL, ON THE FOLLOWING GROUNDS:- THE LEARNED COMMISSIONER OF INCOME TAX I, RAJKOT [HEREINAFTER REFERRED TO AS THE CIT] ERRED ON FACTS AS ALSO IN LAW IN REJE CTING THE APPLICATION FOR REGISTRATION U/S 12A(A) OF THE INCOME-TAX ACT, 1961 ON THE ALLEGED GROUNDS THAT THE OBJECTS AS PER CLAUSES 3(5) & 3(12) OF THE MEMO RANDUM OF ASSOCIATION AND 13 OF ARTICLES OF ASSOCIATION CANNOT BE TERMED AS CHARITABLE BUT THE SAME ARE OF COMMERCIAL NATURE. 3. AT THE TIME OF HEARING BEFORE THE TRIBUNAL, ON B EHALF OF THE ASSESSEE, SHRI J.C. RANPURA, CA, APPEARED AND POINTED OUT THAT RELEVANT OBJECT CLAUSES 3(5) AND 3(12) OF THE MEMORANDUM OF ASSOCIATION READ AS UNDER:- 2 476-RJT-2013 - HARI OM EDUCATION & CHARITABLE TRUST (SMC) CLAUSE 3(5) THE TRUST SHALL PUBLISH NEWSPAPERS, MAGAZINES, AND OTHER DAILY, WEEKLY, MONTHLY PUBLICATION AND ARRANGE LECTURES TO SPREAD KNOWLEDGE IN THE SOCIETY. CLAUSE 3(12) TO REMOVE UNEMPLOYMENT AND LET THE YOUTH TO LIVE WI TH RESPECT AND SELF CONFIDENCE, THE TRUST SHALL RUN SMALL SCALE INDUSTR IES, HANDICRAFT, COTTAGE INDUSTRIES, KHADI UDHYOG PRODUCTION UNITS, SELLING CENTERS, OIL AND OTHER INDUSTRIES, AMBER CHARKHA & VELDI CENTRES, SILK PRO DUCING CENTRES, AND TO DO ANCILLARY ACTIVITIES. BESIDES IT WILL HELP UNEMPLOY ED TO GET LOANS, GRANT RELIEF SUBSIDY & OTHER FACILITIES FROM GOVERNMENT. IN ALLEGING THE ABOVE ACTIVITIES ARE OF COMMERCIAL NATURE, THE LD. CIT COMPLETELY DISREGARDED OF TRITE LAW THAT PROFIT MAK ING SHOULD NOT BE IN ACCOMPLISHING OR CARRYING OUT THE OBJECTS BUT SHOULD BE FOR THE P URPOSE OF THE TRUST OR THE OBJECTS OF THE TRUST AND IF THE OBJECT IS WITHOUT AN ACTIVITY OF MAKING PROFIT, THE TRUST DOES NOT CEASE TO BE A CHARITY MERELY BECAUSE IT MAKES PROFI T AND IS INVOLVED IN AN ACTIVITY OF PROFIT IN ACCOMPLISHING OR CARRYING OUT THE OBJECTS . IN OTHER WORDS, PROFIT MAKING IS NOT PROHIBITED IF IT SUB-SERVES THE CHARITY. IN SUPPORT OF THIS, HE RELIED UPON THE DECISION OF ITAT SMC BENCH IN THE CASE OF ROGI KALYAN SAMITI V. CIT (COPY ATTACHED AT PAGE 5 TO 9 OF THE PAPER BOOK); WHEREIN IT WAS HELD THAT W HILE CONSIDERING APPLICATION U/S 12A(AA) OF THE ACT, SECTION 12AA DOES NOT SPEAK ANY WHERE THAT THE CIT, WHILE CONSIDERING THE APPLICATION FOR REGISTRATION, SHALL ALSO SEE THAT INCOME DERIVED BY THE TRUST OR THE INSTITUTION IS EITHER NOT BEING SPENT FOR CHARITABLE PURPOSE OR SUCH INSTITUTION IS EARNING PROFIT. HE POINTED OUT THAT TO FALL AN INSTITUTION IN THE FOURTH AND LAST CATEGORY OF CHARITABLE PURPOSE, FULFILLMENT OF TWO CONDITIONS IS NECESSARY VIZ. (1) THE PURPOSE OF THE TRUST MUST BE ADVANCEMENT OF AN OBJECT OF GENERAL PUBLIC UTILITY AND (2) THAT PURPOSE MUST NOT INVOLVE THE CARRYING ON ANY ACTIVITY FOR PROFIT. 3.1 CONTINUING HIS ARGUMENT, LD. COUNSEL OF THE ASS ESSEE POINTED OUT THAT IN THE PRESENT CASE THERE IS NO SERIOUS DISPUTE ABOUT THE FULFILLMENT OF FIRST CONDITION I.E., THE PURPOSE OF THE TRUST WAS THE ADVANCEMENT OF AN OBJE CT OF GENERAL PUBLIC UTILITY, VIZ., PUBLISHING NEWSPAPERS AND MAGAZINES FOR SPREADING K NOWLEDGE IN THE SOCIETY AND SECURING THE ENDS OF SOCIAL JUSTICE, LIBERTY OF THO UGHT, EXPRESSION, BELIEF, FAITH AND WORSHIP, THE EQUALITY OF STATUS AND OF OPPORTUNITY, TO PROMOTE AMONG ALL FRATERNITY ASSURING THE DIGNITY OF THE INDIVIDUAL. IT WAS TOWA RDS THAT END THE APPELLANT TRUST IS PUBLISHING THE NEWSPAPER, JOURNALS, MAGAZINES, PERI ODICALS, ETC. WITH REGARD TO THE 3 476-RJT-2013 - HARI OM EDUCATION & CHARITABLE TRUST (SMC) SECOND CONDITION, THE LD. COUNSEL OF THE ASSESSEE P OINTED OUT THAT FOR CARRYING ON OF AN ACTIVITY FOR PROFIT AS SUCH IS NOT PROHIBITED, I F IT IS ARISING OUT OF A BUSINESS HELD UNDER THE TRUST OR LEGAL OBLIGATION FOR APPLYING IT S INCOME ONLY FOR THE PURPOSE OF ITS OBJECTS I.E. EDUCATIONAL AND CHARITABLE PURPOSE OR WAS CARRIED ON FOR THE PURPOSE OF EARNING PROFIT TO BE UTILIZED EXCLUSIVELY FOR FEEDI NG THE CHARITY. SUB-SECTION (4) OF SECTION 11 PROVIDES THAT THE PROPERTY HELD UNDER TR UST INCLUDES A BUSINESS UNDERTAKING. TO SUM-UP, LD. COUNSEL OF THE ASSESS EE POINTED OUT THAT NOW IT IS WELL SETTLED THAT THE TEST IS WHAT IS THE PREDOMINANT OB JECT OF THE ACTIVITY? IF THE PREDOMINANT OBJECT IS TO CARRY OUT AN EDUCATIONAL A ND CHARITABLE PURPOSE AND NOT TO EARN PROFIT, THE PURPOSE WOULD NOT LOSS ITS CHARITA BLE CHARACTER MERELY BECAUSE SOME PROFIT ARISES FROM THE ACTIVITY. 3.2 THE LD. COUNSEL OF THE ASSESSEE ALSO PRODUCED E NGLISH TRANSLATION OF MOA AND AOI AND POINTED OUT THAT IT IS CLEAR THAT THE O BJECT OF PUBLICATION OF NEWSPAPER, MAGAZINES ARE ANCILLARY TO MAIN OBJECTS OF DEVELOPM ENT OF ECONOMICALLY BACKWARD CLASS AND OTHER COMMUNITY BY INCREASING EDUCATION L EVEL AND SPREADING AWARENESS AND FOR ONLY REASON THAT ANY SURPLUS IS LEFT AFTER MEETING ALL EXPENDITURE, THE APPELLANT CANNOT BE DENIED FOR REGISTRATION U/S 12A. THE LD. CIT MISREAD CLAUSE 13 OF THE ARTICLES OF ASSOCIATION, WHICH STIPULATES REGARDING WORKING COMMITTEES POWER FOR MANAGING FUNDS. THIS CLAUSE NOWHERE PRESCRIBES THE ACTIVITIES TO BE CARRIED OUT BY THE APPELLANT TRUST. 3.3 WITH REGARD TO SURPLUS, THE LD. COUNSEL OF THE ASSESSEE POINTED OUT THAT ASSESSEE-TRUST MIGHT HAVE LEFT WITH NOMINAL SURPLUS WHICH IS ONLY FOR THE PURPOSE OF MEETING ITS OBJECTS AND FOR THAT REASON ONLY, THE T RUST SHOULD NOT BE DEPRIVED OF BENEFIT OTHERWISE AVAILABLE TO IT. IN SUPPORT OF TH IS PROPOSITION, HE PLACED RELIANCE ON THE DECISION OF THE HONBLE HIGH COURT OF DELHI IN THE CASE OF GS1 V. DGIT (EXEM.) [2013] 38 TAXMANN.COM 364, WHEREIN THE HONBLE HIGH COURT HELD THAT CHARGING A NOMINAL FEES BY ASSESSEE-SOCIETY FROM BENEFICIARIES TO USE CODING SYSTEM AND TO AVAIL ADVANTAGES AND BENEFITS THEREIN WAS NEITHE R REFLECTIVE OF BUSINESS APTITUDE NOR INDICATIVE OF PROFIT ORIENTED INTENT A ND THUS ASSESSEE COULD NOT BE DENIED REGISTRATION UNDER SECTION 10(23C)(IV) ON GR OUND THAT ACTIVITY OF 4 476-RJT-2013 - HARI OM EDUCATION & CHARITABLE TRUST (SMC) ASSESSEE WAS IN NATURE OF TRADE, COMMERCE OR BUSINE SS. RELIANCE IS ALSO PLACED ON THE DECISION OF HONBLE ALLAHABAD HIGH CO URT I THE CASE OF CIT V. LUCKNOW DEVELOPMENT AUTHORITY [2013] 86 CCH 052, WHEREIN IT WAS HELD THAT WHERE NO MATERIAL WAS BROUGHT ON RECORD TO SUGGEST THAT ASSE SSEE-DEVELOPMENT AUTHORITY WAS CONDUCTING ITS AFFAIRS ON COMMERCIAL LINES WITH MOTIVE TO EARN PROFIT OR HAD DEVIATED FROM ITS OBJECTS AS DETAILED IN TRUST DEED, PROVISO TO SECTION 2(15) WAS NOT APPLICABLE AND ASSESSEE WAS E NTITLED TO EXEMPTION PROVIDED UNDER SECTION 11. FURTHER RELIANCE IS ALSO PLACED ON DECISION OF HON BLE MADRAS HIGH COURT IN THE CASE OF DIT V. VALLAL M.D. SESHADRI TRUST [2011] 79 CCH 443, WHEREIN IT WAS HELD THAT THE TERM CHARITABLE UNDER SECTION 2(15) INCLUDES EDUCATION, WHICH CONNOTES THE PROCESS OF TRAINING AND DEVELOPING THE KNOWLEDGE, SKILL, MIND AND CHARACTER OF STUDENTS BY NORMAL SCHOOLING. FINALLY, RELIANCE IS ALSO PLACED ON THE ANOTHER DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF DIT (EXEMPTION) V. CHARTERED ACCOUNTANTS ST UDY CIRCLE, 343 ITR 321; WHEREIN IT WAS HELD THAT ACTIVITIES OF TRUST IN PUBLISHING AND SELLING BOOK S OF PROFESSIONAL INTEREST MEANT TO BE USED AS A REFEREN CE MATERIAL BY THE GENERAL PUBLIC AS WELL AS BY THE PROFESSIONALS IN RESPECT O F BANK AUDIT, TAX AUDIT, ETC. CANNOT BE CONSTRUED TO BE ONE OF COMMERCE IN NATURE . 3.4 ON THE BASIS OF AFORESAID DECISIONS, THE LD. CO UNSEL OF THE ASSESSEE PLEADED THAT LD. CIT BE DIRECTED TO ACCEPT THE APPLICATION U/S 12AA OF THE INCOME-TAX ACT AND GRANT THE REGISTRATION AS REQUESTED. 4. ON THE OTHER HAND, DR. M.L. MEENA, DR, APPEARED FOR THE REVENUE, VEHEMENTLY SUPPORTED THE ORDER OF LD. CIT, RAJKOT-I , RAJKOT REJECTING THE APPLICATION FOR REGISTRATION U/S 12A(A) OF THE INCOME-TAX ACT O N THE GROUND THAT OBJECTS AS PER CLAUSE 3(5) AND 3(12) OF THE MEMORANDUM OF ASSOCIAT ION AND 13 OF ARTICLES OF ASSOCIATION CANNOT BE TERMED AS CHARITABLE BECAUSE THEY ARE COMMERCIAL IN NATURE. ACCORDING TO HIM, THE FACTS MENTIONED IN CLAUSE 3(5 ) REGARDING PUBLISHING NEWSPAPERS, MAGAZINES, OTHER LITERATURES ETC. AND C LAUSE 3(12) RUNNING SMALL SCALE INDUSTRIES, HANDICRAFTS, COLLEGE INDUSTRY, KHADI UD YOG, SELLING CENTRES, OIL AND OTHER INDUSTRIES LIKE SILK PRODUCING CENTRE, ORGANIZING T HE CULTURAL EVENTS AND VARIOUS PRIZE 5 476-RJT-2013 - HARI OM EDUCATION & CHARITABLE TRUST (SMC) PROGRAMMES ETC. ARE ABSOLUTE COMMERCIAL ACTIVITIES FOR THE TRUST TO EARN PROFITS. LD. DR ALSO DREW THE ATTENTION TO THE PROVISIONS CONTAI NED IN SECTION 2(15) AND POINTED OUT THAT WORD EDUCATION USED IN SECTION IS IN THE SENSE OF SYSTEMATIC INSTRUCTION, SCHOOLING OR TRAINING AND NOT IN THE WIDE AND EXTEN DED SENSE ACCORDING TO WHICH EVERY ACQUISITION OF FURTHER KNOWLEDGE CONSTITUTES EDUCATION. THUS, PUBLISHING NEWSPAPER, MAGAZINES, OTHER LITERATURES ETC. IS NOT EDUCATION. IN THIS REGARD, HE PLACED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF SOLE TRUSTEE, LOKA SHIKSHANA TRUST V. CIT, 101 ITR 234. HE ALSO PLACED RELIANCE ON THE DECISION OF ITAT, CHENNAI BENCH IN THE CASE OF RAJA H SIR AANNAMALAI CHETTIAR FOUNDATION V. DIT (EXEM), 10 ITR (TRIB.) 424 AND DE CISION OF HONBLE UTTARAKHAND HIGH COURT IN THE CASE OF CIT V. NATIONAL INSTITUTE OF AERONAUTICAL ENGINEERING EDUCATIONAL SOCIETY (UTTARAKHAND) 315 ITR 428. 4.1 ON THE BASIS OF AFORESAID SUBMISSIONS, LD. DR P LEADED THAT OBJECTS OF THE ASSESSEE-TRUST ARE NOT FOUND TO BE OF CHARITABLE NA TURE AND NOT FOR GENERAL PUBLIC UTILITY, THUS THE TRUST HAS NOT FULFILLED THE CONDI TIONS LAID DOWN FOR REGISTRATION U/S 12A(A) OF THE INCOME-TAX ACT, 1961; THEREFORE, THE ORDER OF LD. CIT, RAJKOT-I, RAJKOT REJECTING THE APPLICATION OF THE ASSESSEE-TRUST FOR REGISTRATION U/S 12A BE UPHELD. 5. I HAVE CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND MATERIAL PLACED BEFORE ME IN THE PAPER BOOK. FROM THE PERUS AL OF THE OBJECT OF THE TRUST, IT CAN BE SEEN THAT THESE ARE OF CHARITABLE IN NATURE. IN SUPPORT OF THIS, RELIANCE IS PLACED ON THE JUDGEMENT OF HONBLE MADRAS HIGH COURT IN THE C ASE OF DIT VS. VALLAL M D SESHADRI TRUST (2011) 79 CCH 443, WHEREIN IT WAS HE LD THAT THE TERM CHARITABLE U/S 2(15) INCLUDES EDUCATION, WHICH CONNOTES THE PROCESS OF TRAINING AND DEVELOPING THE KNOWLEDGE, SKILL, MIND AND CHARACTER OF STUDENTS BY NORMAL SCHOOLING. SIMILARLY, IN ANOTHER JUDGEMENT OF HONBLE MADRAS HIGH COURT IN THE CASE OF DIT (EXEMPTION) VS. CHARTERED ACCOUNTANTS S TUDY CIRCLE, 343 ITR 321, IT WAS HELD THAT ACTIVITIES OF TRUST IN PUBLISHING AND SELLING BOOK S OF PROFESSIONAL INTEREST MEANT TO BE USED AS A REFERENCE MATERIAL B Y THE GENERAL PUBLIC AS WELL AS BY THE PROFESSIONAL IN RESPECT OF BANK AUDIT, TA X AUDIT, ETC. CANNOT BE CONSTRUED TO BE ONE OF COMMERCE IN NATURE. IN THE IMPUGNED ORDER, THE LD. COMMISSIONER OF INCOME-TAX, RAJKOT-I, RAJKOT REFUSE D TO GRANT THE REGISTRATION U/S 6 476-RJT-2013 - HARI OM EDUCATION & CHARITABLE TRUST (SMC) 12A SOLELY ON THE GROUND THAT THE ASSESSEE-TRUST IS EARNING PROFIT FROM ORGANIZING THE CULTURAL EVENTS AND VARIOUS KIND OF PRIZE PROGRAMME S ETC. ONCE IT IS FILED THAT THE OBJECTS OF THE TRUST ARE OF CHARITABLE IN NATURE, T HEN WHILE CARRYING OUT SUCH CHARITABLE ACTIVITY, IF THE TRUST IS LEFT WITH NOMINAL SURPLUS WHICH IS ALSO FOR THE PURPOSE OF MEETING ITS OBJECTS AND FOR THAT REASON ONLY, THE T RUST SHOULD NOT BE DEPRIVED OF BENEFIT OTHERWISE AVAILABLE TO IT, AS HELD BY HONB LE DELHI HIGH COURT IN THE CASE OF GS1 VS. DGIT (EXEM.), [2013] 38 TAXMANN.COM 364. I N THIS ORDER, HONBLE DELHI HIGH COURT HELD THAT CHARGING A NOMINAL FEES BY ASSESSEE-SOCIETY FROM BENEFICIARIES TO USE CODING SYSTEM AND TO AVAIL ADV ANTAGES AND BENEFITS THEREIN WAS NEITHER REFLECTIVE OF BUSINESS APTITUDE NOR INDICATIVE OF PROFIT ORIENTED INTENT AND THUS ASSESSEE COULD NOT BE DENI ED REGISTRATION UNDER SECTION 10(23C)(IV) ON GROUND THAT ACTIVITY OF ASSE SSEE WAS IN NATURE OF TRADE, COMMERCE OR BUSINESS. THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF C IT VS. LUCKNOW DEVELOPMENT AUTHORITY, [2013] 86 CCH 052, H ELD THAT WHERE NO MATERIAL WAS BROUGHT ON RECORD TO SUGGEST THAT ASSESSEE-DEVE LOPMENT AUTHORITY WAS CONDUCTING ITS AFFAIRS ON COMMERCIAL LINES WITH MOT IVE TO EARN PROFIT OR HAD DEVIATED FROM ITS OBJECTS AS DETAILED IN TRUST DEED, PROVISO TO SECTION 2(15) WAS NOT APPLICABLE AND ASSESSEE WAS ENTITLED TO EXEMPTION PROVIDED UND ER SECTION 11. KEEPING IN VIEW THE RATIO OF AFORESAID DECISIONS, I AM OF THE VIEW THAT THE OBJECTS OF THE TRUST ARE CHARITABLE IN NATURE. THEREFORE, SOLELY ON THE GRO UND THAT WHILE CARRYING OUT SUCH CHARITABLE ACTIVITIES THE ASSESSEE TRUST EARNS NOMI NAL INCOME WHICH TOO ALSO APPLIED FOR THE PURPOSE OF MEETING ITS OBJECTS, IT CANNOT B E DEPRIVED OF BENEFIT OTHERWISE AVAILABLE TO IT. I, THEREFORE, DIRECT THE LD. COMM ISSIONER OF INCOME-TAX, RAJKOT-I, RAJKOT TO GRANT THE REGISTRATION U/S 12A OF THE INC OME-TAX ACT, 1961. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . THIS ORDER PRONOUNCED IN OPEN COURT ON THE DATE MEN TIONED HEREINABOVE. SD/- ( $.. &' / T. K. SHARMA) ( ) /JUDICIAL MEMBER *)& +) ,/ ORDER DATE: 28.03.2014 !$ /RAJKOT *BT 7 476-RJT-2013 - HARI OM EDUCATION & CHARITABLE TRUST (SMC) / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT- HARI OM EDUCATION & CHARITABLE TRUST, AT. THORADI, DIST. RAJKOT 2. / RESPONDENT- THE COMMISSIONER OF INCOME-TAX, RAJK OT-I, RAJKOT 3. ,0,1 * * 2 / CONCERNED CIT, RAJKOT 4 . 345 1, * 1#, !$ / DR, ITAT, RAJKOT 5 . 57 89 / GUARD FILE *)& / BY ORDER TRUE COPY PRIVATE SECRETARY, ITAT, RAJKOT